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• US indexes climbed on Friday, led by chip makers.
• Investors have pivoted to tech shares to shake off Fed rate tantrum.
• Markets go haywire as the US Dollar, US equities, and Treasury yields all rise.

The Standard & Poor’s drove to a new all-time high of $4,839.58 on Friday as equities broadly rallied as investors pile into future earnings bets on large-cap tech stocks, with chip-makers loosely associated with AI tech projects leading the charge.

Money markets are broadly shaking off months of begrudgingly giving up ground on rate cut expectations from the Federal Reserve (Fed). According to the CME’s FedWatch tool, rate swap bets are pricing in nearly a 40% chance of a rate cut at the Fed’s March policy meeting, down significantly from over a 70% chance just a month ago.

Fed officials have been pushing back against market expectations of an increased pace of rate cuts from the US central bank, and markets appear to finally be listening as US economic data continues to thump market forecasts, printing consistently higher and healthier than investors were hoping for as markets yearn for cheaper lending and borrowing costs.

US Consumer Sentiment improved to its best reading since July of 2021 according to the University of Michigan’s consumer sentiment survey. The UoM’s 5-year Consumer Inflation Expectations Survey in January also declined to familiar lows at 2.8% from December’s 2.9%.

With the US economy continuing to bump along at a healthy clip and US consumers expecting inflation to remain above the Fed’s 2% target for the foreseeable future, market hopes of Fed rate cuts are unlikely to see a happy conclusion, with money markets now leaning into the FOMC’s May meeting as a possible start to the next cutting cycle.

The Dow Jones Industrial Average (DJIA) also rose to an all-time high, touching $37,931.36 and wrapping up Friday at $37,863.80, climbing over 395 points and gaining 1.05% on the day.

The NASDAQ Composite and NASDAQ 100 indexes hit their own all-time highs on Friday, with the NASDSAQ Composite climbing 255.32 to $15,310.97 to a Friday gain of 1.7% while the NASDAQ 100 soared 1.75% to end at $17,316.87, up over 296 points.

S&P 500 Technical Outlook

The S&P 500 major equity index climbed nearly one and a quarter percent to hit an all-time high of its own, ending Friday at $4,839.81, up 58.87 points on the day.

Near-term bullish momentum in equity indexes has sent the S&P well above any technical zones and pinning into record peaks. The S&P could decline over 8% and still be in bull country above the 200-day Simple Moving Average (SMA) near $4,400.00, and the closest technical barrier sits at the 50-day SMA near $4,650.00.

S&P 500 Hourly Chart

S&P 500 Daily Chart

• Crude Oil markets pushed into a new high for the week before settling back on Friday.
• WTI roils between $74.50 and $73.00 on Friday.
• Freezing temperatures and geopolitical tensions weigh on supply concerns.

Crude Oil bids broadly rose over the week in jittery trading that saw frequent peaks and dips into highs and lows, with West Texas Intermediate (WTI) US Crude Oil settling the week near $73.60 with a 5.6% or $3 spread between the week’s late peak set late on Friday at $74.60 and Wednesday’s weekly low at $70.62.

Broad-market concerns about production caps from the Organization of the Petroleum Exporting Countries (OPEC) that plagued energy markets for much of the third quarter of 2023 have all but evaporated, being replaced by broad-market concerns that Iran-backed Houthi rebels attacking civilian ships in the Red Sea will hamper critical global supply lines between Europe and Asia.

Bullish Crude Oil prices on supply concerns have seen significant downside pressure crimp topside momentum, with the US hitting record levels of Crude Oil production in 2023 and on pace to continue ramping up barrel output looking forward.

Canada is also set to hit new production highs as Crude Oil producers in Alberta ramp up production as the Trans Mountain pipeline nears completion, which will make it easier for the oil-exporting country to add their raw light sweet crude oil supplies to the US’ logistics chain. As the fourth-largest global producer of Crude Oil, Canada stands poised to launch the US even further to the top of the leaderboard as a global net producer and exporter of downstream oil products.

Despite a historic overhang in partially-refined Crude Oil products, declines in near-term raw barrel supplies is drawing a line underneath barrel prices as energy markets await a more solidified outlook on global supply balances in Crude Oil.

WTI Technical Outlook

Choppy trading as markets get pulled in both directions leave Crude Oil traders strung along the midrange, with WTI testing familiar territory near the $74.00 handle. WTI has cycled the key price handle in a tightening pattern since descending into the neighborhood in early November, and a sideways grind in the WTI chart has the 50-day Simple Moving Average (SMA) descending into intraday territory.

