On Wednesday, stocks saw a decline as investors awaited an important inflation report due later in the week, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all experiencing losses. Notable decliners included UnitedHealth, Intel, Alphabet, and Urban Outfitters, the latter due to disappointing quarterly results. The market’s attention is now on January’s forthcoming personal consumption expenditure (PCE) data, a crucial inflation indicator for the Federal Reserve. This anticipation comes amid mixed movements in the currency market, where the dollar index made slight gains while investors closely monitor upcoming inflation reports from the U.S. and the eurozone. These reports are pivotal for future monetary policy and interest rate expectations, especially with predictions leaning towards rate cuts by the Federal Reserve and the European Central Bank (ECB) within the year, amidst contrasting inflationary trends in the U.S. and eurozone.

Stock Market Updates

Stocks experienced a decline on Wednesday as the market anticipated an important inflation report set to be released later in the week. The S&P 500 dropped slightly by 0.17%, closing at 5,069.76, while the Nasdaq Composite experienced a more significant fall of 0.55%, ending at 15,947.74. The Dow Jones Industrial Average also saw a minor decrease, losing 23.39 points, or 0.06%, to close at 38,949.02, marking its third consecutive day of losses. Among the notable decliners were UnitedHealth, which fell nearly 3%, and tech giants Intel and Alphabet, which dropped 1.7% and 1.8%, respectively. Additionally, Urban Outfitters saw a significant decrease of 12.8% following its announcement of weaker-than-expected fourth-quarter results.

The market’s focus is now on the upcoming personal consumption expenditure reading for January, a critical inflation measure closely watched by the Federal Reserve. This report is highly anticipated as investors and analysts gauge the potential for continued economic growth and the impact of inflation on monetary policy. The market’s recent performance has been less robust, with the major indexes on track for their second negative week in the last three, despite having reached record highs recently. The downturn, especially in the tech sector, has sparked debates about the durability of the market rally, which has been partly driven by enthusiasm over advancements in artificial intelligence.

Data by Bloomberg

On Wednesday, the overall market experienced a slight downturn, with all sectors combined seeing a decrease of 0.17%. Despite this general downtrend, several sectors managed to post gains, led by Real Estate, which saw a notable increase of 1.28%. Other sectors that experienced growth included Financials, Consumer Discretionary, Utilities, Industrials, Materials, and Consumer Staples, with increases ranging from 0.09% to 0.35%. On the flip side, some sectors faced declines, with Energy, Health Care, Information Technology, and Communication Services witnessing drops between -0.20% and -0.92%, indicating a mixed performance across different areas of the market.

Currency Market Updates

The currency market is currently experiencing nuanced movements as investors anxiously await inflation reports from the U.S. and eurozone, which could significantly influence the trajectory of risk-sensitive currencies. The dollar index saw a slight increase of 0.1%, though it retreated from its early Wednesday highs, indicating a cautious stance among traders. The EUR/USD pair dipped marginally by 0.05%, recovering after testing key support levels amid a broad-based rise in the dollar earlier in the day. The focus now shifts to Thursday’s release of the U.S. core PCE and eurozone CPI reports, which are expected to play a critical role in determining whether the recent reduction in anticipated Fed rate cuts for 2024—and the consequent support this has lent to the dollar—will continue or come to a halt.

Market expectations are leaning towards the Federal Reserve beginning to cut rates by June, with a total of 81 basis points of easing anticipated by the end of the year. Similarly, a June rate cut by the ECB is fully priced in, with expectations of 90 basis points of cuts throughout the year. These developments come as core PCE in the U.S. is forecasted to rise, contrasting with December’s figures, and with the euro zone’s overall and core CPI also set for release, offering further insights into inflationary trends. Amidst this backdrop, the USD/JPY pair has seen a slight increase, attempting to continue its upward trend as markets digest varying signals from Fed speakers and global economic indicators, highlighting the interconnectedness of global financial markets and the significant impact of central bank policies and economic data on currency valuations.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Faces Downward Pressure Amid Economic Indicator Discrepancies

