**Forecasting the Upcoming Week: Markets Enter the New Year Calmly, US Dollar Stable Ahead of Key US Economic Data**
*By Pablo Piovano, adapted and expanded from the original article on FXStreet*
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As the curtains rose on 2024, financial markets greeted the new year with an air of quiet confidence and relative stability. Investors, traders, and analysts alike are setting their sights on key US economic data expected this week. The primary focus revolves around labor market indicators, inflation figures, and central bank policies—all of which hold significant potential to drive the direction of the US dollar and global markets at large.
This comprehensive outlook explores the current market environment, the US dollar’s recent performance, the economic calendar’s highlights for the upcoming week, and potential scenarios for risk assets and major currency pairs.
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**Current Market Context: Calm Entry into 2024**
The initial trading sessions of 2024 reflected a measured mood across risk assets. After wrapping up 2023 with a notable rally in equities and a substantial retreat in the US dollar, global markets are seeing a period of consolidation. Participants have taken a breather, carefully sifting through the themes set to dictate the pace in the months ahead.
Several macroeconomic dynamics are underpinning this tranquil environment:
– **US Federal Reserve’s Dovish December Pivot:** After aggressive tightening throughout 2023, the Fed signaled an openness to pivot towards rate cuts, encouraging optimism in both bond and equity markets.
– **Soft Landing Narrative Gains Traction:** Expectations for a mild slowdown in economic activity, without a sharp contraction or recession, have bolstered risk appetite.
– **Geopolitical Risks in Check:** At present, major global risks are not front and center, enabling markets to concentrate more on upcoming data.
– **Liquidity Considerations:** Early January is typically marked by thin trading volumes, amplifying potential volatility or muted movement.
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**US Dollar: Stability Before Potential Volatility**
The US dollar ended 2023 on the back foot, its pullback spurred by waning yields and expectations that the Fed’s tightening cycle had run its course. As 2024 unfolds, however, the greenback is holding steady against its major peers, hovering near multi-month lows but lacking fresh direction.
Key factors influencing the dollar right now:
– **Federal Reserve’s Policy Path:** Market consensus forecasts multiple rate cuts in the latter half of 2024. Dovish expectations have already been priced in, removing some downside risk for the dollar in the near term.
– **US Economic Resilience:** Recent data shows persistent strength in the labor market, consumer spending, and GDP growth. Outperformance relative to global peers could ultimately lend renewed support to the dollar.
– **Risk Sentiment:** A continuation of the risk-on rally might limit safe-haven flows into the greenback, while any turbulence could see demand for dollars surge.
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**Upcoming Data Releases: What to Watch This Week**
The first week of the new year promises to deliver a slew of critical US macroeconomic releases. Each will play a pivotal role in shaping the expectations around the Federal Reserve’s policy decisions and, by extension, the dollar’s near-term trajectory.
The main events for the upcoming week are:
– **JOLTS Job Openings**
– **ISM Manufacturing PMI**
– **ADP Nonfarm Employment Change**
– **Jobless Claims**
– **ISM Services PMI**
– **Nonfarm Payrolls (NFP)**
– **Unemployment Rate**
– **Average Hourly Earnings**
Here’s what each means for markets:
1. **JOLTS Job Openings (Tuesday)**
– Measures the total number of job vacancies in the US economy, offering insights into labor market tightness.
– A higher-than-expected reading suggests continued labor market resilience, possibly reducing the urgency for the Fed to cut rates.
2. **ISM Manufacturing PMI (Wednesday)**
– Gauges activity in the US manufacturing sector.
Read more on GBP/USD trading.