**Forecasting the Upcoming Week: Markets Enter the New Year Calmly, US Dollar Stable Ahead of Key US Economic Data**
*Based on analysis by FXStreet’s Matías Salord.*
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As financial markets step over the threshold into 2024, the prevailing sentiment is one of calm and watchfulness. The US dollar, having recently pulled back from its late-November lows, remains resilient, quietly stable as traders and investors brace for a packed calendar of crucial economic releases that promise to set the tone for the opening weeks of the year.
Let’s explore the key themes from the original FXStreet analysis by Matías Salord, taking a detailed look at the main drivers for forex markets this week, the critical US data ahead, global influences from Europe and Asia, and what traders can expect as trading volumes snap back following the holiday lull.
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## The US Dollar Enters 2024 on Steady Footing
The final weeks of 2023 saw notable moves across major pairs, with the US dollar benefitting from improving yields and shifting expectations regarding Federal Reserve rate cuts. The so-called “Santa rally” in equities did not translate into aggressive dollar weakness, as some might have expected, underscoring how economic data remains the ultimate arbiter for forex direction.
Key observations on the US dollar’s posture:
– The dollar index (DXY) found support near its multi-month lows but failed to challenge new territory on the upside.
– Short-term flows were dominated by thin holiday liquidity, so the new week promises truer market direction as institutional players return.
– Markets have digested the Federal Reserve’s dovish pivot, which opened the door to possible rate cuts in 2024, though the exact timing remains a subject of speculation.
### Potential Catalysts for US Dollar Volatility
As the article by Matías Salord lays out, the first trading week of the year is laden with economic events that can make or break the dollar’s calm exterior. The spotlight falls squarely on US data, which will help clarify whether the market’s aggressive rate cut bets are justified.
Critical US economic events to watch:
– **ISM Manufacturing and Services PMIs**: These gauge the health of the goods and service sectors. Any surprise strength could push back against the narrative of a rapid slowdown.
– **JOLTS Job Openings**: A measure of labor demand, this report can influence Federal Reserve outlook and reshape expectations for future rate cuts.
– **Nonfarm Payrolls (NFP) and Unemployment Rate**: The crown jewel of US data, NFP figures will be parsed closely not just for headline job creation, but for clues from wage growth and participation metrics.
The dollar may experience the greatest volatility at the end of the week, when the employment report is released. In the past, strong jobs data has capped dollar downside, while evidence of cooling in the labor market has emboldened sellers.
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## Wall Street’s Post-Holiday Mood: Risk Appetite Tested
After a year-end rally that propelled major US indexes to record or near-record highs, equity traders are beginning to weigh the prospect that lofty valuations may have gotten ahead of themselves, especially if economic growth slows more than expected or profits disappoint.
Relevant themes from the original analysis:
– Stock markets could face more nuanced risk appetite, with equities consolidating or correcting following the run-up in December.
– Traders are alert for any deterioration in US economic momentum, which could push investors away from riskier assets and back toward the dollar.
– Volatility is expected to normalize; the VIX index reached multi-month lows during the holidays but could rise as trading intensifies.
What this means for forex:
– A “risk-off” environment typically boosts the US dollar against higher beta assets, notably the Australian and New Zealand dollars as well as emerging market currencies.
– Conversely, calming nerves and reaffirmed growth may lead to dollar selling and volatility in the yen and Swiss franc.
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## European Currencies: EUR/USD and GBP/USD
Read more on GBP/USD trading.