Forex Market Analysis: Monday 15 Jan 2024

Economic data: Markets closed for Martin Luther King, Jr. Day

Earnings: Markets closed for Martin Luther King, Jr. Day

CURRENCIES:

• Event Focus: UK Unemployment and Inflation Data
  • Major event risk from the UK includes upcoming releases of unemployment and inflation data.
• US Market Dynamics: Lower Yields and Rate Cut Forecasts
  • US dollar maintains its trading range despite declining yields and heightened expectations for rate cuts.
  • US 2-year yield experiences a six-day decline, with markets predicting nearly 25 basis point cuts in each meeting from March to November.
  • Note: Potential rate adjustments by the Fed may be limited due to the proximity to the presidential elections.
• US Dollar Basket Performance: Trading within Range
  • The US Dollar Basket, a proxy for USD performance, has been trading within a range for the past two weeks.
  • The significant resistance at the 103.00 level, coupled with the presence of the 200 and 50-day simple moving averages, limits the dollar’s upside potential.
• Challenges for the USD: Declining Yields and Rate Cut Expectations
  • The USD faces challenges such as decreasing yields, a more imminent prospect of rate cuts, and easing price pressures.
• Implied Fed Funds Rate: Market Expectations
  • Market expectations, as reflected in the implied Fed Funds Rate via the Fed Funds Futures Market, indicate anticipation of future rate cuts.
• Inflation Outlook: Despite Slightly Higher CPI Readings
  • Despite slightly higher Consumer Price Index (CPI) readings last month, expectations suggest a continued drop in inflation.
  • USD’s current range-holding is attributed in part to its safe-haven appeal, particularly following joint US and UK strikes on Houthi targets.
• Global Economic Outlook: Chinese Q4 GDP Data
  • Chinese Q4 GDP data is anticipated to provide insights into the global economic outlook.
• Safe Haven Appeal of USD: Influenced by Geopolitical Events
  • USD’s safe-haven appeal is reinforced by geopolitical events, such as joint US and UK strikes on Houthi targets, contributing to its range-holding status.
• Gold Performance: Notable Safe Haven Asset
  • Gold, a significant safe-haven asset, exhibited an increase over the weekend, aligning with USD’s safe-haven appeal.
• Key Levels for USD: Resistance at 103.00
  • The USD faces resistance at the major level of 103.00, with the 200 and 50-day simple moving averages further contributing to this resistance zone.
• Factors Influencing USD Range: Safe Haven Status
  • Despite various challenges, the USD’s ability to maintain its range is influenced by its safe-haven status, particularly in response to recent geopolitical developments.

STOCK MARKET:

• Market Recap and Outlook:
  • Stocks resumed winning streak after a nine-week break to start 2024.
  • Nasdaq Composite led with a 3% gain; S&P 500 approached a record high.
  • Microsoft surpassed Apple as the world’s most valuable company.
• Upcoming Focus:
  • In a holiday-shortened week, attention shifts to financial sector results and Wednesday’s retail sales data.
  • US markets closed Monday for Martin Luther King Jr. Day.
• Retail Sales Forecast:
  • Retail sales expected to rise by 0.4% in December, exceeding the 0.3% gain in November.
  • Bank of America anticipates “robust” retail sales due to applied seasonal adjustments.
• Economic Calendar:
  • Thursday: Initial jobless claims data.
  • Friday: University of Michigan’s consumer sentiment report.
• Geopolitical Events:
  • Monday: Iowa caucuses mark the official start of the 2024 US presidential election.
  • Rising tensions in the Red Sea draw increased investor attention.
• Earnings Reports:
  • Investment banks Goldman Sachs (GS) and Morgan Stanley (MS) set to report.
  • Focus on the investment banking story and the trajectory after a challenging year.
• Inflation Insights:
  • Last week’s inflation data showed firmer consumer prices but moderated producer prices.
  • Red Sea-related disruptions noted as an “upside risk” to inflation forecasts.
• Fed Rate Cut Expectations:
  • Investors price in a 77% chance of a 0.25% Fed rate cut in March.
  • Barclays economists expect incremental cuts starting in March but at a more gradual pace.
• Earnings Season Kickoff:
  • Major money center banks, including JPMorgan, Wells Fargo, Bank of America, and Citi, reported results.
  • JPMorgan reported a nearly $50 billion record annual profit.
• Tech Sector Focus:
  • The financial sector takes the spotlight initially, but the tech sector’s performance will be closely monitored.
  • Forward P/E ratio for the Technology sector stands at 27, second highest among S&P 500 sectors.
• Magnificent Seven and Nasdaq Influence:
  • Results from “Magnificent Seven” tech giants, including Meta Platforms, Alphabet, Amazon, and Tesla, will impact the Nasdaq and overall market sentiment.
  • Negative guidance from tech sector companies above recent averages.
• Sector Valuations:
  • Technology sector’s forward P/E ratio at 27, second only to Real Estate, which traded at 39.
  • Technology’s performance crucial as it accounts for over 28% of the S&P 500’s market cap.
• Fourth Quarter Earnings Season:
  • The tech trade’s impact on overall market direction will be significant as the earnings season progresses.
• Investor Sentiment:
  • The party for fourth-quarter earnings season begins when reports from the “Magnificent Seven” tech giants start rolling in.