The EUR/USD pair experienced a decline early Friday, pressured by disappointing sentiment indicators from Europe and a significant disparity in US GDP figures that maintained the currency pair’s position within a familiar range midweek. With a packed schedule, Thursday’s focus shifts to German Retail Sales and CPI data, alongside the US Personal Consumption Expenditure (PCE) Price Index inflation figures. The week will conclude with Friday’s release of the pan-European Harmonized Index of Consumer Prices (HICP) inflation data and the US ISM Manufacturing PMI for February, providing critical insights into economic health and potential currency movement directions.

Chart EUR/USD by TradingView

On Wednesday, the EUR/USD moved slightly lower and was able to reach the lower band of the Bollinger Bands. Currently, the price is moving just below the middle band, suggesting a potential upward movement to reach above the middle band. Notably, the Relative Strength Index (RSI) maintains its position at 51, signaling a neutral outlook for this currency pair.

Resistance: 1.0858, 1.0896

Support: 1.0823, 1.0783

XAU/USD (4 Hours)

XAU/USD Steady Amid Economic Expansion and Fed Remarks

Gold prices remained stable near $2,030 on Wednesday, achieving a modest increase of 0.17% as the US economy showed signs of expansion according to the latest BEA report. Despite the US GDP for the last quarter of 2023 slightly missing expectations and mixed retail and wholesale inventory data, a fall in US Treasury bond yields has supported gold prices, keeping them near monthly and weekly highs, just below the 50-day SMA. Meanwhile, comments from Federal Reserve Regional Presidents, Susan Collins and John Williams, about potentially easing policy later in the year while still not meeting the core inflation goal of 2%, have influenced market sentiment, alongside a cautious Wall Street trading mostly in the red.

Chart XAU/USD by TradingView

On Wednesday, XAU/USD moved slightly higher to reach the upper band of the Bollinger Bands. Currently, the price is moving just below the upper band, suggesting a potential higher movement to reach above the upper band and reach the resistance level. The Relative Strength Index (RSI) stands at 57, signaling a neutral but bullish outlook for this pair.

Resistance: $2,042, $2,056

Support: $2,030, $2,017

Economic Data

CURRENCIES:

Key Highlights:

• The US dollar shows uncertainty with market anticipation of pivotal US data.
• Core PCE data release on Thursday is in the spotlight, influencing investor focus.
• Analysis includes a detailed technical perspective on EUR/USD and GBP/USD pairs.

Trading Opportunities:

• Diego Colman recommends checking the free Top Trading Opportunities Forecast.

Market Dynamics and Predictions:

• The US dollar’s movement was minimal, with mixed responses from US Treasury yields.
• Market participants are cautious, waiting for the core PCE deflator data.
• Expected January core PCE rise of 0.4% month-on-month, with a slight decrease in the annual rate from 2.9% to 2.8%.

Inflation and Interest Rates:

• Concerns of higher than expected CPI and PPI could mirror in the PCE report, affecting inflation expectations.
• A higher inflation figure may delay the Federal Reserve’s rate cuts, impacting bond yields and potentially strengthening the US dollar.

STOCK MARKET:

• Wall Street’s optimism grows as the S&P 500 exceeds 5,000 points, with strategists predicting a quicker climb to the next 1,000 points.
• Barclays raises its year-end S&P 500 target to 5,300, up from 4,800, buoyed by strong Big Tech earnings and a robust US economy.

Bull Case Scenario:

• Barclays suggests a potential rise to 6,050 for the S&P 500 if Big Tech’s earnings outshine expectations.
• The analysis sees a tilt toward bullish outcomes, forecasting economic growth over a mild recession.

Key Factors:

• Continued success in Big Tech and a rebound in other sectors’ earnings could propel the S&P 500 to new heights.
• Krishna from Barclays anticipates the S&P 500 could reach 6,050, based on $252 earnings per share.

