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Stock futures edged lower on Thursday evening, despite the S&P 500 making headlines earlier in the day by briefly topping the 5,000 mark for the first time during intraday trading, before settling just below this historic level. This slight downturn in futures contrasted with the broader market’s optimism, as the S&P 500 celebrated reaching an all-time high and marked its fifth consecutive week of gains, reflecting confidence bolstered by strong earnings, easing inflation, and a resilient economy. Meanwhile, in currency markets, the dollar saw modest gains, particularly against the Japanese yen following comments from the Bank of Japan’s Deputy Governor. This financial landscape is shaped by mixed earnings reports, with Pinterest experiencing a drop after hours, and anticipation around PepsiCo’s upcoming earnings. The currency market’s dynamics, including movements in the EUR/USD and USD/JPY pairs, underline the global economic intricacies as central banks navigate inflation and interest rate expectations.
Stock Market Updates
Stock futures saw a slight decline on Thursday evening, following a remarkable day where the S&P 500 briefly surpassed the 5,000 mark for the first time in its history during intraday trading. Futures for the Dow Jones Industrial Average fell by 30 points, while S&P 500 and Nasdaq 100 futures both experienced minor drops of around 0.1%. This downturn in futures came after the S&P 500 achieved an all-time high of 5,000.40 during regular trading hours, before closing just shy of this milestone. The index has seen significant growth, adding 1,000 points in nearly three years since it first crossed the 4,000 threshold on April 1, 2021. Factors such as a strong earnings season, easing inflation, and a resilient economy have contributed to a 4.8% increase in the S&P 500 for the year.
Amidst this backdrop of market milestones, the S&P 500 is poised to end the week 0.8% higher, marking its fifth consecutive weekly gain. Similarly, the Dow Jones and Nasdaq Composite are also on track for their fifth week of gains, with increases of 0.2% and 1.1%, respectively. These achievements are supported by robust earnings reports, with 319 companies of the S&P 500 having reported, and 80.6% surpassing analyst expectations, a notable improvement over the typical beat rate of 67% since 1994. However, not all news was positive, as Pinterest shares fell 6% in extended trading due to a disappointing forecast and revenue miss for the quarter, despite a later recovery following an app deal announcement with Google. PepsiCo is also in the spotlight, with its earnings report anticipated before the opening bell on Friday.
On Thursday, the overall market saw a modest increase of 0.06%, with sectoral performance showing a mixed but predominantly positive trend. Energy led the gains, surging by 1.09%, followed by Real Estate and Communication Services, which rose by 0.56% and 0.39%, respectively. Other sectors such as Consumer Discretionary and Information Technology also experienced growth, albeit at a more moderate pace. On the downside, Utilities faced the largest decline, dropping by 0.83%, while Financials and Materials sectors also saw decreases. The day’s trading reflected a varied investor sentiment across different sectors, highlighting both growth opportunities in areas like Energy and Real Estate and concerns in Utilities and Financials.
Currency Market Updates
In the currency market, the dollar index witnessed a modest rise of 0.1%, driven largely by a notable 0.78% increase in the USD/JPY pair. This surge came after the Bank of Japan’s Deputy Governor, Shinichi Uchida, tempered expectations for a significant tightening of monetary policy following the anticipated end of negative interest rates in Japan. Additionally, the dollar received a temporary boost from U.S. jobless claims, which reported slightly below expectations, contrasting with the larger, unexpected increases observed in the previous week. This development aligns with the Federal Reserve’s stance, as indicated by the robust employment figures for January and the ISM services reports, advising against the premature anticipation of rate cuts. Market futures are now pricing in a 64% chance of a rate cut in May, with a total of 116 basis points of easing expected for the year.
