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The dollar showed little change against most major currencies on Monday with the USDX ending the session with minor gains. The US Dollar index hit highs unseen since mid-December on Monday but then pulled back. On the economic front, some market-moving elements are coming out even before the Fed meeting, namely Tuesday’s JOLTS Job Openings data for December.
The Fed is expected to hold rates steady on Wednesday and investors will focus on comments from Fed Chairman Jerome Powell, after he indicated in December that the Fed is pivoting to a rate cutting cycle. Market participants have cut odds that the U.S. central bank will reduce rates in March to 48%, from 89% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces a view that the U.S. economy remains solid.
The US 30 and US 500 rallied to a record close Monday, as investors added to bullish bets on tech ahead of earnings from several mega-cap tech companies, with key macroeconomic events including Federal Reserve policy-setting meeting and monthly jobs report due later this week. This week marks the busiest week of the earnings season, with 19% of the US 500 including five of the "Magnificent Seven" tech stocks set to report earnings.
Oil prices fell on Monday, retreating after early gains as ongoing worries about China's economy stoked fresh demand concerns offsetting a step-up in global geopolitical tensions. The health of the second largest economy in the world, and major energy market, has been a major concern in the wake of the COVID epidemic which hit China hard. Moreover, Tensions remain fraught in the Middle East, especially after a drone attack on U.S. forces in Jordan over the weekend.
Investors will also monitor Tuesday's economic data on housing, the labor market, and consumer confidence as they finalize their expectations for Wednesday's monetary policy announcement and subsequent press conference.
The upward bias in dollar continues to drive the EUR/USD pair downwards as the pair ended the session on Monday 0.08% lower.
Other than dollar dynamic, market participants kept digesting the latest ECB event after the central bank matched the broad consensus and left its policy rates unchanged on January 25. President Lagarde's dovish communication appears to be keeping the price action of the European currency subdued. Lagarde also mentioned a consensus among decision-makers that it is too early to discuss implementing rate cuts.
Also keeping the pair under pressure emerges the usual pre-FOMC prudence ahead of its meeting on January 31, where consensus sees the Fed keeping its FFTR unchanged at 5.25%–5.50%.
Gold firmed on Monday as rising tensions in the Middle East lifted demand for the safe-haven asset, while markets awaited a Federal Reserve policy decision later this week for more clues on the timing of this year's first U.S. interest rate cut. Washington was considering its response to the first deadly strike on its forces in the Middle East since the Gaza war began after a drone attack in northeastern Jordan at the weekend killed three U.S. servicemen and wounded at least 34.
Furthermore, a decision is due on Wednesday from the rate-setting Federal Open Market Committee (FOMC), which took a dovish turn in the December meeting.
Oil prices fell more than a dollar a barrel on Monday as China's ailing property sector sparked demand worries, causing traders to reassess the supply risk premium from escalating tensions in the Middle East.
Both contracts WTI and Brent settled lower for the first time in four sessions as attention shifted to demand concerns in China, where a real estate crisis deepened with a Hong Kong court ordering the liquidation of property giant China Evergrande Group.
The American Petroleum Institute will publish its U.S. stockpiles data on Tuesday. Official data from the Energy Information Administration is due on Wednesday.
U.S. stocks were higher after the close on Monday, as gains in the Consumer Goods, Technology and Consumer Services sectors led shares higher. At the close in NYSE, the US 30 added 0.70% to hit a new all-time high, while the US 500 added 0.98%, and the US Tech 100 gained 1.38%.
Tesla Inc rose 3% as its recent malaise appears to have attracted dip buyers, though sentiment on the stocks remains fragile following the electric vehicle maker's recent quarterly results that missed Wall Street estimates. Alphabet and Microsoft are due to report results on Tuesday, followed by Apple and Amazon on Thursday, with Meta Platforms closing out the week on Friday.
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