Similar Predictions:

• Capital Economics and Yardeni Research share optimistic views, with targets of 6,000 by 2025 and 6,500 by 2026 respectively.
• Ed Yardeni emphasizes the US economy’s productivity growth and tech advancements as major drivers.

Market Attractiveness:

• The US market’s standout performance, especially compared to China, is highlighted as a key investment allure.
• Yardeni stresses the role of productivity and technological innovation in fuelling market gains.

AI’s Impact and Bubble Dynamics:

• John Higgins of Capital Economics links the S&P 500’s potential to reach 6,500 by the end of 2025 to the AI technology bubble.
• The current market bubble, driven by AI, is likened to the dot-com era but with significant room for growth

Start your CFD Shares Trading journey with VT Markets now!

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

On Tuesday, the stock market displayed mixed outcomes with the S&P 500 and Nasdaq Composite experiencing slight gains, while the Dow Jones Industrial Average faced a minor decline amidst anticipation for upcoming inflation data. Corporate earnings, particularly from Macy’s and Lowe’s, alongside economic indicators, played significant roles in market dynamics. Meanwhile, the currency market witnessed subtle shifts, with the Japanese yen strengthening against the dollar following Japan’s higher-than-expected core CPI report. Investor focus remains on key economic releases, including the personal consumption expenditure price index, with global monetary policy expectations influencing market sentiment.

Stock Market Updates

On Tuesday, the stock market saw mixed results as investors awaited crucial inflation data expected later in the week. The S&P 500 edged up by 0.17% to 5,078.18, while the Nasdaq Composite saw a modest increase of 0.37%, closing at 16,035.30. Contrarily, the Dow Jones Industrial Average experienced a slight downturn, dropping by 96.82 points, or 0.25%, to end at 38,972.41. Notable movements included Macy’s, which surged 3.4% after announcing plans to close approximately 150 underperforming stores due to a previous revenue shortfall. Additionally, Lowe’s shares increased by 1.7% following an earnings beat, with Zoom Video and Hims & Hers Health also making significant gains after surpassing Wall Street’s earnings expectations.

A mix of corporate earnings reports and economic indicators influenced the market’s dynamics. The utilities sector led the market with a 1.9% increase, while the communications services and technology sectors also saw gains. This activity followed a decline from record highs the previous week, spurred by Nvidia’s impressive earnings. Moreover, investor sentiment was affected by a drop in consumer confidence amid concerns over a potential labor market slowdown and a divisive political climate, as reported by the Conference Board. Additionally, a decrease in orders for long-lasting goods in January, particularly in transportation, underscored these economic uncertainties. As investors look ahead, the forthcoming release of the personal consumption expenditure price index and personal income data will be closely scrutinized for insights into economic health and monetary policy direction.

Data by Bloomberg

On Tuesdayday, the overall market saw modest gains, with all sectors collectively up by 0.17%. Utilities led the performance with a significant increase of 1.89%, followed by Communication Services and Materials, which rose by 1.03% and 0.35%, respectively. Financials, Consumer Discretionary, and Industrials also experienced gains, though more modest, ranging from 0.12% to 0.27%. Information Technology and Real Estate sectors saw minimal increases, whereas Consumer Staples, Health Care, and Energy sectors faced declines, with Energy recording the largest drop at -0.43%.

Currency Market Updates

The currency market saw nuanced movements with the dollar index slightly declining by 0.09%, influenced by a mix of supportive corporate month-end flows and weaker-than-expected U.S. economic data concerning durable goods and consumer confidence. The Japanese yen emerged as a notable performer, appreciating following a report that showed Japan’s core CPI rising above forecasts. This development came amidst static policy pricing from major central banks such as the Federal Reserve, European Central Bank, and the Bank of Japan, with the market participants keenly awaiting further key data releases scheduled for later in the week and the next.

