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Forex Market Analysis: Dollar Awaits CPI Report, S&P 500 Valuations Reach Historic Highs

February 9, 2024
CURRENCIES:

US Dollar and Upcoming CPI Report:

  • DXY index rose, influenced by higher U.S. Treasury yields.
  • Market awaits January inflation data; headline CPI expected to slow to 3.1%, core CPI to 3.8%.
  • Higher than expected inflation could boost U.S. dollar by altering Fed rate cut expectations.
  • Lower inflation may lead to dovish rate expectations and a weaker dollar.

Technical Analysis for Currency Pairs and Gold:

  • Focus on EUR/USD, GBP/USD, and gold (XAU/USD) technical outlook.
  • Key support and resistance levels highlighted ahead of U.S. CPI release.

STOCK MARKET:

Stock Market Highlights

S&P 500 Valuation Insights:

  • The S&P 500’s forward price-to-earnings ratio increased to 20.4, surpassing its historic average.
  • Despite high valuations, equities can remain costly before normalizing.
  • The index rose 21% since late October, nearing a significant 5,000 level but closed just below it.
  • Rising stock valuations contrast with increasing Treasury yields, hinting at competitive investment options.
  • Earnings forecasts for S&P 500 companies remain stable, with a 9.7% growth expectation for the year.
  • High valuations often lead to modest future performance, but current levels are below the extreme peaks of past market bubbles.
  • The index’s valuation is heavily influenced by the “Magnificent Seven” megacap stocks, trading at higher earnings multiples.
  • Lesser signs of speculative excess compared to past market peaks suggest a different market environment.

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