The first trading session of the new year brought a drop of 1.6% in the Nasdaq Composite Index. The broader SP500 shed nearly 0.6%. The dollar strengthened and the EUR/USD exchange rate fell below 1.0950. The yields on US bonds rose across the yield curve. The market is now looking at data from the US labor market and the minutes from the December meeting of the Federal Open Market Committee (FOMC).
Comments made by Jay Powell after the last FOMC meeting, which was held on December 13th, were “dovish”. These comments led to a depreciation of the American dollar and a rise of the EUR/USD from 1.08 to over 1.11. Now, a correction of the upward move is noticeable. Currently, the market is considering whether this reaction was overdone. From a technical perspective, the fall of the main currency pair has overcome horizontal support at 1.10. Since the beginning of November, the quotations have maintained a relatively regular upward channel. By the end of 2023, the currency pair had significantly approached its upper barrier. The current reductions are so far smaller than those which occurred at the turn of November and December. Therefore, at this point, attention should be focused on where to search for a potential bottom of the current drops. An optimal level would seem to be 1.0870-1.0880. This is where the lower limit of the aforementioned channel and the Fibo internal retracement line of 38.2% run. If the declines ended around these levels, we would witness the phenomenon of “equality of corrections”.
Returning to today’s FOMC “minutes”, the market will attempt to objectively assess what the American monetary authorities truly meant and whether the “dovish” interpretation of Powell’s comments was exaggerated or not. However, it’s hard to imagine that the records suggest more monetary easing more than the chairman’s words did. Therefore, there is a higher risk that the publication of the protocol may strengthen the USD and cause further slippage of the main currency pair. Also, remember that significant data from the US economy will be released earlier. At 4pm, the ISM industrial report and JOLTS survey will be presented. Tomorrow, the ADP report along with weekly figures regarding the number of claims for benefits will be published. Essentially, the market is awaiting the NFP report, which will traditionally be released on the first Friday of the month. Here, a further signal of cooling in the form of a smaller number of new jobs (170,000) and a rise in the unemployment rate to 3.8% is expected.
Łukasz Zembik Oanda TMS Brokers