The FX landscape was further characterized by the lingering weakness of the USD against the JPY, spurred by Japan’s inflation data, while the EUR/USD, GBP/USD, and other major currency pairs saw marginal gains. Despite some reasons to overlook the disappointing U.S. durable goods data, attributed partly to Boeing’s challenges, the misses in economic reports have heightened the anticipation for upcoming releases on core PCE, income, spending, and employment data. Market speculation regarding the Federal Reserve’s interest rate path remains a focal point, especially after Kansas City Fed President Jeffrey Schmid’s hawkish remarks, contrasting with the market’s reduced expectations for Fed rate cuts. The evolving monetary policy expectations for the ECB, BoE, and BoJ also play a critical role in shaping the currency market dynamics, with all eyes on the upcoming eurozone CPI and U.S. core PCE data to gauge potential shifts in monetary policy and currency valuations.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Stabilizes Amid Anticipation of Key Economic Data

The EUR/USD pair has been hovering around the 1.0850 mark, showing little movement as traders await impactful economic releases. Following a more significant than expected decline in US Durable Goods Orders for January, market focus now shifts to upcoming US GDP figures, German Retail Sales, CPI data, and the US PCE inflation report. These forthcoming data points are crucial for gauging the economic health of both regions and could potentially influence the currency pair’s direction.

Chart EUR/USD by TradingView

On Tuesday, the EUR/USD moved slightly lower and was able to reach the middle band of the Bollinger Bands. Currently, the price is moving around the middle band, suggesting a potential downward movement to reach below the middle band. Notably, the Relative Strength Index (RSI) maintains its position at 53, signaling a neutral outlook for this currency pair.

Resistance: 1.0858, 1.0896

Support: 1.0823, 1.0783

XAU/USD (4 Hours)

XAU/USD See Modest Gains Amid Weakening Dollar and Anticipation for Key Economic Reports

Gold (XAU/USD) experienced a slight increase in its price during Tuesday’s mid-North American session, trading at $2,034.88, a 0.18% gain, amid a backdrop of falling US Treasury bond yields and a weakening US Dollar, as indicated by a 0.05% drop in the US Dollar Index (DXY). This modest uptick occurs as the precious metal hovers around the 50-day Simple Moving Average, with investors keenly awaiting the Personal Consumption Expenditures (PCE) report and latest Gross Domestic Product (GDP) data, which are anticipated to be significant factors that could drive Gold out of its current $2,020-$2,050 trading range. The outlook is further clouded by the recent report on Durable Goods Orders for January, which fell more sharply than expected, and mixed Home Prices data, suggesting a potentially volatile period ahead for Gold prices.

Chart XAU/USD by TradingView

On Tuesday, XAU/USD moved lower to reach the middle band of the Bollinger Bands. Currently, the price is moving just above the middle band, suggesting a potential consolidation movement. The Relative Strength Index (RSI) stands at 53, signaling a neutral outlook for this pair.

Resistance: $2,042, $2,056

Support: $2,030, $2,017

Economic Data

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

CURRENCIES:

• The DXY index, which measures the US dollar’s performance, showed limited movement on Monday despite a slight increase in US Treasury yields.
• Investors are adopting a cautious approach in anticipation of Thursday’s core personal consumption expenditures (PCE) deflator release, a critical inflation measure favored by the Federal Reserve.
• January’s core PCE is anticipated to rise by 0.4% from December, potentially reducing the annual rate from 2.9% to 2.8%, indicating a modest yet positive development.
• There’s a possibility that the actual figures could exceed expectations, mirroring recent trends seen in CPI and PPI reports, which could impact traders’ outlooks.

Upcoming US PCE Report Analysis:

• An unexpected increase in the PCE data might lead to higher interest rate expectations, suggesting a delayed start or smaller reductions in the easing cycle by policymakers.
• Such a scenario would likely result in higher US Treasury yields, benefiting the US dollar.

Technical Analysis of USD Currency Pairs:

• The latter part of the article shifts focus to the technical analysis of EUR/USD, USD/CAD, and USD/JPY currency pairs.
• It will explore market sentiment and pinpoint crucial support and resistance levels that may influence the pairs’ movements in the near future.

