Investing in Uncertain Times:
Market Analysis for Week Number 06 2024
DERBYSHIRE UK, Feb 09, 2024, Week 6. Welcome to Friday.
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United States: Economy Faces Headwinds but Remains Resilient
Economic Indicators: Key economic indicators in the United States point to a slowdown in economic growth. GDP growth is forecast to moderate to 0.5% by the end of the first quarter, inflation is expected to ease towards 2.8%, and unemployment is projected to rise slightly to 4.3%. Retail sales are anticipated to show continued expansion, with non-farm payrolls predicted to increase but at a slower pace.
Monetary Policy: The Federal Reserve has opted to maintain higher interest rates in an effort to control inflation. It appears unlikely that the Fed will cut rates for some time, and markets are increasingly pricing out expectations of a near-term rate decrease. Interest rates are forecast to remain at around 5.5% by the end of the quarter.
Geopolitical Landscape: Geopolitical tensions remain a potential source of market volatility. China's economic reopening and its relationship with the U.S. could significantly impact the global economy. The geopolitical environment presents ongoing risks associated with supply-chain disruptions, as well as concerns about a slowdown in global economic growth.
Technical Analysis: The dollar index (DXY) is showing signs of a potential rebound after recent declines. Support levels can potentially be found near the 103.00 range, while resistance could be near the 105.00 level in the coming weeks. Trading Economics forecasts the DXY to trade at 104.37 by the end of this quarter.
Key Economic Events:
4 days until the - US Inflation Rate
6 days until the - US Retail Sales MoM
19 days until the - US Monthly GDP MoM
28 days until the - US Non-Farm Payrolls
28 days until the - US Unemployment Rate
40 days until the - US Interest Rate
Canada: Outlook Remains Uncertain Amid Tight Monetary Policy
Economic Indicators: Canada's economic growth faces significant headwinds, with GDP contracting in the third quarter of 2023. Despite expectations of a recovery to 0.5% growth by the end of the current quarter, the inflation rate remains elevated at 3.4%, potentially triggering further monetary tightening. The unemployment rate stabilised at 5.8%, offering a mixed signal, with Trading Economics projecting a rise to 6.1% by quarter's end.
Monetary Policy: The Bank of Canada maintains a restrictive monetary policy with interest rates held at 5%, aiming to curtail inflation. However, policymakers have acknowledged the slowdown in economic activity and hinted at a potential pause in rate hikes. Analysts project interest rates to remain at 5% by the end of this quarter, underscoring the potential for a near-term pivot by the BoC.
Geopolitical Landscape: Global geopolitical tensions add risk factors for the Canadian economy. Developments such as the Ukraine-Russia conflict and supply-chain disruptions related to China's economic reopening have the potential to significantly influence global economic growth and inflation. Additionally, uncertainties surrounding energy markets and oil prices remain relevant factors that impact Canada's economic outlook.
Technical Analysis: The USD/CAD currency pair faces downward pressure amidst recent remarks from the Fed, hinting at the easing of its aggressive monetary policy. The pair could encounter support near the 1.33 level, with the potential for resistance near 1.36 in the coming weeks. According to Trading Economics forecasts, the USD/CAD is expected to trade around 1.35 by the end of the quarter.
Key Economic Events:
0 days until the - CA Unemployment Rate
11 days until the - CA Inflation Rate
20 days until the - CAP Monthly GDP MoM
26 days until the - CA Interest Rate
Euro-Area: Economic Growth Stagnates Amid Tightening Policy
Economic Indicators: The Euro Area faces economic headwinds, evidenced by its GDP unexpectedly stalling in the fourth quarter of 2023. While a slight GDP expansion of 0.3% is anticipated for the current quarter, inflation remains elevated at 2.8%, though easing, potentially requiring further monetary tightening. The unemployment rate stabilised at 6.4%, hinting at a weakening labour market with Trading Economics projecting a rise to 6.8% by quarter's end.
Monetary Policy: The European Central Bank maintains a restrictive monetary policy with interest rates held at 4.5%, targeting inflation control. Officials emphasise the need for patience before considering cuts as underlying price pressures and geopolitical tensions raise concerns of further inflation volatility. Analysts project interest rates remaining at 4.5% by the end of the current quarter.
Geopolitical Landscape: The Euro Area economy faces risks from rising global temperatures, particularly related to climate pressure on Western governments. Political and military tensions between Russia and Ukraine, the potential for Russian military deployment in Niger, as well as shifts in China's engagement with Europe pose further market and economic risks.
Technical Analysis: The EUR/USD currency pair faces selling pressure amidst signals of continued tight monetary policies by the ECB and the Fed. Traders will consider support near the 1.07 level, with possible resistance found around 1.08 in the coming weeks. Trading Economics forecasts the EUR/USD exchange rate to trade near 1.07 by the end of this quarter.