The 200-day SMA is accelerating a downturn from the $78.00 handle, which will add bearish pressure to near-term price action to the low side if bulls can’t push WTI back over medium-term technical resistance at the $76.00 handle.

WTI Daily Chart

San Francisco Federal Reserve (Fed) President Mary C. Daly hit newswires for the second time on Friday, expanding on statements she made during an interview with Fox Business earlier in the day.

Read more: Fed's Daly says shifts in labor market could trigger policy adjustments

Key highlights:

• Fed policy remains in a good place, as does the US economy.
• Need to be patient, there's still plenty of work to do.
• Fed doesn't want to loosen policy too soon or try to squeeze out inflation too fast.
• 2024 will be a focus on policy calibration.
• Easing too quickly or before 2% target is reached would be too scarring.
• Goods and services prices are both coming down steadily.

• GBP/JPY fluctuates, impacted by Japanese CPI and weak UK retail sales; currently at 188.11.
• Bullish bias persists, but a close below 188.22 may trigger retracement towards 187.00 and potential support levels.
• Break above 188.00 sets the stage for further gains, targeting YTD high at 188.92 and potentially reaching 190.00.

GBP/JPY seesaws late in the North American session but is down 0.05% so far after trading within a 150 pips range courtesy of CPI data from Japan and weaker retail sales from the UK. Therefore, the pair traveled within its daily and eight-year high and low of 188.92/187.40 before settling at current exchange rates. At the time of writing, the cross trades at 188.11.

From a technical standpoint, the pair remains bullishly biased, but a daily close below January’s 18 one at 188.22 could initially open the door for a retracement toward the 187.00 figure. Further downside sentiment could drag the GBP/JPY exchange rate towards the Tenkan-Sen at 185.84 before challenging the Senkou Span A at 184.74.

On the contrary, a daily close above 188.00 could pave the way for further upside, with the year-to-date (YTD) high in place at 188.92, ahead of 189.00. Further upside is seen once those levels are cleared on its way to 190.00.

GBP/JPY Price Action – Daily Chart

GBP/JPY Technical Levels

San Francisco Federal Reserve (Fed) President Mary C. Daly spoke about the Fed's policy outlook during an interview on Fox Business on Friday. 

The San Francisco Fed President since 2018, Mary C. Daly will be rotating from an Alternate Member voting seat to a full Member for the 2024 Fed chair rotation when the Fed next meets on January 31, and she will directly vote on rate operations through the fiscal year.

Key highlights

• Fed's Daly: early signs of faltering in the labor market could trigger policy adjustments.
• It's also important to watch for any rises in delinquency rates as an early indicator of economic weakness.
• Fed needs to get inflation on a consistent trajectory to 2%, need further evidence to feel confident in rate adjustments.
• Markets are premature in thinking rate cuts are just around the corner.
• It is far too early to declare victory on inflation.

• AUD/JPY rises late in the session, supported by a risk-on sentiment fueled by Wall Street's advance.
• Buyers in control as the pair surpasses 97.00, aiming for a daily close above 98.00 for further gains.
• Despite the ascent, pullback risks persist; sellers may target levels below 97.00 for bearish momentum.

AUD/JPY edges higher late in Friday’s North American session, sponsored by a risk-on impulse, as the advance in Wall Street could appreciate it. Therefore, safe-haven peers are pressured while US Treasury yields retrace, a tailwind for riskier assets. At the time of writing, the AUD/JPY exchanged hands at 97.79, printing a new six-day high.

The pair began the week at around the lows of the week, below the Tenkan-Sen, but the AUD/JPY exchange rate was already above the Ichimoku Cloud (Kumo), suggesting that buyers were in charge. Consequently, they reclaimed 97.00 and, on Friday, extended its gains. Still, pullback risks remain, as buyers need a daily close above the 98.00 figure so they can remain hopeful of testing last year’s high of 98.58. Once those levels are surpassed, the next stop would be the 99.00 figure.

For a bearish case, sellers need to drive prices below 97.00, through the Tenkan Sen at 96.97, toward the January 16 low of 96.58. A breach of the latter will expose the Kijun-Sen at 96.18, ahead of the Senkou Span B and A, each at 96.14 and 96.01.

