Forex Market Analysis: Economic Trends & Market Forecasts January 2, 2024

January 2, 2024

Forex Daily Analysis 2 January 2024

Economic data: S&P Global US Services PMI, December, final (48.4 expected, 48.2previously); MBA Mortgage Applications, week ending December 29


  • U.S. Dollar’s Downward Correction
    • Witnessed a significant downward correction in the U.S. dollar due to expectations of the Federal Reserve reducing borrowing costs.
    • US Treasury yields plunged in the last quarter of 2023, contributing to the dollar’s lowest level in five months.
  • Currency and Precious Metal Performance
    • EUR/USD and GBP/USD experienced a notable surge, reaching multi-month highs in late December.
    • Gold prices showed strength, concluding 2023 above $2,000, though slightly below its all-time high.
    • The bullish trend in gold is expected to continue, benefiting from the Federal Reserve’s policy shift.
  • Equity Market Rally
    • The pullback in U.S. bond yields triggered a substantial rally in the equity market.
    • Major stock market indexes reached new records, reflecting the prevailing risk-on sentiment.
  • Outlook for Q1 2024
    • U.S. dollar may continue to face losses in the coming months due to downward-sloping yields.
    • Anticipated upward momentum for gold, EUR/USD, GBP/USD, and stocks in Q1.
    • Caution advised as some markets approach potential overbought conditions.
  • Increased Volatility and Trading Setups
    • Expect different market dynamics leading to heightened volatility.
    • Opportunities for enticing trading setups in major assets, including currencies, commodities (gold, silver, oil), and cryptocurrencies.


  • Fed Rate Cut Speculation:
    • Morgan Stanley’s Ellen Zentner suggests a possible Fed rate cut may come later than market expectations.
    • Zentner emphasizes that monthly payroll additions below 50,000, coupled with consistent low inflation, could trigger a March rate cut.
    • Caution is advised, highlighting that a single weak jobs report might not be sufficient for a rate cut decision.
  • Morgan Stanley’s Base Case:
    • The base case for Morgan Stanley remains a Fed cut in May, contrary to earlier market expectations.
  • Late 2023 Market Rally Impact:
    • Investors face the question of whether the late 2023 market rally accelerated the gains expected in 2024 or if there is room for further upward movement.
    • Ryan Detrick, Chief Markets Strategist at Carson Group, cites historical data indicating that after a late-year S&P 500 rally exceeding 10%, the benchmark average historically rose by an average of 19.5% in the following year.
  • Contrasting Views on Market Continuation:
    • Tom Lee, Fundstrat’s Head of Research, acknowledges the likelihood of new all-time highs for the S&P 500 but anticipates a subsequent consolidation.
    • Lee points out key concerns, including investor uncertainty about the Fed’s rate-cut timing and a potential downturn around February or March in an election year.
  • Tom Lee’s Market Outlook:
    • Lee predicts a brief pullback after new all-time highs, suggesting a range of S&P 500 at 4,400-4,500.
    • Consistent with the 2024 Year Ahead Outlook, Lee’s base case envisions most gains for the S&P 500 in the second half of 2024.

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