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In the fast-paced world of trading, staying vigilant and well-informed is paramount for success. The upcoming week is filled with crucial economic events that traders should closely monitor to navigate the markets effectively. From employment figures in the UK to price trends in Canada and inflation rates worldwide, each data point narrates a compelling story. The canvas of our economic puzzle extends to include US retail sales and Australian employment statistics, offering valuable insights that guide our understanding of the global financial terrain.

UK Claimant Count Change (16 January 2024)

Keep an eye on the UK Claimant Count Change, set to be released on January 16, 2024. After witnessing an increase from 8,900 to 16,000 in November, expectations are that the figure will rise further to 18,100 in the upcoming release.

Canada Monthly Consumer Price Index (16 January 2024)

An additional event in January 16, Canada unveils its Monthly Consumer Price Index (CPI). In November 2023, consumer prices in Canada defied expectations by rising 0.1%, contrary to the anticipated 0.1% decline. However, the December 2023 data, expected to be released on January 16, 2024, forecasts a 0.3% decline in the monthly Consumer Price Index.

UK Annual Consumer Price Index (17 January 2024)

On January 17, 2024, the focus turns to the UK Annual Consumer Price Index. After a slowdown to 3.9% in November 2023 from 4.6% in October, analysts anticipate a further decrease to 3.8% in the December 2023 data.

US Retail Sales (17 January 2024)

Discover the trajectory of US retail sales on January 17. Following an unexpected 0.3% increase in November 2023, the upcoming release is projected to show a further uptick, with an expected growth of 0.4% in December 2023.

Australia Employment Change (18 January 2024)

Turn your attention to Australia on January 18, as the Employment Change data unfolds. After a notable increase of 61,500 in November 2023, the forecast for December 2023 suggests a more modest rise, with expectations set at 18,000.

UK Retail Sales (19 January 2024)

As we approach January 19, anticipation builds for the release of UK Retail Sales data. Despite a robust 1.3% month-over-month growth in November 2023, December 2023 is expected to show a contraction of 0.5%.

US Prelim University of Michigan Consumer Sentiment (19 January 2024)

Closing out the week, all eyes will be on the US preliminary consumer sentiment from the University of Michigan for January 19. Projections indicate a slight dip to 69.6 from the previous month’s 69.7 in December 2023, offering insights into the mood of the American consumer.

FX Daily Analysis: 12 Jan 2024

CURRENCIES:

• The US Dollar gains strength in response to higher-than-expected US inflation data and a decrease in unemployment claims.
• Despite inflation exceeding the target and a robust labor market, the Federal Reserve may hesitate to cut interest rates prematurely.
• The technical analysis in this article focuses on EUR/USD and GBP/USD, examining critical price levels post the US CPI report.
• The DXY index, measuring the US Dollar, rises by 0.3% following the release of the December inflation survey and weekly jobless claims data.
• Headline CPI surprises on the upside, registering 3.4% year-on-year, surpassing the expected 3.2%, while the core gauge comes in at 3.9%.
• Jobless benefits applications hit a three-month low, indicating a resilient labor market and ongoing hiring despite the late business cycle stage.
• With consumer prices above the 2.0% target and a strong labor market, the Fed is unlikely to make significant interest rate cuts, contrary to market expectations.
• Monitoring Fedspeak in the upcoming days and weeks will provide insights into the monetary policy outlook, with a potential shift towards a more hawkish stance favoring yields and the US Dollar.

