WEEKLY FUNDAMENTAL OVERVIEW (January 15-19, 2024)

The dollar kicks off the year on a positive note with strong economic indicators. Following robust non-farm payrolls, the Consumer Price Index (CPI) inflation performed better than forecasted. Coupled with low weekly unemployment claims, this has made the greenback an evident favorite for investment interest. However, the shift away from risk was short-lived; buying of U.S. Treasuries on the dip kept the price within a certain range.

Despite these numerical dynamics, the market still believes that the Federal Reserve (FRS) will not deviate from the dovish path outlined in the December meeting, even in the face of rising consumer prices and a robust labor market. On the CME website, 70% of analysts advocate for the first rate cut at the March meeting (up from 63% a week ago). This sentiment is weighing on the greenback, tempering the bullish impulses of financial sharks.

As for the current week, there are relatively few fundamental events. Retail sales data on Wednesday and a speech by Federal Reserve Board member Walker on Tuesday stand out. The script is standard – he is likely to mention a sustained decline in inflation and express the possibility of rate cuts in the first half of the year, especially if a rate cut in March is not ruled out. This could trigger another wave of risk appetite in the markets.

He might allude to the situation in the Red Sea and suggest that the Fed needs more time before reducing rates – anticipate a risk-off sentiment amid a rising dollar. As for U.S. retail, the calendar currently favors the dollar.

What's important on Monday?

Today is a public holiday in the U.S. – liquidity will be low, and major currency battles will unfold in the middle of the week. Reports on the labor market, inflation, and retail sales from the UK and the EU on Tuesday and Wednesday will significantly impact the trends of the pound, euro, and ultimately, the U.S. Dollar Index.

Wishing you success and well-considered investment decisions!