In other currency movements, the EUR/USD pair remained steady despite touching earlier lows, finding support at the December and January lows amidst ongoing uncertainty from ECB policymakers regarding the inflation outlook. The reluctance to commit to rate cuts before more data is available—and possibly before the Fed’s anticipated rate cut on May 1—highlights the cautious approach of the European Central Bank. Meanwhile, the USD/JPY’s rally above significant resistance levels, driven by widening Treasury-JGB yield spreads, hints at a potential test of the 150 mark, contingent on upcoming U.S. CPI data. Should inflation figures exceed expectations, it could heighten the probability of revisiting the 32-year peaks seen in 2022/23. The British pound experienced a slight decline but remained above recent lows, amidst comments from BoE’s Catherine Mann advocating for a rate hike and signs of recovery in the UK housing market, contributing to a rise in 2-year Gilt yields.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Stabilizes Amid Mixed Signals from the Fed and ECB on Future Rate Decisions
The EUR/USD pair found itself in a stabilization phase around the 1.0770/80 mark as the US Dollar’s early gains dissipated, influenced by a late loss in momentum despite rising US yields. This shift occurred amidst ongoing investor speculation over the Federal Reserve’s potential easing in its May or June meetings, underscored by cautious tones from Fed Chair Jerome Powell and other Fed officials regarding interest rate adjustments. Meanwhile, European Central Bank (ECB) members expressed varied views on the timing of policy rate changes, adding to the currency pair’s uncertainty. Investors now eye the Fed’s next moves with a heightened focus on upcoming inflation data and the ECB’s stance on its policy rate, navigating through mixed signals on the economic outlook and monetary policy directions on both sides of the Atlantic.
On Thursday, the EUR/USD moved flat and was able to reach above the middle band of the Bollinger Bands. Currently, the price is moving just above the middle band with narrower bands, suggesting a potential slightly upward movement to reach the upper band. Notably, the Relative Strength Index (RSI) maintains its position at 50, signaling a neutral outlook for this currency pair.
Resistance: 1.0817, 1.0880
Support: 1.0724, 1.0662
XAU/USD (4 Hours)
XAU/USD Exhibit Modest Losses Amid US Dollar Fluctuations and Economic Indicators
Gold (XAU/USD) experienced slight intraday losses, trading around $2,030 during the Thursday American session, amidst fluctuating US Dollar strength and key economic indicators. Despite a weak Dollar in Asian markets, it regained momentum before Wall Street opened, influenced by the yield on the 10-year US Treasury note, which rose to 4.16% following upbeat US employment data indicating a rise in weekly unemployment claims to 218K. This robust labor market data, alongside Federal Reserve officials’ remarks aligning with Chair Jerome Powell’s cautious stance on inflation, has led market participants to adjust their expectations for potential rate cuts, contributing to the day’s trading dynamics for gold.
On Thursday, XAU/USD moved higher and was able to reach above the middle band of the Bollinger Bands. Currently, the price is moving slightly above the middle band, suggesting a potential upward movement to reach back to the upper band. The Relative Strength Index (RSI) stands at 50, signaling a neutral outlook for this pair.
Imagine a time when a loaf of bread cost just a few cents, and a gallon of gas was a pocket-change purchase. Now, fast forward to today, where those same items can often dent our wallets significantly.
This gradual increase in the price of goods and services over time is what economists term as inflation. It is a phenomenon that has been shaping economies and markets for centuries, and understanding its nuances is crucial for anyone looking to thrive in the world of forex trading.
Understanding inflation
Inflation, often dubbed the silent thief of purchasing power, is a widespread economic phenomenon impacting individuals, businesses, and entire nations.
At its core, it denotes a sustained increase in the general price level of goods and services over time, resulting in a gradual rise in the cost of living and a decrease in the purchasing power of currency.
While moderate inflation is deemed a natural aspect of healthy economic growth, excessive inflation can undermine purchasing power, disrupt economic stability, and impede long-term prosperity.
Understanding the drivers behind inflation is crucial. They include:
Demand-pull inflation: results from demand exceeding supply due to factors like consumer spending and policy changes.
Cost-push inflation: arises from increased production costs passed on to consumers.