Key Economic Events:
26 days until the - EA Retail Sales MoM
5 days until the - EA Monthly GDP MoM
13 days until the - EA Inflation Rate
21 days until the - EA Unemployment Rate
27 days until the - EA Interest Rate
United Kingdom: Economy Faces Downside Risks Amid Policy Uncertainty
Economic Indicators: Economic indicators in the United Kingdom suggest the presence of downside risks. GDP unexpectedly contracted in the third quarter of 2023, while inflation rose in December, highlighting persistent price pressures. Weakness in trade, as evidenced by a sharp decline in retail sales, adds to the negative sentiment. The unemployment rate remains low, offering a mixed signal, with Trading Economics projecting a rise to 4.2% by quarter's end.
Monetary Policy: The Bank of England has recently begun to consider slowing its rate of monetary tightening, as evidenced by the latest meeting's vote split regarding rate cuts. Yet, policymakers retain a degree of uncertainty about the outlook for inflation. Markets and Trading Economics analysts project interest rates remaining at 5.25% by the end of this quarter.
Geopolitical Landscape: The UK economy faces geopolitical risks such as the potential for rising tensions in Europe and the global economic impact of China's reopening. While not directly impacting the UK's trade and economic dynamics, these developments, especially the war between Russia and Ukraine, add to a generally uncertain global economic outlook.
Technical Analysis: The GBP/USD currency pair remains under downward pressure despite a recent rebound, signalling that investors may be tempering expectations of imminent rate cuts due to cautious monetary policy signals. The pair may find support near the 1.25 level with potential resistance around 1.27 in the coming weeks. Trading Economics forecasts the GBP/USD exchange rate to trade near 1.25 by the end of this quarter.
Key Economic Events:
4 days until the - UK Unemployment Rate
5 days until the - UK Inflation Rate
6 days until the - UK Monthly GDP MoM
7 days until the - UK Retail Sales MoM
41 days until the - UK Interest Rate
Switzerland: Economic Recovery Faces Risks Amid Tight Policy
Economic Indicators: Switzerland's economic recovery shows signs of strength, with GDP expanding in the third quarter of 2023. However, inflation remains slightly elevated, and rising electricity prices and taxes could pose some risks. The country's unemployment rate ticked up slightly, but remains at a relatively low level. Trading Economics forecasts GDP growth of 0.4% and inflation at 1.4% by the end of the quarter.
Monetary Policy: While the Swiss National Bank (SNB) maintained its benchmark interest rate at 1.75%, policymakers acknowledge that inflationary pressures may require future monetary policy adjustments. Recent commentary emphasises the SNB's focus on ensuring price stability, aligning with its mandate. Markets and Trading Economics anticipate interest rates remaining unchanged at 1.75% by the end of this quarter.
Geopolitical Landscape: geopolitical instability and its consequences, namely the war between Russia and Ukraine and its subsequent effects on energy prices, contribute to an element of market risk for Switzerland's economy. This may potentially increase energy costs and inflation in the coming months and limit its export growth.
Technical Analysis: The USD/CHF currency pair faces moderate upward pressure due to recent strength in the U.S. dollar. Although a rebound is plausible, signals point to the USD/CHF potentially finding resistance around the 0.88 level, with support anticipated near 0.86 over the coming weeks. According to Trading Economics forecasts, the USD/CHF is expected to trade around 0.87 by the end of this quarter.
Key Economic Events:
27 days until the - CH Unemployment Rate
4 days until the - CH Inflation Rate
20 days until the - CH Monthly GDP MoM
41 days until the - CH Interest Rate
Japan: Recovery Shows Signs of Slowing Amid Stalling Policy Adjustments
Economic Indicators: Japan's economic recovery faces headwinds, as reflected in a sharp GDP contraction in the third quarter of 2023. Inflation, while exceeding the central bank's target, has declined modestly. The unemployment rate remains low, offering a positive note. Overall, economic indicators present a mixed outlook. Trading Economics forecasts GDP growth of 1.5% and inflation at 2.3% by the end of this quarter.
Monetary Policy: The Bank of Japan (BOJ) maintains a highly accommodative monetary policy with negative interest rates, signalling minimal shifts in interest rates for the foreseeable future. BOJ officials emphasise that gradual increases in inflation and wage growth require continued support in order to solidify the price stability target. Markets and Trading Economics predict an interest rate of 0.10% by the end of this quarter.
