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Andreas Zanin
Analysis, Weekly Market Updates | January 26, 2024

The Week Ahead 29th January to 2nd February: New all-time highs for US equities

Welcome to Key To Markets preview of the Week Ahead.

Currency Pair Performance

5-day performance as of January 25, 2024. 11:00 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it…

US stock indices reached record highs. All 3 main indices on Wall Street rose to fresh record highs, boosted by soft-landing optimism and encouraging chipmaker and tech earnings.

TSMC forecast a strong return to growth. The world’s largest contract chipmaker expects revenues to increase by 25% in 2024 on strong demand for AI semiconductors.

ECB left rates unchanged. The central bank left interest rates at the record high 4% and pushed back on early rate cut expectations.

Netflix jumped 10% after earnings. The streaming giant saw 13.1 million new subscribers added in Q4, well ahead of the 8.8 million forecast. Revenue was also ahead of expectations.

BoJ hinted at a hawkish pivot. The BoJ hinted that it could move away from negative interest rates as soon as March, sending the yen sharply higher.

Microsoft’s market cap hit $3 trillion. The tech giant becomes the second company ever to reach this milestone after Apple, as MSFT rides the AI wave.

Trump a step closer to the White House. The former President won the New Hampshire primary putting him a step closer to becoming the Republican nominee and taking on Biden for the White House.

BoC left rates unchanged. The central bank left interest rates unchanged at 5% for a fourth meeting and said it would cut rates only when it was certain that inflation would fall to the target level.

PBoC cut the Reserve Rate Requirement. The amount of cash that banks have to keep in reserve will be lowered to provide longer-term liquidity to help stabilize the market after the CSI 300 fell to a 5-year low.

Bitcoin fell below 40k. The cryptocurrency tumbled below the psychological level after investors sold out of Grayscale ETF in droves to book a profit.

Chart of the Week

Tesla dropped over 6% in after hours trade following the release of Q4 earnings.

The EV makers posted EPS of $0.71c vs $0.74c forecast on revenue of $25.17 billion below the $25.6 billion forecas, despite record deliveries for the quarter and the launch of the Cybertruck.

Total revenue rose just 3% and operating margins fell to 8.2% down from 16% in the same period a year earlier. The weak figures were partly due to a reduced average selling price after steep price cuts.

The bad news doesn’t end there with the EV maker warning of notably slower growth this year due to flagging demand, intensifying competition and persistently high interest rates.

5 Things to Watch This Week

1.Fed Rate Decision
The Federal Reserve will announce its interest rate decision on Wednesday, January 31st, and is expected to leave rates on hold at the 22-year high of 5.25- 5.5%. Instead, the focus will be on Jerome Powell’s press conference for further clues over when the Fed may start to cut rates as inflation ticked higher to 3.8% YoY in December and as data points to a soft landing for the US economy. The market has dialed back Fed rate cut bets and no longer sees a rate cut in March but is pricing in an 85% probability that rates will be 25 basis points lower in May.

2.BoE Rate Decesion
The Bank of England will announce its rate decision on Thursday, February 1st, and is expected to leave interest rates unchanged at 5.25%, a 15-year high. Bank of England governor Andrew Bailey has pushed back on expectations of an early rate cut. However, some economists believe it’s time for the BoE to relax its tough line after recent data shows that wages and economic growth came in below forecasts. The market is pricing in a Bank of England rate cut as early as May, with three more rate cuts expected over 2024.

3.US NFP
US non-farm payroll will be released on Friday, February 2nd, and maybe a little less moving than usual, given the Fed interest rate decision earlier the same week. December’s non-farm payroll was stronger than expected after 216 K jobs were added in December and unemployment held steady at 3.7%. Investors will be watching for further signs of resilience in the jobs market. Any signs of weakness seeping into the jobs market could raise expectations of an earlier rate cut by the Fed.

4.Eurozone CPI
Eurozone inflation (CPI) will be released on Thursday, February 1. CPI ticked higher in December to 2.9% YoY, up from 2.4%, as the base effect dropped out. The market will be watching closely to see whether it resumes its trajectory towards the ECB’s 2% target, which could fuel dovish central bank expectations. However, with supply chain concerns rising and ships re-routing, there is a potential for inflation to remain sticky.

5.Big Tech Earnings
Tesla and Netflix have already reported earnings with very mixed outcomes. This week, other big names will update the market. Microsoft and Alphabet are due to report earnings on January 30. Amazon, Meta, and Apple are set to report on February 1. With the NASDAQ100 at a record high, expectations are running high. The market will want to see the fundamentals to support the lofty valuations.

Economic Calendar Highlights

Technical Analysis

* Trend is determined by the slope of the 50 day moving average, and price relative to the 50 SMA
** Phase is set by the sequence of high and low fractals, and price relative to the 50 SMA

Detailed Analysis

EUR/USD (D1): The price continues to pull back, falling below the 50 SMA. The trend remains bullish but with price below the 50 SMA is at risk of a trend reversal. The pair has found support at 1.06947 and 1.05024, with resistance levels at 1.0892 and 1.10958. The RSI stands at 46, which indicates a neutral to slightly bearish momentum.

GBP/USD (D1): The trend is bullish with the price above a rising 50 SMA. Price remains in a phase of consolidation with matching high and low fractals. Support has been identified at 1.2633 and 1.2378, with the nearest resistance level at 1.2895. The RSI is at 54, signalling that the momentum is neutral with a bullish bias.

USD/JPY (D1): The pair is bullish, having risen above the 50 SMA with a series of higher high and higher lows denoted by the fractals. The support for this pair is noted at 146.57 and 143.82, with resistance coming in at 149.95. An RSI of 60 indicates strong momentum, but has cooled from higher levels in recent days.

XAU/USD (D1): Gold is exhibiting a neutral trend and is in a consolidation phase, with the price drifting above and below the 50 SMA. The support levels are at 1971.0 and 1904.7, while resistance levels are established at 2023.3 and 2104.0. With an RSI of 45, the market is showing a neutral momentum, indicating indecisiveness.

Brent Crude Oil (D1): Continues to rally, taking price above a still down-sloping 50 SMA, potentially signalling a new confirmed bullish trend. The support levels have been marked at 80.08 and 72.68, with resistance levels at 86.87 and 93.79. The RSI is at 58, which supports the bullish sentiment.

S&P 500 Index (D1): The S&P 500 Index maintains a strong bullish trend, with the price reaching a new all-time-high this week in the latest rally. The index has support at 4759 and 4590 and logical next resistance at 4900. The RSI is at an elevated level of 70, which is typically considered overbought; however, in strong trends, the index can remain overbought as it climbs higher.

Thank you very much for reading – and have a great week trading!

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