Daily Market Outlook, January 31, 2024


Daily Market Outlook, January 31, 2024

Munnelly’s Market Minute…“Focus Firmly On FOMC”

Asian markets were mostly quiet as a result of numerous earnings and important data releases at the end of the month. Initially, the Nikkei 225 declined after disappointing Industrial Production and Retail Sales data, and was also affected by hawkish comments from the BoJ Summary of Opinions. However, the index gradually recovered all of its losses. The Hang Seng and Shanghai Comp underperformed following the latest Chinese PMI data, which indicated that Manufacturing PMI matched estimates and remained in contraction territory for the fourth consecutive month.

The January Lloyds Business Barometer, released earlier this morning, indicated a significant increase in business confidence, rising 9 points to its highest level in two years. Confidence improved across most regions of the UK, with notable gains observed in the North East, London, and the West Midlands. The services sector saw the largest improvement, while manufacturing and construction also experienced substantial rises, although retail confidence declined. Despite the positive sentiment, price expectations decreased for the second consecutive month, while hiring intentions remained solid.

Today's focal point is the latest US Federal Reserve policy update. Similar to the ECB last week, neither the Fed today nor the Bank of England tomorrow are expected to enact immediate policy changes. The focus will thus be on their messages regarding future policy intentions. Despite economic activity holding up better than expected and inflation measures trending downwards, there's speculation that the Fed may opt for rate cuts, especially as inflation nears the target and considering the proximity to November's elections. Consequently, the possibility of a rate cut as early as March is currently estimated at 50-50, with at least two cuts anticipated by June and 5 to 6 cuts for the entirety of 2024. Given that today's update won't include Fed policymakers' revised forecasts, there won't be a ‘dot plot' of interest rate intentions. However, it's likely that this forecast wouldn't markedly differ from December's, which indicated three rate cuts in 2024. The press statement may remain largely unchanged, except for acknowledging recent positive developments. Notably, if the reference to further ‘additional policy firming' is omitted, it could signal a potential rate cut in March. While Fed Chair Powell may caution against excessive market rate cut expectations and may not explicitly suggest a March move, he is likely to hint at anticipated rate declines in 2024.

Overnight Newswire Updates of Note

  • Traders Boost Bets On RBA Rate Cut Pivot As Inflation Cools More

  • Japan’s Factory Output Gains To Support Economy’s Patchy Rebound

  • China’s Manufacturing Activity Shrank For Fourth Straight Month In Jan

  • BoJ Summary Signals Rate Hike Is Coming Closer With Talk Of Exit

  • IMF Sees Scope For Asia To Cut Rates, Urges Clarity In China's Property Fixes

  • European Leaders Call For A Collective Effort To Arm Ukraine For The Long Term

  • UK Navy Set To Deploy Aircraft Carrier To The Red Sea

  • Samsung's Chip Unit Narrows Loss In Q4 In Sign Of Improvement

  • AMD’s Weak Forecast Overshadows Prospects For AI Chips

  • Microsoft Beats Q2 Earnings On AI, Cloud Strength, Shares Flat

  • Alphabet’s Advertising Growth Falls Short Of Wall Street Expectations

  • Tesla Shares Slide After Judge Voids Elon Musk’s $56 Bln Compensation

  • Walmart Announces 3-For-1 Stock Split As Shares Hover Below All-Time High

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0800 (753M), 1.0845-50 (572M), 1.0860 (841M), 1.0900 (1.1BLN)

  • USD/CHF: 0.8595-0.8600 (370M), 0.8650-55 (350M)

  • GBP/USD: 1.2630 (750M), 1.2700 (471M) , 1.2745 (350M), 1.2800 (289M)

  • EUR/GBP: 0.8650 (301M)

  • AUD/USD: 0.6590-0.6605 (1.3BLN)

  • USD/JPY: 147.25 (894M), 148.00 (584M)

  • The USD is reportedly being affected by month-end FX rebalancing flows, which are supporting the EUR and SEK. Despite this, FX volatility remains low, which is preventing implied volatility from increasing ahead of Wednesday's U.S. rate decision. The expiration of options overnight will involve the Fed and Bank of England starting from Wednesday, and any resulting gains in implied volatility will provide insight into the perceived real volatility risk from those events. However, the limited implied volatility gains for 1-week expiry when they first included the Fed indicate that markets are not anticipating a significant FX reaction. While neither central bank is expected to cut rates, markets will be watching for any indications of potential future rate cuts.

CFTC Data As Of 12/01/24

  • USD bearish increasing -9,298 

  • CAD bearish increasing -992 

  • EUR bullish decreasing 14,150 

  • GBP bullish increasing 2,443 

  • AUD bearish increasing -3,151 

  • NZD neutral neutral -177 

  • MXN bullish neutral 2,370 

  • CHF bearish neutral -542 

  • JPY bearish neutral -4,803 

Technical & Trade Views

SP500 Bullish Above Bearish Below 4900

EURUSD Bullish Above Bearish Below 1.0875

GBPUSD Bullish Above Bearish Below 1.2750

USDJPY Bullish Above Bearish Below 147 

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Below 146 opens 145.50

  • Primary support 143.50

  • Primary objective is 149

AUDUSD Bullish Above Bearish Below .6650

BTCUSD Bullish Above Bearish below 43850

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Above  43600 opens 44700

  • Primary resistance  is 44700

  • Primary objective is 44700

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