CURRENCIES:

Gold Price Analysis Following US CPI Data

• Gold prices dropped to a two-month low after US CPI data indicated higher inflation than expected, influencing a hawkish view on Federal Reserve interest rate decisions.
• This inflation report led to higher U.S. Treasury yields and strengthened the U.S. dollar, negatively impacting gold prices.
• If inflation doesn’t decrease, the Fed might postpone interest rate cuts, potentially keeping bond yields and the U.S. dollar high for an extended period, further pressuring gold.

Technical Outlook for Gold

• After breaking below $2,005, gold targeted the 50-day simple moving average around $1,990.
• A further decline could see gold heading towards $1,975, with $1,965 as the next significant level to watch.
• Conversely, a price recovery seems unlikely without positive drivers, but if it occurs, resistance is expected near $2,005 and then around the 50-day simple moving average at $2,030.

STOCK MARKET:

Fed’s Response to Inflation Data in 2024

• The recent hot inflation report supports the Federal Reserve’s cautious stance on rate cuts, with officials signaling a need for more time.
• Market expectations have adjusted, now anticipating a nearly 80% chance of a rate cut by June, a delay from earlier predictions of a May start.

Inflation Metrics Exceed Expectations

Fed Officials and Market Reactions

• Fed Chair Jay Powell emphasized the need for continued good data before adjusting monetary policy, indicating a cautious approach to rate cuts.
• Other Fed officials, including those from the Richmond, Boston, and Cleveland Fed, echoed the sentiment for patience, aligning with Powell’s cautious outlook.

Inflation Data’s Impact on Fed Policy

• Despite some positive inflation trends, the Fed is waiting for a full year of data showing a move towards the 2% target, likely marking June as a critical month.
• Investors had initially hoped for an aggressive Fed response with rate cuts as early as March, but recent statements and data have tempered those expectations.

Political and Economic Implications

• The Fed’s cautious stance places it at the center of potential political controversy, especially in an election year, with figures from both political sides ready to critique the timing of rate cuts.
• The focus on shelter prices and services excluding shelter indicates areas of persistent inflation, with the Fed’s preferred inflation measure, the “core” Personal Consumption Expenditures index, showing more improvement in December than CPI.
• The Bureau of Labor Statistics reported a 0.3% monthly and 3.1% annual rise in the Consumer Price Index (CPI) for January, exceeding forecasts.
• Core inflation, excluding food and gas, also rose more than expected, at 0.4% monthly and 3.9% annually, doubling the Fed’s 2% target.

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CURRENCIES:

• US Dollar and CPI Data Release: The U.S. dollar’s movement shows uncertainty as the market awaits the crucial U.S. Consumer Price Index (CPI) data. This report, expected to indicate a slowdown in inflation to 2.9% from 3.4%, is seen as vital for future Federal Reserve policy adjustments.
• Focus on January Inflation: The upcoming inflation data is crucial, with analysts predicting a decrease in headline inflation. This potential decline is awaited as a positive development, suggesting progress in the Federal Reserve’s efforts to control inflation.
• Analysis of Gold, USD/JPY, and GBP/USD: The article provides insights into the expected market movements of gold prices, USD/JPY, and GBP/USD, influenced by the inflation report.
• Market Reaction to Inflation Figures: The market’s response to the CPI will depend significantly on whether the actual data aligns with or deviates from expectations. Core inflation figures will be particularly scrutinized for indications of inflation trends.

Possible Outcomes Post-CPI

• If Inflation Remains High: A higher-than-anticipated inflation rate could push yields and the U.S. dollar higher, negatively affecting gold as it delays potential Fed rate cuts.
• If Inflation Is Lower Than Expected: Conversely, CPI figures lower than expected could decrease bond yields and the U.S. dollar, potentially benefiting gold and other precious metals.

STOCK MARKET:

• Inflation Drop Expected: Inflation is anticipated to fall below 3% for the first time since March 2021, marking a significant deceleration from December’s 3.4%.
• Key CPI Data Release: Investors await the January Consumer Price Index (CPI) report, set for release, predicting a headline inflation of 2.9%.
• Core Inflation Analysis: Core CPI, excluding food and gas, is expected to show a yearly rise of 3.7%, with a monthly increase of 0.3%, indicating a slowdown from December’s figures.
• Factors Influencing Core Inflation: Bank of America notes high shelter prices and volatile categories like used cars as reasons for sticky core inflation, but expects shelter inflation to moderate through the year.
• Federal Reserve’s Interest Rate Decision: Despite inflation remaining above the Fed’s 2% target, expectations for rate cuts are being tempered by Federal Reserve Chair Jerome Powell and other Fed officials, citing the need for more evidence of sustainable inflation reduction towards the 2% goal.
• Market Expectations and Fed’s Strategy: Markets are leaning towards the Federal Reserve keeping rates unchanged in March, with potential cuts anticipated in the following meetings, as the Fed aims to build confidence in its inflation-fighting strategy while balancing risks.

