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  • Writer's pictureSieracki Milosz

Market Dynamics Unfold: Geopolitics, USD and Global Risks

Market Dynamics Unfold Jan 18 2024
Wall Street's Tech Rally Fades as Global Concerns Intensify

Friday's 19 January Asian trading unfolded with a retreat from the previous tech-driven risk-on sentiment on Wall Street. The escalation of Middle East geopolitical tensions and lingering Chinese economic concerns contributed to a cautious market mood. Despite the overall risk-off sentiment, the US Dollar experienced a mild easing as investors scrutinized the US Federal Reserve's (Fed) rate cut outlook.

Geopolitical Developments Heighten Market Anxieties

Reports surfaced early Friday morning detailing Iran-backed Houthi terrorists launching anti-ship ballistic missiles at the M/V Chem Ranger, a US-owned tanker. This incident followed new US strikes against Houthi anti-ship missiles in the Red Sea, adding to the ongoing geopolitical complexities.

Mixed Economic Signals and Fed's Rate Cut Outlook

On Thursday, US weekly Initial Jobless Claims reached their lowest level in nearly 1-1/2 years, indicating tighter labor market conditions. This tempered the odds for a March Fed rate cut, with the probability dropping below 60%, down from roughly 75% at the week's outset. Strong US data and hawkish comments from Fed officials pushed Treasury bond yields to multi-week highs, signaling resistance against market expectations of an early rate cut.

US Dollar Dynamics and Key Market Indicators

As of the latest update, the US Dollar Index shows a marginal 0.09% decline at 103.45. Meanwhile, the benchmark 10-year US Treasury bond yields are on the rise, hitting five-week highs near 4.18%. The next market moves hinge on crucial data, including top-tier US UoM Consumer Sentiment and upcoming Fedspeak, with the Fed entering a 'blackout period' ahead of the January 31-February 1 policy meeting.

Currency Market Reactions

In the FX landscape, AUD/USD remains neutral near 0.6570 on the back of a firmer Chinese Yuan. NZD/USD, on the other hand, faces notable losses, trading below 0.6100, impacted by a contraction in New Zealand's Business Performance of Manufacturing Index (PMI) to 43.1 in December.

USD/JPY holds close to multi-month highs of 148.81 despite soft Japanese CPI data, dampening expectations of hawkish signals from the Bank of Japan (BoJ) in their upcoming policy meeting.

European Dynamics and UK Retail Sales

EUR/USD consolidates below 1.0900, receiving some support from the European Central Bank's pushback against rate cuts. ECB President Christine Lagarde's speech on the Global Economic Outlook at Davos holds significance. GBP/USD drops toward 1.2650 following a larger-than-expected decline in UK Retail Sales, falling 3.2% MoM in December.

Commodity Market Movements

USD/CAD maintains lower ground below 1.3500, influenced by WTI oil's ascent to fresh five-day highs of $74.20. Geopolitical tensions between the US and Iran-backed Houthi rebels add complexity to the oil market. Despite the struggle, the commodity aims for modest weekly gains, fueled by optimistic demand forecasts.

Gold (XAU/USD) price fell almost to the $2,000 mark this week, its lowest level in more than a month.

Silver price (XAG/USD) sees a recovery near $22.70 as the US Dollar Index struggles to extend its recovery. The white metal, while bouncing back from a two-month low of $22.45, faces skepticism among investors regarding a robust recovery.

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