Last Friday, the Dow Jones surged into another all-time
high following the strong University of Michigan Consumer
Sentiment report as the market continues to see a goldilocks
economy. In fact, the US Jobless Claims have been improving and Retail Sales
surprised to the upside. Moreover, we have the US PCE data on Friday where we
will likely see another soft figure. On the other hand, the strong economic
data is making the market to price out the rate cuts, which might eventually
dent the economic and the stock market performance.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones last
Friday made yet another all-time high following the solid consumer sentiment
report. We can notice though that the price is diverging strongly
with the MACD which is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we might get a fakeout and a drop back into the support around
the 37066 level which would give the buyers a better risk to reward setup.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see more
clearly the divergence with the MACD and the recent rally from the 37066
support zone. We can see that the price is a bit overstretched as depicted by
the distance from the blue 8 moving average. In
such instances, we can generally see a pullback into the moving average or some
consolidation before the next move.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that there’s
not much where the buyers can lean onto given that we are in unexplored
territory. More aggressive buyers might want to step in as soon as the price
pulls back into the previous highs around the 37777 level. More conservative
buyers will want to see the price pulling back all the way to the 37450 level
where they will find the confluence from
the red 21 moving average and the 61.8% Fibonacci
retracement level. The sellers, on the other hand,
will likely pile in at every break lower targeting a break below the 37066
support.

Upcoming Events

This week is a bit more tranquil on the data front with
the major releases scheduled for the final part of the week. We begin on
Wednesday with the US PMIs while on Thursday we will see the Advance US Q4 GDP
and the latest US Jobless Claims figures. Finally, on Friday we conclude the
week with the US PCE report.

This article was written by FL Contributors at www.forexlive.com.

• Growth is outpacing prices needed for virtuous cycle
• Will work on steps to pass on labour costs on to consumers
• Wage hikes at small and medium-sized businesses are essential

Come March and April, it will go without saying that there will be substantial wage hikes from corporates and the bigger Japanese firms. However, what may trouble Japan will be whether or not smaller firms – especially those in less populated regions – will be able to deliver on the same front. If there is to be a growing disparity in the next few cycles, that could grow into more of a problem for Japan in the years to come.

This article was written by Justin Low at www.forexlive.com.

Amid a deluge of news of new protests, rocket launches, and a general
rise in geopolitical tensions, many have forgotten about the pandemic as if it
were a bad dream.

The problem is that it is not out of the question that we will face
another coronavirus in a couple of years, which could again affect the global
financial system, and even BTC ETF approval won’t help.

Given this high-risk factor, researchers have calculated the probability
of a pandemic capable of wiping out all human life, finding it statistically
likely within the next 12,000 years.

Not surprisingly, one of the critical issues discussed at the World
Economic Forum was the threat of a new „Disease X“.
According to WHO projections, it could be 20 times more dangerous than COVID.

What is it?

„Disease X“ is an unknown disease capable of causing a new
pandemic.

Incidentally, preparations for it have been underway since 2018. Had
they not prepared, the likely number of coronavirus victims would have been
higher.

In addition to new strains of COVID-19, there are many dangerous
pathogens and viruses, such as hemorrhagic fevers, Zika virus, Ebola virus, and
so on. And they appear regularly.

In short, it is still being determined which one will force countries to
close borders and reintroduce restrictive measures, but there will be one, and
we must be prepared for that scenario.

How do you prepare for something that has yet to arrive?

Governments, having learned from the bitter experience of coronaviruses,
have realized what measures work to reduce the spread of the virus and ease the
pressure on the health system.

Regarding disease treatments, scientists, in collaboration with
pharmaceutical companies, are constantly researching various viruses to
understand their behavior.

The only catch is that this requires investment and debates about the
emergence of another „Disease X“ will likely contribute to its rise.

So far, however, the shares of Pfizer, Johnson & Johnson, and
AstraZeneca have not reacted much. But things could change quickly if the
epidemiological situation deteriorates instantly.

How can we understand the risk of a new pandemic?

Unfortunately, the average investor does not have many tools to detect
this. It would be best to respond according to the situation, as it is
impossible to be fully prepared for all scenarios.

