Week Ahead: USDInd braced for heavy hitters

• High impact events could rock markets

• Central bank decisions, earnings & data in focus

• 4 key factors could move USDInd

• USDInd waiting for potent catalyst

• Keep eye on 50, 100 and 200-day SMA

A flurry of high impact events could rattle financial markets in the week ahead.

Rate decisions by major central banks, heavy hitting economic reports and corporate earnings from the largest companies in the world will be in focus.

Monday, 29th January  

• NZD: New Zealand trade

Tuesday, 30th January

• AUD: Australia retail sales
• JPY: Japan unemployment
• EUR: Eurozone/Germany GDP
• NQ100_m: Microsoft, Alphabet earnings
• SPX500_m: Starbucks, Pfizer earnings

Wednesday, 31st January  

• CNH: China non-manufacturing & manufacturing PMI’s
• EUR: Germany CPI, unemployment
• USD: Fed rate decision, US Treasury quarterly refunding
• WSt30_m: Boeing earnings
• SPX500_m: Mastercard earnings

Thursday, 1st February

• EUR: Eurozone S&P manufacturing PMI, CPI, unemployment
• CHF: SNB rate decision
• GBP: BoE rate decision
• USD: ISM manufacturing, initial jobless claims
• NQ100_m: Apple, Amazon, Meta earnings

Friday, 2nd February

• USD: US jobs report
• Wst30_m: Chevron earnings
• SPX500_m: Exxon Mobil earnings

Markets may experience heightened levels of volatility due to the scheduled releases and high-risk events. Our focus falls on the USDInd which seems to be waiting for a potent fundamental spark.

The USD Index tracks how the dollar is performing against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

Interestingly, the dollar has appreciated against almost all G10 currencies year-to-date.

Dollar bulls has been supported by cooling bets around the Fed cutting rates in Q1 amid strong US economic data.

With all the above said, the USD Index could see a significant move due to these 4 key factors:

1. Fed Decision

According to markets, the March meeting could be a close call with traders currently pricing in a 50% probability of a US rate cut – according to Fed Fund futures.

Note: The incoming PCE report this afternoon could impact these odds.

Initial expectations around the Fed cutting rates earlier than expected were cooled by stronger-than-expected US economic data over the past few weeks. With this said, much attention will be directed towards Powell’s press conference for any clues on future rate moves.

Even if the Fed holds back on cutting rates in March, this meeting may set the stage for a cut in May.

• The USDInd could strengthen if the Fed pushes back on rate cut bets and offers little insight on future moves.
• Should the central bank sound strike a dovish tone, decide to cut rates or signal a rate cut in May, this may weaken the USDInd.

2. US Treasury quarterly refunding

This is when the US government announces its plans for debt auctions for the quarter ahead.

It is worth noting that this event has sparked volatility in the US bond markets in the past, impacting the dollar as a result.

Note: Falling Bond Prices –> Rising Yields –> Appreciating Dollar (vice versa)

In the last quarterly refinancing on the 1st of November, the Treasury announced a lower-than-expected refunding estimate. This along with other factors sparked a selloff on the benchmark 10-year Treasury yield, dragging yields below 4% by the end of 2023 – coinciding with the selloff on the USDInd.

Note: There were other forces at play weakening the dollar, primarily the Fed’s dovish pivot.

• Should the announcement from the Treasury push US yields higher, this could provide the USDInd a boost.
• An announcement that results in a selloff in US yields has the potential to stimulate dollar bears, hitting the USDInd as a result.

3. US December nonfarm payrolls (NFP)

Markets expect the US economy to have created 185,000 jobs in December, compared with the 216,000 in the previous month. The unemployment rate is forecast to remain unchanged at 3.7% while average earnings are forecast to rise 0.3% MoM compared with 0.4% in the prior month.

• A stronger-than-expected US jobs report could cool rate cut bets, pushing the USDInd higher as a result.
• However, evidence of a cooling US jobs market could reinforce expectations around lower US rates – pulling the USDInd lower.

4. Technical forces

The USDInd has been trapped within multiple ranges on the daily charts with prices entangled by the 200 and 50-day SMA. It looks like the index needs a potent fundamental or technical spark to get the engines running.

• A solid breakout and daily close above 103.70 could trigger an incline towards the 100-day SMA at 104.40 and 105.00.
• Should prices break below the 50-day SMA at 103.00, bears could be encouraged to target 102.10 and 101.35.