FundYourFX Weekly Newsletter – Jan 8 – 12, 2024

Welcome to the Weekly Market Update!

We are here to provide you with the pivotal financial happenings and insights. Our focus is on the primary stories of the week, alongside a deep dive into market dynamics, economic milestones, events to monitor, and technical forecasts. Here’s the essential roundup to keep you savvy and ready for strategic financial moves.

Top Stories of the Week

• 1. Federal Reserve Minutes Offer No Insight on Rate Cut Schedule: In recent minutes, Federal Reserve officials indicate the peak in interest rates has been reached, yet remain non-committal on the schedule for the anticipated rate reduction this year.

  2. US Stock Market Endures Steepest Two-Day Fall Since October: Kicking off the year, the US stock market faces a sharp downturn as investor confidence wavers amidst uncertainty over the Federal Reserve’s potential aggressive rate cuts.

  3. UK Service Sector Achieves Fastest Growth in Six Months: Marking a significant upturn, the UK’s service sector PMI leaps to 53.4, signifying the swiftest expansion in half a year and bolstering the British Pound.

  4. Bitcoin Dips 10% on 15th Anniversary Milestone: The leading cryptocurrency marks its 15-year journey since the mining of its first block with a startling 10% drop in value on January 3rd.

  5. US Employment Sees Largest Drop Since July 2020: The US labor market reports a substantial reduction in new hires, totaling 365,000 in December – the most significant monthly decline in over two years, signaling emerging weakness in employment trends.

  6. Tesla Surpasses Q4 Delivery Expectations, Sets Annual Record: Tesla Inc. exceeds delivery expectations with 484,507 vehicles in the last quarter of 2023, surpassing the anticipated 480,000. The electric vehicle giant reports a total of 1.8 million vehicles delivered in 2023, a rise from 1.3 million the previous year.

  7. Eurozone Business Activity Continues Decline in December: The Eurozone’s composite PMI remains under 50 for another month, suggesting the region’s economy may have entered a recession in the fourth quarter.

  8. Maersk Stocks Climb Amid Extended Red Sea Operations Pause: Maersk’s decision to prolong its halt in Red Sea operations due to global trade disruptions leads to increased shipping times and rates, consequently boosting its share value.

  9. German Inflation Rate Escalates, ECB Rate Cut Timing in Question: Germany, the Eurozone’s second-largest economy, reports an inflation increase to 3.7% year-over-year from 3.2%, casting doubts on the European Central Bank’s timing for its initial rate reduction.

  10. Xerox Announces 15% Workforce Reduction, Shares Fall: In a significant restructuring move, Xerox plans to cut 15% of its workforce, a decision that led to a 12% drop in its share price

Market Analysis

• US Labor Market Data Tempers Rate Cut Predictions: December saw a surge in hiring with 164K new jobs, predominantly in the service sector, as reported by the ADP. The US services sector expansion was modest, moving from an expected 51.3 to 51.4 PMI. Jobless claims also decreased to 202K, reinforcing labor market robustness. Despite this, traders have scaled back expectations of a March Fed rate cut from 70% to 65%. Meanwhile, the US dollar remained stable even as the 10-year yield encountered resistance, and the USDJPY pair advanced 0.92%, its third consecutive three-day gain, potentially heading towards 145.70 if it maintains above 144.60.

Economic Highlights

• German Inflation Challenges Prospects of Early ECB Rate Cuts: Inflation in Germany climbed to 3.8% across various states, with expectations of further increases nationally and in the Eurozone, casting doubt on the anticipated ECB rate reductions in March. Both German and French inflation figures are on the rise, primarily due to escalating energy costs, with Germany’s increase linked to subsidy reductions and France’s to service sector expenses. Additionally, Eurozone business activity continued to contract in December, with a PMI of 48.8, indicating a possible recession. The EURUSD pair, after rebounding from the $1.09 support, remains hesitant to breach the $1.10 level, facing resistance at $1.0973.

Upcoming Events to Watch

• US CPI Data Release on Horizon (Jan 11): The US inflation figures are set to be unveiled this Thursday, following November’s CPI easing to 3.1%, aligning with forecasts, while core inflation held at 4%. This release is pivotal as markets evaluate the Federal Reserve’s rate cut strategy for 2024. Lower-than-anticipated inflation might spur predictions of more substantial Fed rate reductions, while higher figures could temper such expectations.
• US Banks Set for Q4 Earnings Reveal (Jan 12): The US banking sector, including JP Morgan, Bank of America, Wells Fargo, Citigroup, and BlackRock, gears up to disclose Q4 earnings this Friday. Previous quarters showed better-than-expected results but hinted at future challenges, as customer payment difficulties emerge. While boosted by high interest rates, the focus will be on the effects of rising costs and potential increases in bad loan provisions.
• China’s Inflation Data Release (Jan 12): Investors await China’s inflation data this Friday to gauge if deflationary trends have intensified. November saw a -0.5% annual drop in CPI, adding to concerns in the world’s second-largest economy, amid a real estate liquidity crisis, faltering trade figures, and the impact of prolonged zero Covid lockdowns.
• Eurozone Retail Sales Update (Jan 8): The Eurozone will release its latest retail sales data on Monday. After a minor uptick in October following three months of decline, the market’s focus will be on whether the European Central Bank will be among the first major central banks to initiate rate cuts, as the economy grapples with challenges. Weak retail sales could strengthen the case for such action.
• Bitcoin in Spotlight This Week: Bitcoin experienced a tumultuous start to 2024, soaring to a 20-month high above 45K, then dropping to 41K on January 3rd. The cryptocurrency world is closely watching the SEC’s decision window for the spot Bitcoin ETF, expected between January 8th and 10th. Although a spot BTC ETF might be long-term bullish for cryptocurrencies, Bitcoin’s recent rally might have already factored in this development, potentially leading to a scenario of ‘buy the rumor, sell the news’.

Technical Analysis

We have analyzed the most popular trading pairs and assets, including EUR/USD, GBP/USD, Gold, and US500. Our aim is to provide you with an insightful analysis of their trends and support/resistance levels, which will help you make informed decisions.

EUR/USD

Recently, EUR/USD retraced to the Daily 30EMA following an unsuccessful breakout attempt at the Resistance Zone. The RSI dropped below the Moving Average, creating a gap that might lead to a pullback toward the Resistance Zone for another possible failure to break through.

GBP/USD

GBP/USD is exhibiting a bullish trend, consistently above the 50-day SMA, with fractals showing a pattern of higher highs and lows. After reaching an extreme demand area, there’s a high chance of further upward movement. The appearance of a doji candlestick might indicate market supply, but this could also be attributed to typical Friday market behavior, where liquidity often decreases as institutions secure profits and preserve capital.

XAU/USD

Gold is in a bullish trend, staying above the 50-day SMA, with fractals indicating higher lows. Despite recent market volatility and a spike to a record high, gold’s trend remains strong. Last week, amidst negative news, gold didn’t break lower but instead surged to 2064, demonstrating robust market support. This trend, coupled with the current high-pressure level in the US dollar market, suggests continued bullish momentum for gold.

XUS500

The S&P 500 is in a phase of consolidation within its overall bullish trend, indicated by its position above the 50-day SMA. The fractals reveal equal highs and lows, hinting at a potential double top formation. The significant distance above the 50 SMA suggests the market might be overextended. The RSI stands at a neutral 50 but leans towards a bearish bias. Notably, there’s a chance of a positive reversal, a bullish pattern where the RSI hits a new low while the price doesn’t follow suit.

Thank you for reading! Wishing you successful trades ahead!

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