The Week Ahead 8th to 12th January: Q4 earnings season kicks off

Welcome to Key To Markets preview of the Week Ahead.

Currency Pair Performance

5-day performance as of January 4, 2024. 11:30 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it…

Fed minutes give no clues on rate cut timings. Policymakers believe peak rates have been reached but are uncertain about the timing of the first-rate cut this year.

US stocks see the worst 2-day performance since October. Stocks started the year on the wrong foot as investors reassessed the likelihood of aggressive rate cuts from the Fed this year.

The UK service sector grew at the fastest pace in 6 months. The dominant UK sector PMI jumped to 53.4, the fastest pace of growth in 6 months, boosting GBP.

Bitcoin plunges 10% on its 15-year anniversary. The cryptocurrency celebrated 15 years from the mining of the Genisis block by dropping 10% at one point on 3rd January.

US hiring dropped by the most since July 2020. New hires fell by 365k in December, marking the largest monthly decline in 2.5 years, as weakness seeps into the labor market.

Tesla reported record deliveries in Q4 2023. Tesla recorded 484,507 deliveries in the final quarter, ahead of the 480,000 expected. The EV maker delivered 1.8 million vehicles in 2023, up from 1.3 million.

Eurozone business activity shrinks again in December. The composite PMI remained below 50 again in December, meaning that it is likely the economy tipped into recession in Q4.

Maersk share price rises as it extends the Red Sea pause. The shipping giant is benefitting from the ongoing disruption to global trade as shipping times and rates increase as they re-route around Africa.

German inflation rose. Inflation in the eurozone’s second-largest economy rose to 3.7% YoY up from 3.2% in November, raising questions about the timing of the ECB’s first rate cut.

Xerox to cut 15% of its workforce. The digital printing company announced that it will slash its headcount as part of a restructuring process. The share price dropped 12%.

Chart of the Week

Apple has kicked the new year off on the wrong foot. The share price recorded its largest daily decline since September 6th after Barclays downgraded the stock amid concerns over iPhone demand.

Apple extended losses for a fourth straight session after Piper Sandler also lowered its rating on the stock to neutral. Piper Sandler also cited concerns over iPhone demand, which is notable given that iPhone accounts for about half of Apple’s revenue.

Adding to Apple’s challenges is a patent dispute surrounding the blood oxygen sensor in Apple Watch technology.

Looking ahead, Apple Vision Pro will be released in February, and Apple will report earnings on January 25th, which will offer further insight into how iPhone demand is holding up.

5 Things to Watch This Week

1. US CPI
US inflation is due to be released on Thursday, the 11th of January. The data comes after CPI for November eased to 3.1%, In line with forecasts, while core inflation remained at 4%. The data comes as the market is trying to assess how aggressively the Federal Reserve will be cutting interest rates in 2024. Cooler-than-expected inflation could fuel bets that the Fed will cut rates more aggressively this year. Meanwhile, hotter-than-expected inflation could see the market rein in Fed rate cut expectations.

2. US Q4 Banks Earnings
On Friday, U.S. banks kick off the Q4 earning season with JP Morgan, Bank of America, Wells Fargo, Citigroup, and BlackRock, which are all to report earnings on the 12th of January. In Q3, large US banks reported better-than-expected earnings but warned of a rocky road ahead as consumer resilience could be wearing down as more customers struggle to make payments. While high interest rates have boosted net interest income, investors will be watching the impact of higher costs and the potential for higher bad loan charges.

3. China CPI
China inflation data is due on Friday, January 12th, and investors will be looking to see whether deflation in the country has worsened. CPI fell -0.5% annually in November as pressures mounted in the world’s second-largest economy. Deflationary worries have risen in line with other economic pressures in the country, including a liquidity crunch in the property sector, weak trade data, and a slowing recovery from three years of zero Covid lockdowns.

4. Eurozone Retail Sales
Eurozone retail data retail sales will be released on Monday, the 8th of January. Retail sales ticked up slightly in October after three months of decline, but they missed expectations as households remain under pressure amid record interest rates. The market expects the ECB to be one of the first major central banks to start cutting interest rates as the economy struggles. Weak retail sales data could fuel these bets, further pulling the EUR level.

5. Bitcoin
Bitcoin has had a volatile start to 2024, rising above 45K, a 20-month high, before plunging to 41k on the 3rd of January. This week, Bitcoin will remain in focus on expectations that the SEC approval window for the spot Bitcoin ETF is between the 8th and the 10th of January, according to Bloomberg intelligence analyst James Seyffart. While a spot BTC ETF is considered to be bullish for cryptocurrencies over the longer term, the recent rally in Bitcoin suggests that the move may have been priced in, so watch out for a buy the rumor, sell the fact.

Economic Calendar Highlights

Source: FXstreet.com

Technical Analysis:

TA of the major asset classes (Forex – Commodities – Indices).

EUR/USD (D1)

Trend: Bullish above the 50-day SMA, with higher lows marked by green fractals, signifying trend strength.
Support: 1.0821, 1.0712
Resistance: 1.1043, 1.1163
RSI: 51, neutral with bearish divergence suggesting a likely trend reversal.

GBP/USD (D1)

Trend: Bullish as it remains above the 50-day SMA, with a series of higher highs and lows indicated by fractals.
Support: 1.2533, 1.2396
Resistance: 1.2834, 1.2990
RSI: 54, neutral with bearish divergence matching EURUSD.

USD/JPY (D1)

Trend: Bullish correction with a bearish trend- below the 50-day SMA, with new higher highs indicated by the fractals.
Support: 140.78, 143.09
Resistance: 145.58, 148.15
RSI: 55, neutral with evidence of new bullish momentum after reaching oversold conditions.

XAU/USD (Gold vs. US Dollar) (D1)

Trend: Bullish trend above the 50-day SMA, with fractals showing higher lows. The spike record high makes trend analysis less reliable.
Support: 2009, 1967
Resistance: 2082, 2144
RSI: 55, neutral with waning bullish momentum and bearish divergence (if using spike high)

Brent Crude Oil (D1)

Trend: Bullish correction within a bearish trend – below the 50-day SMA, with mixed fractal indications.
Support: 76.31, 72.33
Resistance: 80.02, 84.09
RSI: 50, indicating neutral momentum, neither distinctly bullish nor bearish.

S&P 500 Index (D1)

Trend: Consolidation within a bullish trend above the 50-day SMA, with fractals showing equal highs and lows and a possible double top. Distance above the 50 SMA suggests the market is overextended.
Support: 4621, 4565
Resistance: 4735, 4794
RSI: 50, neutral with a bearish bias. Note a possible positive reversal (a bullish pattern where RSI makes a new low but the price does not).

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

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