STOCK MARKET:

Market Performance:

• The Dow Jones Industrial Average (^DJI) decreased by 0.2%.
• The S&P 500 (^GSPC) dropped by 0.4% after reaching new highs last week.
• The Nasdaq Composite (^IXIC) experienced a 0.1% decline, following a strong performance in tech stocks.

Inflation Data Anticipation:

• Investors are on edge as they await new inflation figures that could challenge the recent stock market rally, particularly after Nvidia’s (NVDA) impressive results.
• Concerns are mounting over a potential surprise in the upcoming Thursday PCE index report, the Federal Reserve’s favored inflation measure, especially after a higher-than-expected CPI report earlier in February led to market volatility.

Economic Indicators and Corporate Results:

• This week’s inflation report is a key focus, alongside updates on consumer and manufacturing sectors, which will provide insights into the US economy’s condition.
• Berkshire Hathaway (BRK-B) is nearing a $1 trillion market valuation following a record annual profit, with Warren Buffett highlighting the company’s durability and acknowledging Charlie Munger’s contributions.
• Domino’s Pizza (DPZ) shares surged 6% after announcing a dividend increase and surpassing fourth-quarter sales forecasts.
• Coinbase (COIN) shares rose 16% as Bitcoin (BTC-USD) remained above $54,000, reflecting positive sentiment in the cryptocurrency market.

Start your CFD Shares Trading journey with VT Markets now!

In forex trading, correlations show how different currency pairs or financial instruments move together. For example, when the EUR/USD pair goes up, the USD/CHF pair often goes down, and vice versa. 

Understanding these relationships is crucial. It helps traders predict market movements, manage risks, and make smarter decisions. In this guide, we will explore correlations in forex trading and how you can use them to improve your strategies. Let’s get started! 

Understanding correlations 

Correlation in forex refers to the statistical relationship between different currency pairs or financial instruments and how they move in relation to each other. 

It is measured on a scale from -1 to +1, where -1 indicates a perfect negative correlation (inverse movement), +1 indicates a perfect positive correlation (same direction movement), and 0 indicates no correlation (movements are independent of each other). 

Understanding correlation helps traders anticipate how one asset’s movement may affect another. 

• _{Positive correlation: This occurs when two currency pairs or assets tend to move in the same direction. For example, if the EUR/USD pair goes up, the GBP/USD pair also tends to rise. Traders can use positive correlations to diversify their portfolios by trading multiple currency pairs that move in tandem, potentially reducing overall risk exposure.} 
• _{Negative correlation: In contrast, negative correlation occurs when two currency pairs or assets move in opposite directions. For instance, when the USD/JPY pair increases, the price of Gold may decrease. Traders can use negative correlations as a hedging strategy to offset potential losses in one position with gains in another, helping to mitigate risk during market fluctuations.} 
• _{Neutral correlation: Neutral correlation indicates a weak or non-existent relationship between currency pairs or assets. For example, the EUR/USD and USD/CHF pairs may show little correlation, meaning their movements do not significantly influence each other. While neutral correlations may not offer direct trading opportunities, they can still provide valuable information about market dynamics and help traders avoid making decisions based on false assumptions of correlation.} 

How to identify correlations 

If you’ve decided to count the correlation between two currency pairs, here’s a guide to help you get started: 

1. Select currency pairs: Choose the currency pairs you want to analyse for correlation. For example, you might want to examine the correlation between EUR/USD and GBP/USD. 

2. Collect historical data: Gather historical price data for the selected currency pairs. You can obtain this data from various sources such as trading platforms, financial websites, or specialised data providers. 

3. Calculate correlation coefficient: Use online correlation calculators, Excel spreadsheets with built-in functions like CORREL, or trading platforms such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5) to compute correlation coefficients between the currency pairs. 