Monetary factors: central bank actions, such as interest rate adjustments, impacting inflation.
Supply chain disruptions: global issues causing shortages and price hikes.
Expectations and psychology: influence behaviour, affecting inflation outcomes.
Types of inflation source: Oscar Education
Types of inflation
Inflation manifests in various forms, each with distinct characteristics and underlying causes:
1. Creeping inflation: Characterised by a slow and gradual rise in prices, creeping inflation is typically associated with stable economic conditions and moderate inflation rates.
2. Walking inflation: Walking inflation refers to a slightly faster pace of price increases compared to creeping inflation but remains manageable and does not pose significant economic risks.
3. Galloping inflation: Galloping inflation represents a rapid acceleration in price levels, often reaching double-digit or triple-digit inflation rates. It can erode purchasing power rapidly, disrupt economic stability, and undermine confidence in the currency.
4. Hyperinflation: Hyperinflation is the most extreme form of inflation, characterised by astronomical inflation rates, often exceeding 50% per month. It results in the complete breakdown of the monetary system, rendering the currency worthless and causing severe social and economic upheaval.
How inflation affects currency values
Understanding how inflation affects currency values is essential for forex traders.
Purchasing power of the US Dollar source: Visual Capitalist
As inflation rises, a currency’s value typically decreases due to the erosion of its purchasing power. This decreased attractiveness prompts investors to seek higher returns, leading to a decline in the currency’s value.
Conversely, currencies from nations with low inflation or stable prices often see increased demand, which strengthens their value against others.
However, this relationship is not always straightforward, as a range of factors like interest rates, economic growth prospects, geopolitical events, and market sentiment can also influence exchange rates.
Role of Central Banks in managing inflation
Central banks play a vital role in managing inflation through monetary policy tools like interest rates, open market operations, and forward guidance.
Inflation targeting frameworks, where central banks set explicit targets, are widespread in many countries.
US Fed inflation targeting vs real inflation rate source: The Real Economy Blog
For forex traders, monitoring central bank decisions is crucial; using tools like the Economic calendar helps anticipate and react to actions swiftly.
Hawkish policies, like interest rate hikes, strengthen a currency, while dovish measures, aiming to stimulate growth, may lead to depreciation as investors seek higher returns elsewhere.
Indicators and metrics to monitor inflation
Inflation serves as a vital gauge of economic health, influencing policy decisions and investment strategies.
US inflation indicators source: Euromonitor
Consumer Price Index (CPI)
CPI tracks changes in household goods and services prices, indicating consumer inflation. Higher CPI signals rising inflationary pressures, potentially leading to currency depreciation.
Producer Price Index (PPI)
PPI tracks changes in producer prices, reflecting upstream inflation trends. Rising production costs may translate into consumer price hikes and inflationary pressures.
Core vs Headline Inflation
Core inflation excludes volatile items like food and energy, offering a stable measure of underlying inflation trends. Comparing core to headline inflation helps filter out temporary fluctuations.
Other Economic Indicators
Monitoring unemployment rates and GDP (Gross Domestic Product) growth provides insights into inflationary pressures and broader economic conditions. High unemployment may dampen wage pressures and inflation, while strong GDP growth may signal inflationary tendencies.
By analysing these indicators, forex traders gain a comprehensive view of inflation trends and their impact on currency values.
Strategies for Trading in an Inflationary Environment
Adapting to inflationary shifts in the forex market requires strategic manoeuvres. Here are concise strategies for traders:
Stay informed about inflation across economies, analysing data releases and central bank announcements for accurate trend anticipation.
Incorporate CPI, PPI, and core inflation into fundamental analysis for insights into economic health and currency values.
Mitigate risks by adapting strategies: adjust position sizes, set stop-loss levels, and diversify portfolios for effective risk management.
Hedge against inflation by strategically positioning in currencies and assets poised to appreciate, such as those from countries with strong inflation-fighting policies or inflation-resistant currencies like gold.
