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Global market sentiment continued to improve over the past week. On Wall Street, the Nasdaq 100, S&P 500 and Dow Jones were up 4.32%, 2.47% and 1.81%, respectively. On the other side of the Atlantic, the German DAX 40 gained 0.77%. Meanwhile, in the Asia-Pacific region, the Nikkei 225 and Hang Seng Index rose 3.12% and 5.15%, respectively.
Global financial conditions continue to ease, helping to restore liquidity to the market, although the Federal Reserve is still raising interest rates and winding down its balance sheet. As such, the US Dollar is feeling the pain and had another lackluster week – see chart below. Gold prices have also gained, although momentum has waned in recent weeks.
A notable standout last week was the Australian Dollar. Higher than expected inflation in Q4 reinforced RBA policy hawkish expectations, pushing AUD/USD higher. The sentiment-linked currency is also benefiting from improved risk appetite. The similarly behaving New Zealand dollar also rose last week.
For now, all eyes will be on Wednesday’s FOMC interest rate decision. The pace of tightening is likely to slow down to 25 basis points. What traders will be interested in, however, is how the central bank’s outlook stacks up relative to market prices. The market appears more dovish than the Fed and preparing for disappointment.
Other notable event risks in the coming week include the January US jobs report as markets continue to assess the health of the economy. The interest rate decisions of the BoE and the ECB are also pending for the British pound and the euro. China publishes manufacturing PMI for AUD/USD. What else awaits the markets in the coming week?
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How the markets have performed – week of 23.1
Fundamental predictions:
S&P 500 and Nasdaq 100: Get ready for a week of events
US stock market traders will look forward to next week’s action-packed data and earnings calendar and the volatility it will bring.
GBP Weekly Outlook: BoE and Fed dictate sterling sentiment
GBP/USD is trading at a key inflection point with next week’s BoE and Fed rate decision set to act as a catalyst for near/medium term directional biases.
The dollar is tied to volatility, with FOMC, NFPs and earnings… but is there a trend?
The US Dollar faces a very high probability of volatility and a forced breakout of an extremely tight range. However, that does not guarantee that what we record will lead to an ultimate trend. Here are the stakes for the greenback with the Fed rate decision, peak US earnings and nonfarm payrolls.
WTI Oil Fundamental Forecast: Short-term outlook promising with key risk events coming week
WTI technicals and fundamentals point to further gains. Will the big risk events over the next week dampen sentiment and halt upside momentum?
Weekly Euro Forecast: ECB hike priced in and core inflation reached?
ECB agrees and signals multiple hikes of 50 basis points as core inflation has proved resilient so far and the economic outlook for Europe is improving as a gas shortage has been avoided.
Gold Price Forecast: Easing financial conditions puts the Fed in a sticky spot
Gold prices could fall if the US Federal Reserve disappoints dovish market expectations that have led to easing in financial conditions before inflation returns to target.
Technical forecasts:
US Dollar Technical Forecast: Testing USD support in a data-heavy week
The US dollar took four months to erase 50% of a trend that took nearly two years to build, but prices have now been lodged at that halfway point for two weeks. That will probably change next week.
S&P 500 and NASDAQ 100 INDEX Technical Outlook: Uptrend
Developments on the charts suggest that US stock indices could be preparing for a break higher, raising the prospect that the worst could be over for now. What is the outlook for the S&P 500 Index and Nasdaq 100 Index and what levels are to watch?
Dollar-Yen Forecast: USD/JPY remains conflicted around 130k
USD/JPY is currently trading in tight support and resistance zones around the psychological 130,000 level. Is this the calm before the storm?
— Body of the article Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
— Individual articles written by DailyFX team members
To contact Daniel, follow him on Twitter:@ddubrovskyFX
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