Week 3 - Q1 2024 - Preview
Quiet US economic Data, Red Sea tensions and Inflation figures for EU, UK and Japan
With this new week already started and US bank holiday today, most important US economic data goes through the mid to end week with Retail Sales and Consumer Sentiment, with of course the usual jobless claims. Since this will be the last week before FEDs blackout period, we will have some speakers scattered across the board that could create some market movement as well as potential reactive events from Red Sea tensions as we had last week.
As we can see, nothing will be expected today (Monday) in terms of economic events due to US bank Holiday as markets will be closed, so expectations are low for volume and volatility if no reactive events arise. The focus will be mainly on Retail Sales on Wednesday and Consumer Sentiment on Friday as they are both contributor factors of inflation although Retail Sales report is still from Dec. and is expected a slight rise due to consumption season, Consumer Sentiment on Friday is already for Jan. and expectations are to remain quite flat or decrease.
Housing data will be released also this week with higher chances of minimum to no market weight, although we have the Jobless Claims on Thursday and the FED speakers that could provide some momentum. As we have been seeing, after dovish JP in December, FED members have been playing the balancing act game by being hawkish as markets are always seeking to feed even more the rate cuts narrative in play. So not only we should be alert for such headlines but also for Red Sea tensions where UK and US have been involved in strikes with Yemen due to Israel ships attacks and creating some tension on the region over maritime routes. Such headlines, together with dovish FEDs and weaker US data feeds into the narrative in play which provide us Gold bulls and dollar bears. As we notice on the recap, the narrative is still in play
as optimistic NFP and increased CPI did not fade out such greed.
As we can see, gold have been printing lower highs since Oct. with Israel-Hamas conflict, the current narrative made it print new ATH and since then only retested 1980s after labor data in Dec. Dovish JP brought it back above 2000s and never traded below again printing another potential LH at 2015s. Although for us gold is still very bullish above the 1980s and only a fundamental catalyst could made it turn bearish at this moment, as an example strong hawkish Powell bringing back rate hikes on table, so until such catalyst or others that could give Gold less demand, we keep playing Gold bulls and Dollar bears.
For this week, it would be interesting to see a pullback on Gold into 2040s or even 2030s before continuing higher on HTF as it printed already a double bottom at 2015s and broke the consolidation area that was forming pre-CPI.
On Dollar, on the other hand sellers are not yet out of control as it is still on that consolidation area of 102.1s to 102.6s and such narrative gives DXY weakness as investors are more prone to risk assets as US30 is still lingering on ATHs. The same events that push Gold to upside can make DXY to the downside, and if Red Sea tensions are geopolitical issues that, as a rule of thumb, gives appealing to safe-haven assets class, where Dollar is included, in this case as the US is actively involved this creates a “conflict” on such demand as it imposes risk to currency itself.
if we will see Dollar breaking and holding above such consolidation area, heading to the 104s, that could tell us that such narrative is fading out (if we also see bearish move on Gold) but since that is not the case yet, we are still on the dollar bears so it won’t be abnormal for us to see continuation Dollar down moves.
The week could be more interesting for GBPJPY traders as we will have inflation data for UK and Japan. So far GJ is still in is bullish trend as both countries are still playing different monetary policies, as UK is still tightening and Japan loosening. So if you are GJ trader, be vigilant on mid to end of week as inflation figures and CB speakers could give signs to what is to come.
As we can see above, GJ is been on very bullish trend since the start of 2024 from the 178s to 186 but we see still very high chances to revisit that highs of 188/189s, that if you check for HTF macro view are pre-brexit prices. Such policy positioning of CBs could still give us such prices before markets shift the sentiment with signs of policy makers.
Last but not least, will also have Euro Area inflation figures that could give some momentum to EU, but what will be interesting to see will be the positioning of these CBs with the data reports we will receive.
So stay vigilant for headlines of reactive events on Red Sea tensions and Central Banker and let’s see if such provide good volume and volatility for us to play with. Stay adaptive and smart.