AUD/JPY Price Action – Daily Chart

AUD/JPY Key Technical Levels

• European equity indexes saw slim losses on Friday to wrap up another down week.
• Davos wrapped up with little rate clues from policymakers.
• Rate tantrum is underway as investors pull back from overextended rate cut hopes.

European equity indexes declined on Friday as investors walked away from the World Economic Forum (WEF) in Davos, Switzerland with little upbeat headlines from the European Central Bank (ECB). ECB policymakers worked overtime this week talking down market expectations of impending rate cuts from the ECB. With inflation continuing to run hotter for longer in the European economy, the ECB is hamstrung on rate cuts for the time being.

ECB President Christine Lagarde put significant effort into avoiding discussing monetary policy durign her scheduled appearances during the Davos economic summit, but noted during a sideline interview with Bloomberg that overextended market expectations of rate cuts from the ECB may be hindering rather than helping on progress fighting inflation.

ECB Lagarde: Aggressive rate cut bets don't help ECB

With investors begrudgingly forced to push back their bets of ECB rate cuts after a lack of supporting statements from Davos, European equities pulled back on Friday. Most indexes saw their worst declines in several months this week, and bullish momentum continues to get hung up on misaligned market expectations.

The German DAX closed mostly flat on Friday, down a scant 0.07% and declining 12 points to close at €16,555.13. France’s CAC 40 declined nearly 40 points to close down 0.4% at €7,371.64. The pan-European STOXX600 closed at €469.24, down 0.26% and shedding 1.21 points.

London’s FTSE major equity index saw a scant gain on Friday, closing up 0.04% at £7,461.93, up 2.84 points but still tipping into a six-week low near £7,400.00.

DAX Technical Outlook

The German DAX tested a seven-week low this week, catching a late-week bid to wrap up trading near €16,550.00, still down on the week but keeping closing bids within reach of near-term lows.

The DAX is down for 2024, but remains decidedly higher from the last major low from October’s bottom bids near €14,600.00.

Intraday topside momentum got hamstrung by the 200-hour Simple Moving Average (SMA) near €16,600. Bidding action next week will face significant technical resistance from near-term congestion between €16,700.00 and €16,750.00.

DAX Hourly Chart

DAX Daily Chart

• The USD/JPY pair sees mild gains, settling at 148.25.
• No policy changes are expected at next week’s BoJ meeting; guidance will be looked upon.
• Despite bearish undertones in the four-hour-chart outlook, the pair's position above the 20,100,200-day SMAs indicates a broader bullish control.

On Friday's session, the USD/JPY was observed to be mildly gaining, currently trading at 148.25, and will close a 2% winning week. Dominating the daily chart, bullish sentiments prevail, with the bulls firmly holding their stance but seem to be taking a breather. Next week, the bulls might get further momentum if the Bank of Japan (BoJ) does not give additional clues on its monetary policy plans.

On the USD side, it remains resilient on the back of the US yields recovering and positive University of Michigan (UoM) Consumer Sentiment data, which gave the Greenback an additional boost. Next week, markets will eye December’s Personal Consumption Expenditures (PCE) figures from December, the Federal Reserve (Fed) preferred gauge of inflation to continue placing their bets on the next decision. The dovish expectations eased somewhat this week but are still high, and according to the CME FedWatch Tool, the odds of cuts in March and May stand at around 50% and 45%, respectively.

USD/JPY Technical Analysis

From a daily standpoint, the technical indicators reflect bullish strength, maintaining a firm position, but buyers are running out of steam. The Relative Strength Index (RSI) demonstrates a slight positive tilt within the positive region, while flat green bars of the Moving Average Convergence Divergence (MACD) further confirm a positive outlook but with a slight deceleration. Moreover, the placement of the pair distinctly above the 20, 100, and 200-day Simple Moving Averages (SMAs) indicates that the buying momentum overpowers any bearish undertones, giving the bulls an overall command.

USD/JPY daily chart

• The CHF is broadly lower on the week, sending USD/CHF into a fresh six-week high.
• Switzerland Producer and Import Prices slipped further in December.
• SNB’S Jordan: appreciating Franc threatens Swiss inflation stability.

The Swiss Franc (CHF) slid further on Friday, extending recent losses as the market walks back a massive dogpile into the Swiss currency. The USD/CHF has climbed around 4.5% from December’s late low of 0.8332, a 12-year low for the pair.

