DOLLAR BEARS TAKE CHARGE

Stock market surge and rate cut speculations

Last week, the S&P 500 (SPX) broke the 4,500 mark for the first time since August, driven by dropping U.S. Treasury yields. Optimism soared on expectations of potential Federal Reserve interest rate cuts, fueled by softer October CPI data. This bullish momentum, a three-week rally, hinges on a possibility of a pause in the Fed’s rate hikes. The S&P 500’s 2.2% climb last week marked its highest level since September. Potentially signaling a revival of last year’s October rally and aiming towards challenging the market’s all-time record set in January 2022.


Uncertain rate cut projections

The market leans towards the Federal Reserve maintaining its target rate for the next three meetings, but opinions on an imminent rate cut are uncertain. Speculations focus on a potential cut, possibly starting around the May policy meeting, with a 60% chance according to futures.


Data impact on USD and market movement

The trajectory of the US dollar and bond yields hinges on incoming data this week, influenced by US inflation and borrowing costs. Thanksgiving’s holiday shifts US data, and FOMC meeting minutes might offer insights, potentially impacting the dollar’s direction. The anticipation leans towards a potential second-quarter rate cut as inflation aligns with the Fed’s long-term target.


USD trends and potential corrections

The US dollar faces persistent declines, touching a two-month low, amidst expectations of a Fed pause in rate hikes. The dollar’s correction phase seems probable, affecting gold demand, while ongoing geopolitical shifts impact DXY’s downward trend. Short-term indicators hint at oversold conditions, needing price sustenance above $104.4 for potential reversals. Present data reflect limited spikes in dollar demand, with short-term corrections potentially influenced by OPEC’s oil supply cut.


GBP/USD breakout

Oversold conditions have prompted the GBP/USD to bounce back. A consolidation is likely within the range between 1.24 and 1.26. The value of the pound against the dollar depends on the impact of potential policy changes from the Bank of England and its response to persistent inflation concerns. The ongoing geopolitical tensions in the Middle East remain a key factor in determining short-term movements in this currency pair.


EUR/USD upward momentum data dependent

PMI releases this week, notably from Europe and the US, could influence the EUR/USD pair. Bullish Momentum persists in the pair while growth concerns across European countries may limit upside potential in the near future. Recent improvements in forward-looking indicators hint at positivity, yet PMI data remains subdued. EUR/USD surged to a two-month peak, driven by expectations of earlier Fed rate cuts. Technical indicators suggest a short term consolidation between 1.0880 to 1.0900.


USD/JPY in downtrend

USD/JPY faced selling pressure above 150 driven by weakening US dollar triggered by recent US data. The decline in US Treasury yields has diminished their appeal among investors, a sentiment favoring the yen. This shift has enabled the yen to gain strength, although it raises questions about the sustainability of its uptrend.


Last week, the yen’s decline close to 152 prompted concerns. Discussions about potential intervention by Japan’s Ministry of Finance have subdued. Market participants are keenly observing cues from the Bank of Japan regarding potential policy tightening. While the central bank has attempted to temper expectations for policy shifts, subtle signals suggest a possible departure from negative rates in 2024.


Current market trends and data points indicate a complex landscape shaped by inflation, rate cut speculations and geopolitical shifts influencing major currency pairs and global indices.


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