Geopolitical Landscape: Geopolitical instability remains a source of market risk for Japan's economy. Developments such as the Ukraine-Russia conflict and regional tensions have the potential to disrupt trade, lead to energy price volatility, and ultimately hinder Japanese economic growth.
Technical Analysis: The USD/JPY currency pair demonstrates downward pressure as recent dovish BOJ commentary undermines demand for the Japanese yen. This weakness appears poised to continue, and prices may find support near the 147 level with resistance anticipated around the 150 range in the coming weeks. Trading Economics forecasts USD/JPY to trade around 148.32 by the end of this quarter.
Key Economic Events:
5 days until the - JP Monthly GDP MoM
17 days until the - JP Inflation Rate
20 days until the - JP Unemployment Rate
39 days until the - JP Interest Rate
Australia: Economic Growth Faces Pressure Amid Pause in Tightening
Economic Indicators: Australia's economic growth in the third quarter slowed substantially, highlighting risks as the impact of previous rate hikes is being felt. Inflation eased in the fourth quarter, although it remains well above the central bank's target. With its unemployment rate low but gradually rising, economic indicators portray a mixed environment. Trading Economics forecasts GDP growth of 0.2% and inflation near 4.1% by the end of this quarter.
Monetary Policy: The Reserve Bank of Australia (RBA) maintained its key policy rate steady, suggesting its rate hiking cycle might be drawing to a close. RBA officials, however, noted that persistent inflation would necessitate further policy adjustments. While acknowledging an easing in inflationary pressures, they indicated uncertainty over the timing of inflation returning to the target range. Markets remain watchful and analysts forecast interest rates will remain unchanged at 4.35% by the end of this quarter.
Geopolitical Landscape: Australia's economy faces risk factors associated with evolving geopolitical events. Ongoing conflict between Russia and Ukraine, regional tensions across the Asia-Pacific and China's reopening may all affect supply chains and energy prices, leading to disruptions and volatility throughout the broader global economy.
Technical Analysis: The AUD/USD exchange rate faces downward pressure as signals of easing price pressures have weighed on the currency. The RBA's pause on rate hikes, as opposed to continued tightening elsewhere, presents potential headwinds for the AUD. The pair might encounter support near 0.64 and resistance within the 0.66 range throughout the coming weeks. According to Trading Economics forecasts, the AUD/USD is expected to trade near 0.65 by the end of this quarter.
Key Economic Events:
39 days until the - AU Interest Rate
6 days until the - AU Unemployment Rate
26 days until the - AU Monthly GDP MoM
75 days until the - AU Inflation Rate
New Zealand: Uncertain Recovery amid Elevated Inflation Risks
Economic Indicators: New Zealand's economy presents a mixed outlook. GDP contracted in the third quarter, underlining the impact of a slowing economy impacted by elevated interest rates. Inflation rates have recently eased, though they remain well above the Reserve Bank's target range. Additionally, labour market numbers offer positive indicators with relatively low unemployment. Trading Economics forecasts GDP growth of 0.3% and inflation of 4.3% at the end of this quarter.
Monetary Policy: The Reserve Bank of New Zealand (RBNZ) maintained its official cash rate unchanged at 5.5%, extending the rate pause for the fourth straight gathering. RBNZ policy makers remain mindful of inflationary risks and have underscored the need to bring inflation back to the 1-3% target zone. Markets anticipate that interest rates will need to remain elevated for an extended time frame. Trading Economics forecasts interest rates to remain at 5.5% by the end of this quarter.
Geopolitical Landscape: New Zealand's economic recovery remains subject to evolving geopolitical factors such as the conflict between Russia and Ukraine, regional tensions across the Asia-Pacific and China's reopening strategy. These ongoing risks may impact supply chains, energy prices, and international trade, and have potential ripple effects across the global economy.
Technical Analysis: The NZD/USD currency pair appears to face downward pressure as signals persist that interest rate cuts may be delayed by the RBNZ, despite evidence of inflationary pressures easing. In the coming weeks, the NZD/USD might fluctuate, finding support near the 0.60 level with resistance around the 0.62 range. According to Trading Economics forecasts, the NZD/USD is expected to trade near 0.60 by the end of this quarter.
Key Economic Events:
81 days until the - NZ Unemployment Rate
19 days until the - NZ Interest Rate
40 days until the - NZ Monthly GDP MoM
67 days until the - NZ Inflation Rate
Gavin Pearson
Retail trader since 2008
Specialises in forex
Funded account from the 5ers.com
Member of the eToro Popular Investors Program
Regular contributor to FXStreet.com analysis and education pages
Returned 27% in 2022 and -2.7% in 2023
Exclusively forex focused
Copy Trading available at eToro
Disclaimer
Past performance is not indicative of future results
Trading involves risk, and you could lose money
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