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STOCK MARKET:

• Banks stocks, coming off their strongest quarter since 2021, are poised for a significant earnings event where top executives will provide insights into the US economy.
• JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. are set to kick off the earnings reporting cycle after US bank stocks gained 23% in the last quarter, outperforming the broader market.
• Bank shares faced pressure in 2023 but surged in late October amid confidence that the Federal Reserve would conclude its rate-hike campaign without causing a recession.
• The focus now shifts to the timing of policy easing, with investors closely examining its implications for various aspects of the banking business, including loan portfolios and deposit rates.
• Analyst Richard Ramsden from Goldman Sachs Group Inc. notes that while banks are not as cheap as before, their valuations are not perceived as stretched.
• Positive outcomes regarding net interest income, loan growth, capital markets, and deposit pricing are expected to contribute to greater earnings and potential outperformance by some banks.
• The KBW Bank Index fell about 1% on Thursday, underperforming the broader market.
• Morgan Stanley and Goldman Sachs’ earnings on Tuesday will be closely watched, along with PNC Financial Services Group’s results, which will serve as a bellwether for regional lenders.
• Big banks are anticipated to report subdued fourth-quarter results due to higher funding costs, with net interest income expected to decline, and elevated expenses and weak trading revenue likely weighing on earnings.
• Companies are also expected to disclose payments to the Federal Deposit Insurance Corp. related to regional bank failures from the previous year.
• The rally in bank shares last quarter was driven by optimism about reduced recession risks and expectations of Fed rate cuts in 2024, alleviating concerns about net interest margins.
• Despite positive momentum, caution is advised, with concerns about the inflation rate remaining above the Fed’s target and potential wild swings in sentiment.
• Hedge funds have been selling the financial sector in the past four weeks, but financial companies are the only sector where the majority of analyst earnings revisions were upward over the past month.
• DWS Group’s David Bianco maintains an overweight position on big banks, including JPMorgan, Bank of America, Citigroup, and Wells Fargo, citing their robust profitability and stable credit.

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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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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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Daily Forex Analysis: 11 Jan 2024

CURRENCIES:

Key Points:

• The December U.S. inflation report, releasing on Thursday, will be a focal point for markets.
• While core CPI is expected to moderate on a year-over-year basis, the headline gauge is predicted to reaccelerate, posing challenges for the Federal Reserve.
• Gold prices, yields, the U.S. dollar, and the Nasdaq 100 are expected to be highly sensitive to the consumer price index data.

Market Overview:

• Wall Street will closely monitor the U.S. Bureau of Labor Statistics‘ consumer price index report on Thursday.
• The data could influence the Federal Reserve’s future monetary policy decisions, including the timing of the first interest rate cut.
• December headline CPI is projected to increase by 0.2% month-over-month, pushing the annual rate to 3.2%, a setback for the Fed aiming for a 2.0% inflation target.
• The core gauge is forecasted to rise by 0.3% month-over-month, with the 12-month reading easing to 3.8% from the previous 4.0%.

Market Response Scenarios:

• Market response will depend on how the inflation figures align with consensus estimates, considering two scenarios: an upside surprise or lower-than-projected numbers.

Potential Outcomes:

• A hot CPI report exceeding forecasts may prompt traders to unwind dovish bets on the Fed’s path, resulting in higher Treasury yields and a stronger U.S. dollar. This could bear negatively on gold, stocks, and indices like the S&P 500 and Nasdaq 100.
• Conversely, a benign report with figures milder than anticipated, especially on core metrics, may validate aggressive wagers on rate reductions in 2024. This scenario could be bullish for gold and risk assets.

Market Dynamics:

• Current market pricing suggests around 130 basis points of easing for the new year. The resilience of the U.S. economy and signs of stabilization may make the FOMC hesitant to significantly cut borrowing costs, adding significance to the December CPI report.

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STOCK MARKET ANALYSIS:

• Focus: Investors seeking clues on Federal Reserve’s interest rate decisions
• Expected Inflation Rates:
  • Annual Headline Inflation: 3.2%
  • Annual Core Inflation: 3.8% (excluding food and energy)
• Importance: Critical for investors, influencing the Fed’s monetary policy and potential interest rate cuts
• Market Expectations:
  • Bank of America expects slightly higher readings than consensus, leaving room for a Fed rate cut in March.
  • Markets currently price in a roughly 67% chance of a Fed rate cut in March.
• Monthly Changes (December):
  • Overall Prices: Expected to increase by 0.2%
  • Core Inflation: Expected to increase by 0.3%
• Key Areas to Watch (Goldman Sachs):
  • Car prices and shelter expected to continue declining.
  • Airfares could pose an upside risk, with a potential 5% increase in December.
• Fed Officials’ Comments:
  • Fed officials, including Governor Michelle Bowman and Atlanta Fed President Raphael Bostic, show a measured approach.
  • Bowman suggests a potential rate cut if inflation falls further, while Bostic emphasizes the need to evolve with the economy.
• Market Reaction Expectations: Wall Street strategists temper expectations for stock reactions, considering an already aggressive rally and potential asymmetric risk in CPI numbers.

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

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