4. Interpret results: Analyse the correlation coefficient to understand the relationship between the currency pairs. A coefficient close to +1 indicates a strong positive correlation, while a coefficient close to -1 indicates a strong negative correlation. A coefficient close to 0 suggests a weak or no correlation. 

5. Repeat for different timeframes: Consider calculating correlations over different timeframes (e.g., daily, weekly, monthly) to identify any changes in correlation patterns over time. This can provide valuable insights into the stability of the correlation relationship. 

By following these steps, you can effectively count and interpret the correlation between currency pairs, helping you make more informed trading decisions in the forex market. 

Factors affecting correlations 

Various factors influence the correlations between currency pairs in forex trading. Understanding these nuances is crucial for traders seeking to anticipate market movements and make informed trading decisions.  

• _{Economic indicators:  Gross Domestic Product (GDP), growth rates, and inflation significantly shape currency correlations. Positive GDP figures in both the Eurozone and the US can strengthen the correlation between EUR/USD and USD/CHF pairs. Divergent inflation rates can weaken correlations as traders adjust their strategies based on economic forecasts.} 
• _{Market sentiment: Reflecting traders’ attitudes towards currencies, market sentiment impacts correlations. During periods of increased risk appetite, currencies like the Australian dollar (AUD) and New Zealand dollar (NZD) tend to exhibit positive correlations. Safe-haven currencies such as the US dollar (USD) and Japanese yen (JPY) may strengthen during times of uncertainty, thereby weakening correlations with riskier currencies.} 
• _{Geopolitical events: Events such as elections or trade negotiations can disrupt currency correlations. Major agreements may strengthen correlations between currencies, while heightened tensions can weaken them as traders seek refuge in safer assets. Increased geopolitical risks might diminish the correlation between USD/JPY and gold.} 
• _{The relationship between currencies and commodities: The interplay between currencies and commodities also influences currency correlations. For example, the Canadian dollar (CAD) often correlates positively with oil prices due to Canada’s significant oil exports. Consequently, a rise in oil prices could strengthen the correlation between USD/CAD and oil. Conversely, if gold prices surge, the correlation between USD/JPY and gold may weaken, given the status of the Japanese yen as a safe-haven currency.} 

Using correlations in trading 

Leveraging correlations in forex trading provides traders with a strategic advantage, offering insights into market dynamics and aiding in risk management. By incorporating correlations into trading strategies, traders refine their approach, optimise trade timing, and enhance overall performance in the forex market. 

• _{Strategy development: Design strategies to capitalise on currency correlations, identifying trends, and optimising trade timing.} 
• _{Risk management: Utilise correlated pairs for hedging to mitigate losses and minimise risk exposure. Additionally, diversify risk across multiple currency pairs or asset classes to reduce volatility and enhance stability.} 
• _{Portfolio diversification: Spread investments across various currency pairs or asset classes with low or negative correlations to minimise overall portfolio risk and enhance long-term stability.} 
• _{Identifying opportunities: Utilise correlations to identify diversification opportunities by selecting currency pairs with low or negative correlations.} 
• _{Asset class monitoring: Monitor correlations between different asset classes to optimise portfolio allocation and achieve risk-adjusted returns.} 

In conclusion, knowing how currency pairs interact is vital for smart decision-making and managing risks in forex trading. Using correlation analysis is strongly recommended as it helps traders choose the best times to trade, manage risks effectively, and get the most out of their investments. 

On Monday, the stock market experienced a downturn, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all closing lower, moving away from recent record highs. This shift comes as investors brace for a slew of economic data, including a crucial inflation measure and updates on consumer spending, which could impact Federal Reserve policy decisions. The market’s focus is particularly on the upcoming personal consumption expenditures price index, a preferred inflation indicator by the Fed. Additionally, Amazon’s inclusion in the Dow signifies a shift toward tech and consumer retail sectors, despite a slight dip in its shares. With Treasury yields rising and various economic indicators on the horizon, investors remain cautious amid an uncertain longer-term outlook, even as currency markets react to potential monetary policy adjustments in the U.S. and Europe.