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Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

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As the markets recalibrate from the recent rate and dollar surge, all eyes this week turn to the US CPI and retail sales data for January, potentially marking a pivotal moment for future rate adjustments. With the Federal Reserve’s rate cut expectations pushed further into the year, the upcoming reports on inflation and consumer spending are keenly awaited for clues on the economic trajectory and its impact on currency markets. 

US Economic Outlook: a soft landing? 

The upcoming CPI report for Tuesday is expected to reveal a slight deceleration in inflation, with headline inflation anticipated at 2.9% year-over-year, a decline from December’s 3.4%, while core inflation, excluding volatile food and energy prices, is predicted to slow to 3.7% from 3.9%, largely influenced by decreasing used car prices, indicating a gradual path towards inflation normalization. Additionally, retail sales data set to release on Thursday may indicate a slight contraction, with forecasts suggesting a 0.2% drop, potentially due to subdued auto sales, signaling a modest beginning to the year for consumer spending. Despite this, broader economic indicators such as industrial production project an economy expanding slightly above the Federal Reserve’s long-term sustainable rate. 

Global context: inflation and growth dynamics 

Internationally, the UK’s CPI data and Q4 GDP reports from the UK and Japan will offer additional insights into global inflation trends and economic health. The expected fluctuations in inflation rates, particularly with the anticipated sharp declines in year-over-year comparisons for the UK, eurozone, and Canada, will be critical for currency traders monitoring the global economic pulse. 

Implications for currency markets 

For currency markets, particularly forex traders at VT Markets, these economic indicators are crucial. A softer-than-expected CPI and weak retail sales could cap US rates, potentially halting the dollar’s rally. Moreover, global economic data will provide further context for the forex market, influencing currency pairs and trading strategies. 

As we navigate through these economic releases, traders should remain vigilant, adapting strategies to accommodate the evolving market landscape. The anticipated data not only offers insights into the US economy’s health but also shapes expectations for central bank policies across the globe. 

Stay tuned to VT Markets for real-time analysis and insights on how these developments impact currency markets and trading opportunities. 

Conclusion: a week of economic revelations 

The week ahead promises to be a crucible of economic revelations, with US CPI and retail sales data at the forefront. As we dissect these indicators, their broader implications for interest rate policies, currency markets, and global economic health come into sharper focus. For market participants, these moments are not just about interpreting numbers but about understanding the narratives they weave and the market directions they suggest. In the ever-evolving world of forex trading, such insights are invaluable, guiding strategies in a landscape where precision and foresight are paramount. 

CURRENCIES:

• Gold Price Trends: Gold prices declined due to an increase in U.S. Treasury yields and a stronger U.S. dollar.
• Currency Market Movements: The EUR/USD and GBP/USD experienced slight drops but remained above critical technical levels.
• Anticipation of U.S. Inflation Data: The upcoming U.S. inflation report is expected to significantly influence market volatility in the following week.
• Stock Market Performance: Despite the pressure from rising bond yields, U.S. stocks, including the S&P 500 and Nasdaq 100, achieved record highs.
• U.S. Dollar Strength: The U.S. dollar has been on an upward trend for four weeks, affecting currency pairs like EUR/USD, GBP/USD, and leading to a notable rally in USD/JPY.
• Potential Market Reactions to CPI Report: The January inflation data release could lead to substantial market fluctuations, with traders advised to brace for potential sharp price movements.
• Impact of Inflation on Markets: An inflation rate exceeding expectations could boost U.S. yields and the dollar but negatively affect stocks and gold. Conversely, lower-than-expected inflation figures might decrease yields, weaken the dollar, and support equities and gold prices in the short term.

STOCK MARKET:

• Economic data: New York Fed one-year inflation expectations, January (3.01% previously)
• Earnings: Avis Budget Group (CAR), Monday.com (MNDY), Waste Management (WM), Zoominfo Technologies (ZI)
• Key Market Indicators: Inflation, retail sales, and corporate earnings are pivotal factors for the market this week.
• S&P 500 Milestone: The S&P 500 surpassed the 5,000 mark for the first time, continuing a positive trend seen in recent weeks.
• Corporate Earnings Reports: About 15% of S&P 500 companies, including John Deere, Coinbase, Airbnb, and Shopify, are scheduled to report their earnings.
• Inflation Expectations: The Consumer Price Index (CPI) for January is anticipated, with an expected annual gain of 2.9%, signaling a decrease from December’s 3.4%.
• Core Inflation Forecast: Excluding food and energy, core inflation is projected to have risen by 3.7% year-over-year, with a monthly increase of 0.3%.
• Consumer Spending Outlook: January’s retail sales report is awaited, with an expected 0.2% decline from the previous month, influenced by seasonal factors and weather disruptions.
• Automotive Industry Earnings: Stellantis is set to report its earnings, with attention on its performance and electric vehicle (EV) strategy following positive surprises from Ford and GM.
• Earnings Performance: So far, 75% of S&P 500 companies have reported earnings, showing a trend towards the second consecutive quarter of earnings growth.
• Analyst Insights: High earnings beat rates among U.S. companies suggest strong market performance, with expectations of continued earnings growth over the next two years.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

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The above data is for reference only, please refer to the MT4/MT5 software for specific data.

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