Implementing these streamlined strategies enables forex traders to navigate the complexities of an inflationary market with precision and confidence.
In conclusion, navigating forex trading in an inflationary landscape requires a nuanced understanding of how inflation impacts currency values.
By recognising the relationship between inflation and currency dynamics, utilising key indicators, and implementing strategic approaches, traders can effectively navigate the challenges and opportunities presented by inflation in the forex market.
Stay informed, stay adaptable, and integrate inflation analysis into your trading strategies to enhance your chances of success in the dynamic world of forex trading.
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].
Gold prices have been fluctuating, stuck in a consolidation phase as they await new catalysts.
Upcoming U.S. inflation data could significantly influence gold’s price direction in the near term.
Impact of Federal Reserve’s Monetary Policy
The Federal Reserve’s stance on interest rates is a crucial factor for gold’s future movements. Current signals suggest no immediate rate cuts, which may dampen gold’s appeal.
Inflation Data and Gold’s Reaction
Expected U.S. inflation rates and their potential impact on gold are discussed, with specific projections for January’s CPI.
An unexpected high inflation report could negatively affect gold prices by adjusting interest rate expectations.
Outlook Based on Inflation Outcomes
Lower-than-expected inflation could boost gold prices, possibly affecting market expectations for future rate cuts.
STOCK MARKET:
Stock Market Highlights
The S&P 500 reached a new record high, closing at 4,995, with the 5,000 mark in sight.
U.S. stocks rose, influenced by quarterly earnings reports and ongoing discussions about interest rate cuts.
Despite mixed earnings, notable movements included Alibaba’s shares dropping after a revenue miss and Snap’s significant decline following a disappointing profit forecast.
Disney announced a 50% increase in its cash dividend after reporting strong earnings, leading to a post-market share price surge.
Federal Reserve officials suggest no immediate rate cuts, with a focus on inflation trends before any policy adjustments.
Concerns around regional banks and the real estate sector were sparked by troubles at New York Community Bancorp, despite a slight recovery in its share price.
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 Wednesday, the stock market experienced notable gains, propelling the S&P 500 tantalizingly close to the 5,000 mark, thanks to strong quarterly results underscoring a robust economy. The index rose by 0.82%, setting a new closing high of 4,995.06, while the Nasdaq Composite and Dow Jones also posted gains, driven by upbeat corporate earnings and the growth of tech giants like Nvidia and Microsoft. Despite the Federal Reserve’s cautious stance on interest rate cuts, investor optimism remained buoyed by signs of resilient consumer spending and positive corporate guidance. Additionally, the currency market saw adjustments ahead of key U.S. economic data, with the dollar index slightly retreating as markets await the upcoming CPI report, potentially influencing future Fed policy decisions.
Stock Market Updates
On Wednesday, the stock market witnessed significant gains, with the S&P 500 inching closer to the coveted 5,000 mark, achieving a new closing high as a result of strong quarterly results that suggest a thriving economy. The index saw a 0.82% rise, closing at 4,995.06, and even touched 4,999.89 at its peak during the session. Similarly, the Nasdaq Composite and the Dow Jones Industrial Average experienced increases, with the Nasdaq up by 0.95% to 15,756.64 and the Dow Jones rallying 156 points or 0.4%, to close at an all-time high of 38,677.36. These gains were propelled by optimistic corporate earnings and significant growth in major technology companies like Nvidia, Microsoft, Meta Platforms, Alphabet, and Amazon.
The market’s robust performance is attributed to a better-than-expected earnings season, strong corporate guidance, and signs of resilient consumer spending despite high-interest rates. This optimism persisted even as the Federal Reserve and its officials, including Chair Jerome Powell and Minneapolis Fed President Neel Kashkari, suggested a more cautious approach towards rate cuts, potentially delaying them longer than investors had anticipated. In addition, the stock market’s advance reflects a growing comfort among investors with the prospect of delayed rate cuts. Meanwhile, other notable movements included a significant rise in Enphase Energy’s stock following positive comments on its inventory situation, Ford’s surge after surpassing fourth-quarter expectations, and New York Community Bancorp’s volatile performance after Moody’s downgrade. The market is also anticipating earnings reports from major companies like Walt Disney, PayPal, and Arm Holdings.