The only hope is that countries have learned from past experiences so we
can avoid widespread lockdowns and other draconian measures next time.

Still, it may be useful to utilize the volume
indicator to detect a change in market sentiment and thus understand
whether news of another virus discovered is worthy of concern.

This article was written by FL Contributors at www.forexlive.com.

UPCOMING EVENTS:

• Monday: PBoC
  LPR, New Zealand Services PMI.
• Tuesday: BoJ
  Policy Decision, New Zealand CPI.
• Wednesday: Australia/Japan/Eurozone/UK/US
  Flash PMIs, BoC Policy Decision.
• Thursday: ECB
  Policy Decision, US Durable Goods Orders, US Jobless Claims, US Q4 Advance
  GDP.
• Friday: Tokyo
  CPI, US PCE.

Monday

The PBoC is expected to keep the LPR rates
unchanged at 3.45% for the 1-year and 4.20% for the 5-year following the MLF
decision last week. Deflationary forces
remain present, and the Chinese stock market is on a free fall with the general
sentiment being utterly dismal. It will likely require a strong catalyst to
turn things around and aggressive rate cuts might do it, so it’s worth to
keep an eye for eventual surprises.

Tuesday

The BoJ is expected to keep rates
unchanged at -0.10% with the 10-year JGB yield target at 0% with 1% as a
reference cap. The latest Japanese
CPI eased further across all measures and the
Average
Cash Earnings were a big
disappointment. The BoJ will likely reiterate once again that they are
focused on wage growth and the spring wage negotiations and that they will
not hesitate to take additional easing measures if needed.

The New Zealand CPI Y/Y is expected at
4.7% vs. 5.6% prior,
while the Q/Q measure is seen at 0.6% vs. 1.8% prior. The data will have no
bearing on the February rate decision but will certainly influence the
market’s pricing with the first rate cut seen in May.

Wednesday

Wednesday will be the Flash PMIs day with
a particular focus on the Eurozone, UK and US data:

• Eurozone Manufacturing
  PMI 44.8 vs. 44.4 prior.
• Eurozone Services PMI
  49.0 vs. 48.8 prior.
• UK Manufacturing PMI 46.7
  vs. 46.2 prior.
• UK Services PMI 53.5 vs.
  53.4 prior.
• US Manufacturing PMI 48.0
  vs. 47.9 prior.
• US Services PMI 51.0 vs.
  51.4 prior.

The BoC is expected to keep rates
unchanged at 5.00%. The data out of Canada supports the central bank’s patient
approach as the underlying
inflation measures surprised to
the upside for the second consecutive month and the latest wage
growth figure spiked to the
highest level since 2021. The Bank of Canada has
been highlighting that it places a lot of focus on those two measures and
although it expects rate cuts to come this year, the timing is much more
uncertain and data dependent.

Thursday

The ECB is expected to keep interest rates
unchanged at 4.00%. The central bank officials have been consistently pushing
back against the aggressive rate cuts expectations with consensus for the first rate cut leaning for
June compared to the market’s April forecast. The latest data saw the Core
CPI Y/Y easing further although the M/M
measure showed a worrying 0.6% increase. The Unemployment
Rate continues to hover around record
lows and wage growth remains elevated, which is something that the ECB doesn’t
see as favourable for a return to their 2% target.

The US Jobless Claims continue to be one
of the most important releases every week as it’s a timelier indicator on the
state of the labour market. Initial Claims keep on hovering around cycle
lows, while Continuing Claims after reaching a new cycle high started to trend
lower. This week the consensus sees Initial Claims at 200K vs. 187K prior,
while Continuing Claims are seen at 1840K vs. 1806K prior.

Friday

The US PCE Y/Y is expected at 2.6% vs.
2.6% prior, while the M/M measure is seen at 0.2% vs. -0.1% prior. The Core PCE
Y/Y is expected at 3.0% vs.3.2% prior, while the M/M figure is seen at 0.2% vs.
0.1% prior which would make the 3-month and 6-month annualised rates fall to
1.5% and 1.9% respectively.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

J.P.Morgan has revised its interest rate outlook for the European Central Bank.