Stock Market Updates

On Monday, the S&P 500 saw a decline, moving away from the record high it reached the previous Friday, as the market anticipated upcoming inflation data. The index fell by 0.38% to 5,069.53, while the Nasdaq Composite dropped by 0.13%, ending the day at 15,976.25. The Dow Jones Industrial Average also experienced a downturn, losing 62.30 points, or 0.16%, to close at 39,069.23. Notably, Amazon was added to the Dow, replacing Walgreens Boots Alliance, which is expected to heighten the index’s focus on the tech and consumer retail sectors, even as Amazon’s shares dipped slightly by 0.15%. Additionally, Treasury yields rose, exerting further pressure on the stock market.

The market’s recent performance has been bolstered by strong earnings from companies like Nvidia, propelling the S&P 500 and the Dow to record highs at the end of the previous week. However, investors remain cautious, looking ahead to several economic indicators due to be released, including the personal consumption expenditures price index, a key measure of inflation favored by the Federal Reserve. Meanwhile, new home sales for January fell short of expectations amid high mortgage rates, underscoring the ongoing economic challenges. This week will also see the release of data on durable orders, wholesale inventories, consumer spending, and PCE numbers, all of which could significantly influence market sentiment.

Data by Bloomberg

On Monday, the market showed a mixed performance across various sectors. While the overall sectors declined by 0.38%, Energy (+0.32%), Consumer Discretionary (+0.23%), and Information Technology (+0.03%) sectors experienced gains, indicating some areas of strength in the market. However, most sectors saw declines, with Utilities (-2.10%) and Communication Services (-2.09%) facing the steepest drops, followed by significant downturns in Real Estate (-1.14%), Materials (-0.59%), Health Care (-0.50%), and Financials (-0.46%). Industrials and Consumer Staples also saw modest declines, underscoring a generally bearish sentiment across the broader market.

Currency Market Updates

In recent currency market updates, the dollar index experienced a slight decline of 0.1%, influenced primarily by gains in the EUR/USD pair, as investors awaited crucial inflation data from both the U.S. and the eurozone. This upcoming data is expected to provide insights into the future of the narrowing gap between bund and Treasury yields observed since mid-February. The anticipation around this data release stems from its potential to either confirm or alter the current expectations regarding monetary policy adjustments by the Federal Reserve and the European Central Bank (ECB), especially in light of recent economic indicators. The dollar, meanwhile, saw an uptick against traditionally lower-yielding currencies like the yen, as well as risk-sensitive currencies such as the Australian dollar and the yuan, amidst speculations on the Federal Reserve’s interest rate decisions following a strong U.S. jobs report and inflation figures that surpassed forecasts.

Investor focus is particularly honed in on the upcoming core PCE reading, February ISMs, and the March 8 employment report, with the outcomes likely to influence Federal Reserve policy discussions significantly. Despite the current market pricing, which reflects a cautious stance on the pace and extent of Fed rate cuts, the longer-term economic outlook remains uncertain. This uncertainty is exacerbated by persistent high-interest rates and a stock market buoyed by a limited number of companies, raising concerns over potential underperformance in U.S. economic data relative to expectations. Meanwhile, in Europe, inflation data releases are poised to further clarify the ECB’s stance on interest rates, amidst statements from President Christine Lagarde indicating sustained wage growth. Additionally, Japan’s inflation figures and the potential implications for the Bank of Japan’s policy direction add another layer to the global currency market dynamics, with significant attention also being paid to the British pound’s movements against the backdrop of the Bank of England’s anticipated policy decisions.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Gains Amid Speculation of US Interest Rate Cuts and ECB’s Prudent Stance

The EUR/USD pair experienced a rebound, touching the 1.0860 mark as the new trading week began, fueled by a weakening US dollar and speculation about potential Federal Reserve interest rate cuts, possibly starting in June. This speculation has been supported by recent US inflation data and a tight labor market, increasing the odds of monetary easing. Meanwhile, European Central Bank (ECB) official Yannis Stournaras emphasized the need for cautious monetary policy adjustments, aiming for a gradual approach to rate cuts to ensure inflation targets are met. The interplay between anticipated US monetary policy adjustments and the ECB’s prudent stance is likely to continue driving EUR/USD price actions in the near term.

