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Andreas Zanin
Analysis, Weekly Market Updates | February 2, 2024

The Week Ahead 5th February to 9th February: Central banks leave rates unchanged as the quarterly earnings season continues.

Welcome to Key To Markets preview of the Week Ahead.

Currency Pair Performance

5-day performance as of February 2, 2024. 14:30 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it…

Federal Reserve left rates unchanged. Fed Chair Powell pushed back on a March rate cut, saying it was not his base case scenario, boosting the USD to a 7-week high.

Alphabet fell despite strong growth. The Google parent posted a 13% rise in revenue, the fastest since early 2022, and EPS of $1.64. Google’s ad business disappointed slightly, sending the share price lower.

BoE left rates unchanged. The vote split was more hawkish than expected, with two policymakers voting for a rate hike.

Microsoft fell despite record earnings. The tech giant beat expectations with an 18% rise in revenue and EPS at $2.93. However, the share price fell after it warned about rising AI costs.

Eurozone inflation cooled. As expected, CPI eased to 2.8% YoY in January, but core CPI was stickier than expected at 3.3% YoY, raising doubts over when the ECB could cut rates.

BoJ minutes hinted at a hawkish pivot. The minutes of the latest meeting showed discussions surrounding a hawkish pivot away from its ultra-loose stance.

Australian inflation cooled by more than expected. CPI cooled to 0.6% QoQ in Q4 as high-interest rates slowed the economy. Retail sales also plunged, pulling AUD/USD towards 0.65.

AMD fell almost 6% after earnings. The chipmaker posted better-than-expected revenue, and profit met forecasts. The share price fell after a 137% rally over the past 12 months.

BNP fell 8% after quarterly results. The French bank reported a quarterly sales miss and lowered its profit target, resulting in its largest daily loss since last March.

Chart of the Week

The Magnificent 7 has been a central focus for the market over the past year as the likes of Nvidia, Alphabet, Amazon, Meta, Apple, Tesla, and Microsoft accounted for most of the gains in the US benchmark index.

However, this chart shows that 84% of S&P 500 stocks are now trading above their 100-day moving average, a sign that the rally is starting to broaden out beyond big tech into less loved corners of the market.

Morgan Stanley’s Mike Wilson said, “There are opportunities outside the Magnificent 7 companies that have powered gain through 2023”. He suggests that investors look to high-quality, growth names that can generate pricing power.

5 Things to Watch This Week

1. US ISM Services PMI
After the Federal Reserve interest rate decision and US number farm payroll data last week, this week is much quieter for US economic releases. ISM services PMI will be the main focus for the US. Investors will be watching to see whether the dominant sector in the US economy continues in expansionary territory. Strong service sector data could support the Fed’s view that it’s still too early to start cutting rates.

2. China CPI
China’s consumer price index (CPI) will be released on Thursday, February 8. Investors were watching to see whether deflation continues into the start of the new year after CPI fell -0.3% in December. China’s inflation data reflects weak demand and shows an economy that is in the doldrums. Cooler-than-expected inflation could raise further concerns over the fragile economic recovery in the world’s second-largest economy.

3. Eurozone retail sales
Eurozone retail sales are due to be released on Tuesday, February 6. The data comes as interest rates in the region remain at a record high of 4%, squeezing households. Germany, the eurozone’s largest economy, posted a 1.7% drop in retail sales in December, which doesn’t bode well for the eurozone’s sales figures. Weak sales data could see the market bring forward ECB rate cur bets.

4. RBA rate decision
The RBA decision is on Tuesday, February 6, and policymakers are expected to leave interest rates at the current level of 4.35%. The market will be looking for clues as to when the RBA may start to cut rates after inflation data was weaker than expected in Q4 and after retail sales plunged, highlighting the squeeze that higher rates are having on households.

5. Walt Disney Q1 earnings
Disney will release Q1 earnings on Wednesday, February 7. Expectations are for EPS of $1.04 on $23.79 billion in revenue. The results come as the share price is down over 9% over the past year, underperforming the broader market. Attention will be on the streaming market, particularly after Netflix’s impressive performance. Investors will also be watching to see whether the Experiences segment continues to outperform. A string of movie flops could negatively impact results.

Economic Calendar Highlights

Technical Analysis Table

* 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 is in a sell-off phase, showing a bearish trend with the latest price at 1.07933, falling below the 50 SMA. The pair has support at 1.0704 and 1.0502, with resistance levels at 1.0916 and 1.1123. The RSI has dropped to 36, indicating a shift towards bearish momentum.

GBP/USD (D1): The trend has shifted to neutral with the price engaging in a consolidation phase, currently at 1.2648 and below the 50 SMA. Support is slightly adjusted at 1.2637 and 1.2375, with the nearest resistance level remaining at 1.2895. The RSI has decreased to 45, suggesting a neutral momentum with a slight bearish bias.

USD/JPY (D1): Maintaining its bullish stance, the pair is experiencing a pullback with the price at 146.82. Support levels have been slightly adjusted to 146.59 and 143.74, with resistance steady at 149.95. The RSI has moderated to 52, reflecting somewhat strong momentum but less intense than before.

XAU/USD (D1): Gold has transitioned to a bullish trend, currently in a rally phase with the price at 2039.9. The support levels have been updated to 2003.9 and 1941.1, while resistance levels are now at 2064.9 and 2144.8. The RSI has improved to 53, indicating a neutral to slightly bullish momentum.

Brent Crude Oil (D1): The bullish trend continues with a strong 3-day pullback, bringing the price to 80.39. Support has been significantly adjusted to 73.39, with new resistance levels at 80.74 and 87.59. The RSI remains at 53, just about supporting the bullish sentiment.

S&P 500 Index (D1): Still bullish, the S&P 500 Index is experiencing a pullback with the current price at 4858.0. Support levels have been adjusted to 4754.6 and 4603.6, with the next resistance level at 4932.9. The RSI is at 59, suggesting strong momentum but slightly below the overbought threshold.

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

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