Sooner:

• JPM expect the first rate cut in June, having previously expected the first in September.
• the ECB ho hold in July
• and then cuts in both September and October

Deeper:

• JPM expect a total of 100bps in cuts, having previously expected 75

Analysts at the firm are wary of the trend in core inflation, saying its recent slowing may be the result of the dissipating of transitory factors and making the trend difficult to discern:

• They point to stronger wage data as a factor that cause some inflation „stickiness“.
• Say that the disruption to shipping due to Red Sea attacks could also add to pressure for higher inflation

***

JPM are calling the first ECB rate cut later than many other analysts are. Market pricing is for the April meeting (see below).

***

The ECB dates to watch this year:

This article was written by Eamonn Sheridan at www.forexlive.com.

• US January UMich prelim consumer sentiment 78.8 vs 70.0 expected
• US existing home sales for December 3.78M vs 3.82M estimate
• Canada November retail sales -0.2% vs 0.0% expected
• Fed’s Daly: It’s premature to think rate cuts are around the corner
• Feds Bostic: Wants to make sure inflation is on way to 2% before cuts
• Fed’s Goolsbee: If we make good progress on inflation, we need to factor that into rates
• Baker Hughes oil rig count -2 to 497
• Atlanta Fed GDPNow growth estimate for Q4 remains at 2.4%

Markets:

• S&P 500 up 59 points to all-time high close of 4839
• CAD leads, GBP lags
• Gold up $6 to $2028
• US 10-year yields down 1.4 bps to 4.13%
• WTI crude oil down 26-cents to $73.82

The big news was in the stock market where the S&P 500 broke through the 2021 intraday high. That’s certainly not a move that looked like it would happen early on as the market showed middling gains but steady bids starting at lunchtime in New York continued until late in the day.

The turn in equities weighed on the US dollar on most fronts. Cable climbed to 1.2702 from 1.2660 and the euro rose 25 pips to 1.0894.

In general, the dollar fell 20-30 pips across the board after earlier strengthening. One notable move was in the Canadian dollar, which strengthened despite a $1 intraday fall in oil. Canadian retail sales were poor in November but the December advanced number was better and that was enough to reverse some of the recent loonie losses. USD/CAD finished the week down 56 pips to 1.3427.

USD/JPY has been the story of the past month but it took a break today. It rose to 148.50 early in New York trade but sagged back to unchanged at 148.11 on the day.

This article was written by Adam Button at www.forexlive.com.

• Highlights improving consumer sentiment data (likely today’s UMich report)
• I’ve heard cautious optimism on economy
• I see inflation coming down
• Policy is in a good place
• We’re in a great place with policy and the economy and we can start to be more patient to see what we need to do next
• We don’t want to solve the inflation problem by taking people’s jobs away
• We don’t want to loosen policy too soon
• The job this year is about calibration
• Goods prices inflation is coming down and services prices are coming down
• There is a purposeful march towards normalization
• Cyclically we’re getting to a better place

This article was written by Adam Button at www.forexlive.com.

US stocks close sharply higher with the S&P index closing at a new record level and above the 4800 level. The NASDAQ index led the way.

For the week, the major indices all closed higher for the 2nd consecutive week after sharp declines in week 1 of the 2024 trading year.

The final numbers are showing:

• Dow Industrial Average rose 395.19 points or 1.05% at 37863.83
• S&P index rose 58.87 points or 1.23% at 4839.82
• NASDAQ index rose 255.31 points or 1.70% at 15316.96

Small-cap Russell 2000 got involved as well with a 20.73 point rise or 1.08% at 1944.39.

For the trading week, the major indices all closed higher led by the NASDAQ points again:

• Dow Industrial Average +0.72%
• S&P index rose 1.17%
• NASDAQ index rose 2.26%

For the first 3-weeks of the new trading year, all three major indices are now up on the year:

• Dow Industrial Average is up 0.46%
• S&P index is up 1.47%
• NASDAQ index is up 2.0%

How are the Magnificent 7 doing in the first three weeks of the trading year?