Chart EUR/USD by TradingView

On Monday, the EUR/USD moved higher and was able to reach the upper band of the Bollinger Bands. Currently, the price is moving just below the upper band, suggesting a potential downward movement to reach the middle band. Notably, the Relative Strength Index (RSI) maintains its position at 60, signaling a slightly bullish outlook for this currency pair.

Resistance: 1.0858, 1.0896

Support: 1.0823, 1.0783

XAU/USD (4 Hours)

XAU/USD Retreats Below $2,030 Amid Rising US Treasury Yields and Technical Pressure

Gold experienced a slight downturn, falling below the $2,030 mark during the American trading session on Monday, as it faced technical and fundamental pressures. The recovery of the 10-year US Treasury bond yields toward 4.3% contributed to the decline in the XAU/USD pair, reflecting a dampened appeal for the non-yielding asset. Technical analysis reveals a decrease in buying interest, with a potential for a bearish extension highlighted by the metal’s performance around critical simple moving averages (SMAs) and technical indicators. Meanwhile, the broader market’s cautious stance ahead of significant US economic data releases, including the closely watched US Core Personal Consumption Expenditures (PCE) Price Index, adds to the bearish sentiment surrounding gold.

Chart XAU/USD by TradingView

On Monday, XAU/USD moved lower to reach the middle band of the Bollinger Bands. Currently, the price is moving just above the middle band, suggesting a potential consolidation movement. The Relative Strength Index (RSI) stands at 55, signaling a neutral outlook for this pair.

Resistance: $2,042, $2,056

Support: $2,030, $2,017

Economic Data

CURRENCIES:

• Market confidence surged, led by Nvidia’s strong Q1 2024 forecast.
• Nvidia’s success propelled the S&P 500 to record highs; Japanese index topped after 34 years.
• Gold prices climbed, and the USD sought equilibrium amidst positive market sentiments.
• Anticipated January PCE inflation results could prompt continued USD decline and boost gold.
• Sterling remained strong with minimal impactful data expected to affect its position.
• The Euro’s rally against major G7 currencies may be losing momentum as the week ended.

STOCK MARKET:

Economic data: Dallas Fed Manufacturing Activity, February (-27.4 previously); New home sales, January (684,000 annualized rate expected, 664,000 previously); New home sales, month-over-month, January (+3% expected, +8% previously)

Earnings: Domino’s Pizza (DPZ), Freshpet (FRPT), Hims & Hers (HIMS), iRobot (IRBT), Workday (WDAY), Zoom (ZM)

• Focus on new inflation data this week, particularly the PCE index reading on Thursday.
• S&P 500 and Dow Jones both closed at record highs, with about 1% weekly gains.
• Nasdaq Composite also up, with a 0.6% increase.
• Upcoming inflation data could challenge recent stock market highs.
• Consumer confidence, manufacturing updates, and earnings from Salesforce, Lowe’s, Macy’s, Okta, and Best Buy are anticipated.
• A previous CPI report caused a market sell-off; a similar reaction might occur with the PCE inflation report.
• Economists expect January’s “core” PCE at 2.4% annually and 0.4% monthly, signaling potential inflation concerns.
• Market now anticipates three interest rate cuts in 2024, adjusting from previous expectations.
• Retail sector earnings in focus, with consumer spending trends under examination.
• Federal Reserve’s latest decision keeps interest rates unchanged.
• Citi’s analysis suggests the market hasn’t reached “euphoria” levels yet, indicating potential for further growth.

Start your CFD Shares Trading journey with VT Markets now!

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].