On Wednesday, the stock market showed a positive trend across most sectors, with the overall sectors seeing an increase of 0.82%. Information Technology led the gains with a 1.43% rise, followed closely by Consumer Discretionary and Communication Services, which went up by 1.12% and 0.93%, respectively. Other sectors such as Materials, Financials, Industrials, and Health Care also saw increases, albeit at a slower pace, with gains ranging from 0.26% to 0.81%. The Energy and Utilities sectors experienced minimal growth, with increases of 0.16% and 0.05%, respectively. However, not all sectors fared well; Real Estate and Consumer Staples saw declines of 0.06% and 0.08%, marking them as the only sectors to experience a downturn on Wednesday.
Currency Market Updates
In the currency market, the dollar index saw a minor decline on Wednesday, entering a period of consolidation after experiencing significant gains fueled by robust U.S. employment figures and ISM data. This pause in momentum comes as the market anticipates further disinflationary data before the Federal Reserve considers any rate cuts. The focus now shifts to the upcoming U.S. CPI data scheduled for February 13, which could play a crucial role in shaping future Fed policy decisions. Despite a decrease in the likelihood of a March Fed rate cut, from previously higher probabilities, the market still anticipates substantial easing throughout the year, a scenario that remains more aggressive than the Fed’s own projections.
Currency pairs reacted to these developments, with the EUR/USD pair showing some resilience by posting a modest gain of 0.14%, despite facing resistance at key technical levels. This movement reflects ongoing market adjustments ahead of significant Treasury auctions and amidst mixed signals from Fed officials regarding the pace of future rate cuts. Meanwhile, the USD/JPY pair edged higher, influenced by the dynamics of Treasury yields in comparison to Japan’s relatively stable and low yields. Other currencies, such as the British pound and the Swiss franc, also experienced movements influenced by speculation around monetary policy adjustments and interventions, respectively. As markets brace for the U.S. annual CPI revisions and January’s CPI report, currency traders remain vigilant, gauging the potential impact of these releases on Fed policy and consequently on currency valuations.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Rises Amid USD Weakness and Central Bank Signals
As the US Dollar experiences a corrective decline, dipping back to the 104.00 area due to lower US yields and speculations around the Federal Reserve’s potential easing in its May or June meetings, the EUR/USD pair found the opportunity to climb back to the 1.0780 level. This move is further supported by Fed Chair Jerome Powell’s remarks on a cautious approach to interest rate adjustments and Minneapolis Fed Neel Kashkari’s openness to evaluating data before rate cuts, hinting at 2-3 adjustments this year. Meanwhile, the European Central Bank (ECB) Board member Isabel Schnabel highlights the critical phase of monetary policy adjustment in the EU, advocating for prudence amidst challenging economic signals. This juxtaposition of the Fed’s easing potential and the ECB’s cautious stance contributes to the current dynamics of the EUR/USD exchange rate.
On Wednesday, the EUR/USD moved higher and able to reach above the middle band of the Bollinger Bands. Currently, the price is moving just above the middle band with narrower bands, suggesting a potential slightly upward movement to reach the upper band. Notably, the Relative Strength Index (RSI) maintains its position at 49, signaling a neutral outlook for this currency pair.