Switzerland enjoys an economic environment massively different from its immediate European neighbors, with inflation already well within the Swiss National Bank’s (SNB) 2% maximum target and a stubbornly-healthy domestic economy.

The CHF gained significant value through 2023, climbing nearly 18% bottom-to-top against the US Dollar (USD) from 2022’s Q3 USD/CHF peak of 1.1047. With the popular CHF outrunning valuations and hampering the SNB’s ability to fine-tune policy using foreign currency reserves, the SNB flashed a warning to broader markets recently that if the CHF continues to appreciate, it will begin to transfer disinflationary pressure directly into the Swiss economy.

Having battled a disinflation cycle in the past, the SNB is in no rush to find itself mired in the same scenario again. Markets have apparently heeded SNB Chairman Thomas Jordan’s call for the time being, setting the USD/CHF on pace for its single-best weekly performance since late 2022.

USD/CHF Technical Outlook

The US Dollar is up around 1.85% against the Swiss Franc this week, climbing from Monday’s early bids near 0.8525, tapping the 0.8700 handle on Friday heading into the week’s closing bell.

The USD/CHF is set for its first technical challenge since finding the floor in late December, with the pair pushing directly into technical resistance from the 50-day Simple Moving Average (SMA) in the back half of the week’s trading.

A further technical ceiling is priced in at the 200-day SMA near 0.8850, with near-term technical barriers at the 0.880 handle where the pair last caught a swing high.

USD/CHF Hourly Chart

USD/CHF Daily Chart

• Retail Sales Plunge: Pound Sterling drops against US Dollar as UK retail sales witness a staggering -3.2% month-over-month decline.
• BoE Policy Concerns: Bleak retail data raises doubts about Bank of England's policy tightening amid recession fears.
• Mixed US Data Influence: GBP/USD impacted by contrasting US data, with improved consumer sentiment but lower home sales.

The Pound Sterling (GBP) slumped against the US Dollar (USD) after the Office for National Statistics (ONS) revealed that retail sales plunged sharply, which could deter the Bank of England (BoE) from keeping policy tight without tapping the economy into a recession. Mixed data from the United States (US) sponsored a leg-down in the major, as the GBP/USD exchanged hands at 1.2687 after hitting a daily high of 1.2714.

Pound Sterling faces headwinds as poor retail data raises concerns, while mixed US indicators contribute to market volatility

Besides that, Chicago’s Federal Reserve (Fed) President Austan Goolsbee said that they (Fed) need more data before beginning to ease monetary policy to determine an appropriate level of restrictiveness. On the data front, Consumer Sentiment in the US improved sharply, according to a University of Michigan (UoM) poll, while inflation expectations were trimmed for one and five-year periods.

The Consumer Sentiment rose to 78.8, surpassing both forecasts and the previous month's increase of 69.7. Additionally, Americans expect a decrease in inflation, as expectations for one year declined from 3.1% to 2.9%, and for the next five years, it cooled from 2.9% to 2.8%.

US Existing Home Sales in December slid to their lowest level in over 13 years. The sales slumped by -1% month-over-month, falling from 3.82 million to 3.78 million, which is below both the previous month's figure and the forecast.

Across the pond, retail sales in the UK plunged a staggering -3.2% MoM, following an increase of 1.4% in November, and below forecasts for a 0.5% contraction. The release poured cold water on Sterling’s rally, which benefited from a red-hot inflation report, which, according to sources cited by Reuters, “the December CPI surprise was a blip.”

 Ahead of the day, the San Franciso Fed President Mary Daly is expected to cross wires ahead of the blackout period, which is ahead of the first monetary policy meeting of 2024.

GBP/USD Price Analysis: Technical outlook

From a technical point of view, GBP/USD is trading sideways but tilted to the downside after peaking at around 1.2785 on January 12, but sellers had failed to crack the 50-day moving average (DMA) at 1.2616. if buyers want the rally to continue, they must drag prices bove 1.2700, followed by 1.2785, ahead of the 1.2800 mark. Conversely, if sellers achieve a daily close below January’s 18 open of 1.2676, that would form a ‘tweezers top,’ opening the door for further losses. First support is seen at the 50-DMA at 1.2616, followed by 1.2600 and the 200-DMA at 1.2547.

• The DXY Index trades just below the 200-day SMA as bulls are struggling to hold their ground.
• Existing Home Sales from December were weak, while the University of Michigan Consumer Sentiment arrived better than expected.
• Dovish bets on the Fed remain high.

