Morning Brief – Stock check

Charles Porter
Tue 30 Jan 2024

Stock check

I know, I know. The new year celebrations are still so close in the rear-view mirror how could a whole month have possibly passed? Well, it almost has, and the passing of month end tomorrow will also bring with it new forces into the market. As far as seasonal effects are concerned, January and February typically see constructive flows for the US Dollar. As you’ll recall, year-end 2023 delivered a largely short USD flow outside of the closing handful of sessions. So far this year, the Dollar has been the best performing G10 currency and, even amongst emerging market peers, has significantly outperformed. This week will pose challenges for this latest phase of Dollar support but one that it will more likely than not take within its stride.

This week will see the Federal Reserve publish their latest interest rate decision on Wednesday. The FOMC is expected to push back against dovish market expectations. Whilst it might not be successful in doing so, so long as it keeps this narrative up there will be little scope for significant Dollar selling. As we pass into February, the latest set of non-farm payrolls data will be released. This observation of the January US labour market will be closely watched as always and will likely spur its usual bout of volatility. Markets are looking for a payroll figure of 180 thousand jobs added in January. A miss of this number would undermine the narrative of a strong US economy that could weather higher interest rates for longer.

One of the key drivers of USD strength has been positive growth data. Encouraging US growth data will support the Fed’s efforts to push back against excessive rate cutting expectations. Looking at the data calendar for the Eurozone this week, GDP data due to be published for the Euro area could exacerbate the perceived divergence in economic prospects across the Atlantic. If a technical recession is confirmed in the Eurozone, expect further selling pressure within an already beleaguered EURUSD. 

Discussion and Analysis by Charles Porter

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