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Forex Market Analysis: US Dollar Dynamics & Rate Speculations 18 Jan 2024

January 18, 2024

Forex Daily Analysis: Currency Strength & Stock Market Shifts

CURRENCIES:

Overview:

  • The U.S. dollar regained strength against major counterparts on Tuesday.
  • Supported by higher U.S. Treasury yields, market expectations for a March interest rate cut fell below 59%, down from 77% just one day prior.

Fed Governor’s Comments:

  • Fed Governor Christopher Waller’s statement suggested a cautious approach, indicating that the Federal Open Market Committee (FOMC) doesn’t need to ease its stance as rapidly as in the past.
  • This stance contributed to the strengthening of the U.S. dollar.

Currency Performance:

  • Euro, British pound, and Australian dollar experienced sharp declines against the U.S. dollar.
  • Notable thresholds were breached during this pullback.

Fed March Meeting Probabilities:

  • The probability chart from CME Group highlights the diminishing likelihood of a rate cut in March.

EUR/USD Technical Analysis:

  • EUR/USD exhibited a decline, breaking the lower boundary of a short-term rising channel at 1.0930.
  • The pair moved towards the 200-day simple moving average, a crucial support at just above 1.0840.
  • Maintenance of this support is imperative; failure may lead to a retracement towards 1.0770.
  • If downward pressure eases and prices rebound, technical resistance is anticipated at 1.0930, followed by 1.1020.
  • Further strength could shift focus to 1.1075/1.1095 and subsequently 1.1140.

STOCK MARKET ANALYSIS:

Market Overview:

  • US stocks encountered challenges on Tuesday as investors remained attentive to the trajectory of interest rates.
  • The lackluster start to the earnings season, particularly with big bank results, influenced market sentiment.

Performance Indicators:

  • Dow Jones Industrial Average (^DJI) concluded the session down 230 points, influenced notably by Boeing’s (BA) negative performance (-7.89%).
  • S&P 500 (^GSPC) experienced a 0.4% decline.
  • Nasdaq (^IXIC) closed slightly lower despite intermittent shifts into positive territory, driven by movements in chipmakers Nvidia (NVDA) and Advanced Micro Devices (AMD).

Key Stock Movements:

  • Goldman Sachs (GS) stock edged slightly higher following a reported fourth-quarter earnings increase of 51% year over year.
  • Morgan Stanley (MS) shares dipped up to 4% during the session but posted fourth-quarter revenue that exceeded Wall Street expectations.

Upcoming Retail Sales Report:

  • Investors await Wednesday’s retail sales report, anticipating its impact on the Federal Reserve’s data-driven policy decisions.
  • Last week’s unexpected cooling in US wholesale inflation increased hopes for a potential interest rate cut in March.

Fed Governor’s Perspective:

  • Fed Governor Chris Waller expressed belief in the Fed’s ability to lower interest rates in the coming year, contingent on inflation remaining in check.
  • He emphasized that the timing and extent of rate cuts will hinge on incoming economic data.

Corporate Developments:

  • A federal judge intervened in the merger deal between Spirit Airlines (SAVE) and JetBlue (JBLU) due to antitrust concerns.
  • Spirit Airlines faced a significant 47% drop in its stock value following the news of the blocked merger.

Overall Sentiment:

  • The market remains cautious and attentive to various factors, including corporate earnings, interest rate expectations, and economic data, influencing trading decisions and overall sentiment.

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