Errante’s The Week Ahead: 30th December 2024 – 3rd January 2025
Errante’s The Week Ahead: 30th December 2024 – 3rd January 2025
Errante’s The Week Ahead: 30th December 2024 – 3rd January 2025
Highlights of the Week:
Thin Liquidity Amid New Year Holidays: With major global markets experiencing shortened trading weeks, liquidity remains thin, increasing the likelihood of abrupt price swings.
Key US Data in Focus: Pending Home Sales, Chicago PMI, and ISM Manufacturing PMI to provide critical insight into the health of the US economy.
GBP/JPY and USD/JPY Technicals: Critical levels for the yen pairs as both show bullish tendencies amidst broader market volatility.
What Now?
The dollar closed out 2024 as the undisputed leader among major currencies, posting its strongest annual gain since 2015. Bolstered by U.S. economic resilience and the Federal Reserve’s cautious approach to easing, the Bloomberg Dollar Spot Index climbed 7% for the year, fueled by bullish speculator bets. However, global risk sentiment remained fragile, pressured by rising protectionism and geopolitical tensions.
In Japan, the Bank of Japan hinted at a possible rate hike in January while holding rates steady at last week’s meeting. Debate among policymakers centered on inflation risks and yen weakness, with Tokyo inflation rising to 2.4%. Hawkish board member Naoki Tamura’s proposal to tighten policy was voted down, while Governor Kazuo Ueda called for more data before acting. The yen fell to a five-month low of 158.08 per dollar, with markets assigning a 42% probability of a January hike and 72% by March, as political uncertainties cloud the outlook ahead of the Jan. 23-24 meeting.
U.S. equity markets faced a mixed close to the year, as jobless claims data highlighted a cooling labor market. Continued claims rose to a three-year high, but the S&P 500 held near its strongest Christmas Eve performance since 1974. As 2025 trading begins, year-end portfolio adjustments may drive volatility.
Meanwhile, the January Non-Farm Payrolls (NFP) report will skip its usual first-Friday release, moving to January 10. The delay, attributed to holiday disruptions, underscores the Bureau of Labor Statistics’ commitment to ensuring accuracy in this key economic indicator, crucial for gauging the strength of the U.S. economy heading into the new year.
Market Events and Announcements:
Times are in GMT+2.
Monday, December 30, 2024:
10:00 AM – EUR: Spanish Flash CPI y/y: Forecast at 2.4%, inflation data will highlight eurozone price trends, with potential implications for ECB policy. A higher-than-expected reading could bolster the euro.
4:45 PM – USD: Chicago PMI: Market consensus at 42.7, signaling contraction. A weaker reading could weigh on risk sentiment.
5:00 PM – USD: Pending Home Sales m/m: Forecasted at 0.9%. Housing market data will gauge consumer activity amidst tighter financial conditions.
Tuesday, December 31, 2024:
3:30 AM – CNY: Manufacturing and Non-Manufacturing PMI: Both readings forecasted at 50.3 and 50.2, respectively. A divergence could indicate economic momentum ahead of China’s policy adjustments in 2025.
3:30 PM – USD: Unemployment Claims: Initial claims forecast at 220k. Labor market stability will influence the Fed’s monetary policy outlook.
4:45 PM – USD: Final Manufacturing PMI: Expected at 48.3, signaling continued contraction in manufacturing.
6:00 PM – USD: Crude Oil Inventories: Market focus on production levels and global demand dynamics, with geopolitical tensions looming.
Friday, January 3, 2025:
5:00 PM – USD: ISM Manufacturing PMI and ISM Manufacturing Prices: PMI projected at 48.3, indicating contraction; prices forecasted at 50.5. These metrics will be pivotal in assessing industrial activity.
Market Insights: Key Charts to Watch
Chart 1: GBP/JPY – Weekly Chart
GBP/JPY continues to trade in a bullish structure, testing a critical resistance level at 198.20 after rebounding from the longer-term uptrend line.
Main Scenario:
The pair’s upward momentum remains intact. A break above 198.20 could see GBP/JPY targeting 202.99 (127.20% Fibonacci extension) and 207.04. Strength in the pound, coupled with yen weakness, supports this scenario.
Alternative Scenario:
Failure to sustain gains above 198.20 may trigger a pullback toward 195.32 (61.80% retracement). Market volatility due to thin liquidity could accentuate downside risks.
Key Levels:
Support: 195.32, 188.08
Resistance: 198.20, 202.99, 207.04
Chart 2: USD/JPY – Weekly Chart
USD/JPY maintains its bullish bias, reaching 157.74 after breaking above its consolidation range. The pair benefits from robust US economic data and the Fed’s less aggressive easing stance.
Main Scenario:
Sustained strength above 157.74 opens the path to 158.95 and 161.75 (127.20% and 161.80% Fibonacci extensions). Dollar strength and BoJ’s dovish policies underpin the outlook.
Alternative Scenario:
A retracement below 157.74 could test 153.64 (61.80% Fibonacci retracement). Risk-off sentiment may weigh on USD/JPY if global growth concerns intensify.
Key Levels:
Support: 153.64, 148.63
Resistance: 157.74, 158.95, 161.75
Errante’s Weekly Newsletter brings you critical market insights to keep you ahead in the financial world. Stay informed and make strategic decisions with Errante.
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