Resistance: 1.0817, 1.0880
Support: 1.0724, 1.0662
XAU/USD (4 Hours)
XAU/USD Rise Amid Weakening US Dollar and Static Treasury Yields
Gold (XAU/USD) experienced a notable increase, reaching $2,044.64, driven by a combination of Wall Street’s positive momentum and a weakening US Dollar, which struggled throughout the day due to a lack of significant market events. This shift came as investors adjusted their positions following recent announcements from major central banks, which tempered expectations for rate cuts. Despite optimistic remarks from Federal Reserve officials on inflation trends, caution was advised against premature policy adjustments. Concurrently, a decrease in early gains for US Treasury yields, with the 10-year note dropping slightly to 4.09%, contributed to the Dollar’s underperformance, further bolstering gold’s appeal.
On Wednesday, XAU/USD moved higher and was able to reach the upper band of the Bollinger Bands. Currently, the price is moving slightly above the middle band, suggesting a potential upward movement to reach back to the upper band. The Relative Strength Index (RSI) stands at 52, signaling a neutral outlook for this pair.
The US dollar saw a significant boost following strong economic data and is poised for further movement based on upcoming Federal Reserve speakers’ comments.
Despite a slight softening, the dollar had previously surged over two days, fueled by a better-than-expected non-farm payroll report, indicating a robust and strengthening labor market.
The services sector, as shown by the ISM services PMI, has expanded for 13 consecutive months, surpassing expectations and previous readings, hinting at a resilient economy despite tight monetary policies.
Improvements in new orders, prices, and imports within the ISM report suggest strong consumer spending and the impact of increased shipping costs on prices.
The Senior Loan Officer Survey highlighted a growing willingness among credit providers to extend credit and a slight increase in demand for it, contrasting with expectations in a high-interest rate environment.
Economic Indicators and Fed’s Influence
Federal Reserve Speakers and USD Outlook:
The dollar’s trajectory may continue to be influenced by forthcoming comments from Fed speakers on monetary policy and interest rates.
Observations on economic data and cautious approaches to interest rate cuts are anticipated to contribute to the dollar’s recent advances.
This economic resilience and strong data suggest potential delays in starting interest rate cuts, leading to recent gains in US yields and the dollar.
The dollar index (DXY) showcased significant gains, with a focus on whether this momentum can be sustained, especially as it approaches key resistance levels noted in previous months.
Federal Reserve’s Neel Kashkari’s comments on the unexpected strength of the US economy indicate that the current interest rates may not be as impactful due to a higher post-Covid neutral rate.
STOCK MARKET:
Snap Inc.’s Financial Performance and Market Reaction
Snap Inc., the parent company of Snapchat, did not meet Wall Street’s revenue forecasts for the quarter, causing a 30% drop in its stock price.
Despite its innovative features, Snap struggles to secure digital advertising revenue against larger competitors like Facebook’s Meta Platforms and Alphabet.
Comparison with Industry Giants
Internal Challenges Over Macro-Economic Issues
Analysts suggest Snap’s revenue shortfall is due to internal issues rather than broader economic challenges, indicating a failure to leverage a resilient advertising market.
Strategic Focus and Management’s Response
CEO Evan Spiegel emphasized the potential for growth, planning to target advertisers aiming for direct sales or website traffic, moving away from mere brand awareness campaigns.
Snap reported Q4 revenue of $1.36 billion, below the expected $1.38 billion, with its annual revenue for 2023 remaining steady at $4.6 billion.
Operational Adjustments and Future Outlook
Snap announced a 10% workforce reduction, equivalent to 528 employees, as part of its strategy to invest in long-term growth.
The company aims to expand Snapchat’s user base, especially in its most profitable markets like North America and Europe, despite stagnation and modest growth in these regions, respectively.
With 414 million daily active users in Q4, surpassing the anticipated 411.6 million, Snap foresees growth to 420 million users in the next quarter, projecting revenue between $1.1 billion and $1.14 billion against analysts’ expectations of $1.1 billion.
Following these announcements and the earnings call, Snap’s shares significantly declined in after-market trading.
In contrast to Snap’s performance, Meta’s advertising sales increased by 25% in the last quarter, while Google saw an 11% growth in its ad business, including a 16% rise in YouTube ad sales.
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].
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