The US Dollar (USD) is seen neutral by the end of the week and currently tallies a 0.90% weekly gain. Strong University of Michigan (UoM) data is keeping the USD afloat, but steady dovish bets on the Federal Reserve (Fed) limit the upward potential.

The US economy appears overheated, tempering the market's dovish expectations, although the chances of interest rate cuts in March and May lingers at around 50%. Thus, the US dollar remains in fluctuating currents, affected by both resilient economic performance and dovish bets on the Fed's likely moves.

Daily digest market movers: US Dollar stands neutral as markets asses UoM and Housing data

• The Michigan Consumer Expectations for January reported by the University of Michigan (UoM)  came in at 75.9, an increase from the December figure of 67.4.
• The five-year Inflation Expectations saw a slight decrease of 2.8% compared to the previous month's 2.9%.
• Similarly, the UoM’s Inflation Expectations for January were down to 2.9% from the previous 3.1%.
• The Current Conditions for January increased to 83.3 compared to December's 73.3.
• December’s Existing Home Sales from the National Association of Realtors (NAR) turned out lower than expected at 3.78M against the anticipated 3.82M.
• The yields for US bonds are still advancing with the 2-year yield at 4.41%, the 5-year yield at 4.09%, and the 10-year yield at 4.17%. All three are at their highest level since mid-December.
• As per the CME FedWatch Tool, the odds of cuts for March and May eased, but they remain high at 55% and 45%, respectively.

Technical Analysis: DXY Index bulls shows resilience, must recover the 200-day average

The Relative Strength Index (RSI) showcases an upward slope, residing well within positive territory, which generally denotes bullish strength. This is concurrent with the Moving Average Convergence Divergence (MACD), which, propelled by the rising green bars, indicates strong buying momentum. However, those indicators are starting to flatten as the index tallied a five-day winning streak.

Reflecting upon the Simple Moving Averages (SMAs), the index holds a position above the 20-day average, denoting an undercurrent of bullish dominance in the immediate short term. However, if the bulls fail to regain the 200-day SMA, more downside may be on the horizon.

Support levels: 103.20, 103.00, 102.80.
Resistance levels 103.40 (200-day SMA), 103.60, 103.80.

Atlanta Federal Reserve (Fed) President Raphael Bostic is crossing the newswires on Friday, reaffirming his stance on rate cut expectations ahead of the Fed entering the "blackout" period before the US central bank's next rate meeting, slated for January 31.

Key highlights

• Atlanta Fed President Bostic: I am open to changing my outlook on the timing of rate cuts.
• Fed remains data-dependent, Bostic will only change position if inflation numbers change.
• Fed's Bostic needs to see inflation well on the way to 2% before actively advocating for rate cuts.

• The Euro saw slim to moderate gains on Friday ahead of ECB blackout.
• Europe got a reprieve from high-impact economic data this week.
• Next week sees euro area’s latest HCOB PMIs, as well the ECB’s next rate call.

The Euro (EUR) stepped broadly higher on Friday as market sentiment recovered its footing in the last day of trading for the week. 

Europe got a break from the economic calendar this past week with most markets focused on headlines from the World Economic Forum (WEF) in Davos, Switzerland. European Central Bank (ECB) policymakers have been running a media circuit in an effort to talk down market expectations of rate cuts from the ECB, and ECB President Christine Lagarde put significant effort into specifically not addressing monetary policy during a slew of scheduled appearances at the WEF.

Daily digest market movers: Euro catches a thin rebound on Friday

• ECB President Lagarde wrapped up the last of her three scheduled appearances at Davos without specifically addressing monetary policy. 
• ECB officials have hit the newswires in a steady stream this week, cautioning that market expectations of rate cuts have run well ahead of what the ECB is willing to execute.
• ECB President Lagarde warned that too-optimistic markets will hamper rather than help in the fight with inflation.
• ECB could cut by the summer, but only if new inflationary pressures don’t appear.
• ECB’s Lagarde on Davos sidelines: Aggressive rate cut bets don't help ECB
• A lack of economic data for the euro area this week gave Euro traders a reprieve from headline shock.
• The ECB has entered the “blackout” period ahead of next Thursday’s ECB policy meeting and rate call.
• Euro area Purchasing Managers’ Index figures due next Wednesday, markets forecast a slight uptick in HCOB Composite PMI for January from 47.6 to 48.1.
• Coming up next week: It is central banks’ time