• Nvidia up 20.15%
• Meta-+8.33%
• Apple -0.51%
• Alphabet +4.79%
• Microsoft +6.02%
• Amazon +2.23%
• Tesla -14.60%

Next week, the earnings for the fourth quarter start to kicking with some large-cap movers. Below is a sampling of some of those earnings releases:

Monday, January 22

• United Airlines
• Logitech

Tuesday, January 23

• Verizon
• 3M
• GE
• Johnson & Johnson
• Halliburton
• Procter & Gamble
• Netflix
• Intuitive Surgical
• Texas Instruments

Wednesday, January 24

• AT&T
• Tesla
• IBM
• servicenow
• Lam Research

Thursday, January 25

• American Airlines
• Southwest Airlines
• Dow
• Intel
• Visa
• T-Mobile

Friday, January 26

• American Express
• Colgate-Palmolive

Looking at next week’s economic calendar, key events and releases include:

Tuesday:

• Bank of Japan interest-rate decision

Wednesday:

• New Zealand CPI quarter on quarter 0.5% expected reaches 1.8% last quarter
• Germany, France, UK flash manufacturing and services PMI data
• Bank of Canada interest-rate decision. No change expected
• US flash manufacturing and services PMI

Thursday

• ECB rate decision. No change expected
• US advanced GDP. 2.0 expected. Atlanta Fed GDPNow estimate 2.4%
• US unemployment claims

Friday

• US PCE data

This article was written by Greg Michalowski at www.forexlive.com.

As the NY trading day winds down, keep in mind that the first event on the economic calendar next week is the Loan Prime Rate meeting at the People’s Bank of China.

Governor Pan Gongsheng left the MLF rate unchanged last week so expectations are for no change but given the rough ride in Chinese markets so far this year, I wouldn’t rule anything out.

The LPR rate was last changed in August: PBOC Loan Prime Rate cut: 1-year 3.45% (prior 3.55%) & 5-year 4.2% (prior 4.20%).

PBOC’s Loan Prime Rate:

• It
  is an interest rate benchmark used in China, set by the People’s Bank
  of China each month. While set on the 20th of the month or the first business day afterwards. The new LPR takes effect on the first day of
  the following month.
• The LPR serves as a
  reference rate for banks when they determine the interest rates for
  (primarily new) loans issued to their customers.
• Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
  • The
    panel consists of both domestic and foreign banks, with different
    weights assigned to each bank’s contributions based on their size and
    importance in the Chinese financial system.
  • The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.

The LPR was last left unchanged on December 20.

There is also talk about an RRR cut as the lever to stimulate growth in Q1. At this point, I think it will take some forceful moves to stimulate growth.

After China, the focus on Tuesday will move to the Bank of Japan rate decision. Again, no change is expected but the BOJ could offer signals on its willingness to begin normalizing rates in the springtime.

This article was written by Adam Button at www.forexlive.com.

I already outlined the technical predicament for AUD/USD earlier here. And the charts for USD/CAD and NZD/USD are also pointing to a lack of technical follow through by dollar bulls on the week.

In the case of USD/CAD, the pair did manage a push above its 200-day moving average (blue line) but is ultimately seeing that falter today. That is similar to AUD/USD as highlighted in the linked post above. For USD/CAD, the ceiling appears to be at the 50.0 Fib retracement level at 1.3538 on the week.

In any case, the fall back below the 200-day moving average of 1.3480 is the more significant development in trading today. And just like AUD/USD, the near-term bias is also shifting as price falls below the 100-hour moving average of 1.3483 currently.

Looking to NZD/USD:

There was a push below 0.6100 during the week but it fell short in breaching the 200-day moving average (blue line). That coincides with the December low, which was also defended by the key level.

As such, buyers are very much still in the game. And even though the near-term chart is favouring sellers for now, the turn in broader market sentiment and resilience among other commodity currencies could help to translate to better fortunes for the kiwi.

Either way, the fact is that buyers have a clear line in the sand to make their stand now. And that is the 200-day moving average at 0.6089.

To sum up, the dollar did make a strong case for a run higher against the commodity currencies this week. But it looks like it is falling short in sealing the deal as we wrap things up before the weekend. Or is there time for yet another twist in the story?

This article was written by Justin Low at www.forexlive.com.