**Forecasting the Upcoming Week: Markets Enter the New Year Calmly, US Dollar Stable Ahead of Key US Economic Data**
*Article based on original reporting by Haresh Menghani, FXStreet*
As financial markets transition into the first weeks of 2024, investors are pausing to recalibrate their strategies after an eventful and unexpectedly buoyant close to the previous year. Broad themes of monetary policy expectation recalibration, macroeconomic surprises, evolving risk sentiment, and the intricate dance between major currencies and global equities continue to set the tone as traders look ahead to loaded calendars and pivotal macro releases.
**A Calm Start to the Year**
The first trading week of January 2024 is notable for its relatively tranquil opening, with major asset classes remaining range-bound as participants process end-of-year flows and await tier-one economic data out of the United States. The US Dollar Index currently trades near recent lows, having witnessed a pullback in December, but remains well-supported as investors weigh the Federal Reserve’s future policy path in light of shifting data.
Global equity indices reflect a cautious optimism. A powerful end-of-year rally has left valuation levels elevated, and while risk-on sentiment prevails, there is a distinct lack of conviction as market participants await confirmation from incoming economic data.
**Key US Economic Data Front and Center**
A focal point for traders in the coming week will be a series of top-tier US economic releases, all of which carry the potential to move expectations around interest rates and the broader growth outlook. The most important among them include:
– US ISM Manufacturing and Services PMIs: As bellwethers of economic activity, these readings can significantly influence market expectations around growth and inflation.
– The ADP employment report: Though not as closely watched as the official government figures, it offers a useful read-through on labor market trends.
– US Nonfarm Payrolls (NFP): Always a marquee release, this widely anticipated report on Friday will provide the clearest near-term insight into US labor market health, wage dynamics, and by extension, possible shifts in Federal Reserve monetary policy.
– Average Hourly Earnings and Unemployment Rate: Released concurrently with the NFP, these indicators will offer further granularity on the state of the US economy.
**Federal Reserve in the Spotlight**
At the heart of market dynamics is the ongoing debate around the Federal Reserve’s next moves. The sharp shift in rate cut expectations in December drove significant volatility across asset classes as investors attempted to price in an earlier and more aggressive easing cycle than previously anticipated.
– According to CME FedWatch, markets currently price in roughly 135 basis points of rate cuts for 2024, with the first cut possible as soon as March. However, several Federal Reserve officials have continued to push back gently on these market wagers, emphasizing their “data-dependent” approach and reiterating that inflation, while easing, remains above target.
– Markets will therefore scrutinize every economic data point for its potential to validate or challenge these dovish expectations.
**US Dollar: Poised but Cautious**
The US dollar ended 2023 weaker, but has recently steadied at these lower levels. Given its safe-haven credentials and its centrality to global financial conditions, the greenback’s performance will hinge primarily on forthcoming macroeconomic releases.
– If US employment and inflation data show further signs of cooling, markets could become more confident about aggressive Fed easing, putting additional pressure on the dollar.
– Conversely, a “hot” jobs report or sticky wage inflation could surprise investors, tempering rate cut bets and delivering a relief rally for the dollar.
**Major Currency Pairs – Technical and Fundamental Perspectives**
1. **EUR/USD**
– The euro has staged a robust rally over the past several weeks, capitalizing on dollar softness and optimism over European growth stabilization.
– Technical resistance emerges near 1.1130, a multi-month peak, while support lies near 1.0880, corresponding to the previous week’s lows.
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Read more on GBP/USD trading.