**The Week Ahead in Forex: CPI Crosswinds, Nasdaq’s Stop-and-Go Rally, and the ‘Alaska Handshake’ with Global Implications**
*Based on analysis by Ken Odeluga, FXStreet Senior Market Analyst*
This upcoming week in the forex and financial markets is anticipated to be driven by a mix of inflation data, monetary policy speculation, and geo-political developments. The markets continue to grapple with uncertainty, with key macroeconomic indicators sparking debate about the trajectory of central bank policy in the United States and globally. At the same time, the Nasdaq is signaling potential exhaustion even as tech bulls continue to push past recent highs. A unique diplomatic gesture between global superpowers also raises questions around fiscal sanctions and energy policy. This week is shaping up to be critical for multiple asset classes and economic indicators.
In this extended outlook, we will analyze the layered crosswinds in global markets, focusing on:
– US inflation data and expectations
– Federal Reserve policy outlook following recent data
– The Nasdaq’s stalling rally and what technicals suggest
– Ongoing geopolitical signals, including U.S.–China dynamics
– Key currencies to watch and potential trading themes
**US CPI Data: The Pivotal Report**
US consumer price index (CPI) data continues to be the major economic driver for the week. The market has increasingly pivoted toward reading monthly CPI data not just as an inflation snapshot, but as a core gauge of how dovish or hawkish the Federal Reserve might become in its next policy move.
– The last CPI report saw headline inflation rise 0.3 percent month-over-month, suggesting stickier price pressures than expected.
– Core CPI (which excludes volatile food and energy prices) rose 0.2 percent over the same period, slightly under control.
– Markets are pricing in a less-than-even chance (about 60 percent) that the Federal Reserve could lower interest rates at the September FOMC meeting. Rate swaps are showing a cautious outlook, which could change dramatically depending on June’s CPI figures.
Expectations for the upcoming CPI release remain modest:
– Forecast is for headline CPI to come in at 0.2 percent on a monthly basis
– On an annualized basis, the CPI is expected to fall below the 3.3 percent mark
If inflation data surprises to the upside, markets would react with stronger dollar performance and a potential selloff in risk-sensitive assets including tech stocks and emerging-market currencies.
**Federal Reserve’s Policy Crossroads: Caution Reigns**
The Federal Reserve is in a difficult position. While the job market remains strong and GDP growth solid, inflation remains persistently above its 2 percent target. This environment keeps Fed officials reluctant to ease too soon, especially with the Presidential election approaching in Q4 2024.
Key developments to watch include:
– FOMC members, including Jerome Powell, have kept their language cautiously hawkish, reiterating the “higher for longer” stance.
– The Fed dot plot from June indicates one possible rate cut before end of 2024, but data dependency remains central.
– Market participants will study the June CPI number closely, alongside July University of Michigan inflation expectations, which play a crucial role in policy forward guidance.
Fed fund futures reflect this uncertainty:
– Markets see about one 0.25% rate cut priced in by December
– Dovish bets will only strengthen if inflation undercuts expectations
**Nasdaq Composite: Bullish Fatigue or Healthy Pause?**
The Nasdaq Composite and tech-heavy indexes continue to ride on the optimism driven by AI, although the rally appears to be slowing. Last week gave signs of bull-market fatigue, even though Big Tech remains dominant.
Key observations from recent price action:
– The Nasdaq posted fresh record highs in June, but momentum stalled as traders locked in profits.
– The Relative Strength Index (RSI) of many leading tech components is now hovering near overbought levels.
– Technical support for the Nasdaq
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