What to Watch This Week (Jan 20-24)

Trump Inauguration, US Earnings and BOJ Rate Decision 

As the week starts, financial markets will encounter a fresh batch of events with major macroeconomic data on the cards. The week starts as President elect Donald Trump re-enters office. His inauguration will be watched carefully by traders and investors.  

Canada’s CPI report will determine whether the Bank of Canada will continue with their aggressive rate cut cycle or consider pausing. In the UK, where the Pound is already in trouble due to weak economic data, fresh employment data will provide insights into the strength of the UK’s labor market. US corporate earnings will also continue to release their Q4 2024 performance. Finally, a long-awaited rate hike anticipated from the BOJ could shake up markets. 

Trump’s Inauguration 

Donald Trump’s return to the White House on Monday is expected to significantly influence markets through his words and policies. During his first term, Trump’s use of social media, particularly Twitter, created immediate market reactions, and similar effects are anticipated with his communications on Truth Social. His direct statements often overshadow economic data, with markets closely monitoring his remarks and potential leaks.  

Tariff policies will also play a pivotal role, with immediate actions likely to create market turbulence. While China remains a critical focus, the broader economic impact of tariffs, including inflation and Federal Reserve policy adjustments, could create sustained volatility.   

Other key areas include deregulation and tax cuts. Trump’s approach to deregulation, particularly in technology and banking, may boost market confidence, while shifts in energy policy could be contentious.  

Tax cuts may face delays due to congressional dynamics and competing priorities like immigration. Additionally, Federal Reserve leadership changes loom in 2025-2026, with Trump’s potential nominations to key roles raising concerns about market stability. Overall, Trump’s presidency is set to bring unpredictability and heightened volatility, making his words and actions critical drivers for global financial markets.⁽¹⁾ 

USD/CAD Continues to Rise Ahead of CAD CPI 

Source: TradingView 

USD/CAD has continued forming new highs as macroeconomic factors and buyers favor the USD.  

We can see the price on the daily timeframe has consolidated after bulls continued to form higher highs and higher lows. The 200 EMA (red) continues to support the bullish momentum as price rebounded from the pivot line at 1.42900. Bulls might target 1.45700 as potential resistance . Bears may target the pivot line (1.42900) as support if the price failed to hold its gains. 

As inflation in Canada continues to weaken, the Bank of Canada is still willing to continue with its rate cut cycle, potentially weakening the CAD further if the disinflation trend continues. The fundamentals favor the USD as the US economy continues to show strength despite high interest rates with a strengthening labor market. ⁽²⁾ 

The CPI data in Canada will be released on Tuesday January 21 with a forecast of 1.7% YoY ⁽³⁾   

Further GBP Weakness Ahead? 

The British Pound continued to weaken in the FX market as UK bonds remain volatile, bringing heightened panic in fixed income markets as economic concerns in the UK are rising. UK inflation weakened with CPI MoM showing a 2.5% increase, less than expected. Core CPI also declined 0.2% from its annual number. Weak growth continues to become a concern in the UK, which might influence the Bank of England to cut rates at their next meeting.  

The claimant count change in the UK forecasted a 10.3k  increase in unemployment with unemployment rate forecasted at 4.4% ⁽⁴⁾ 

Q4 2024 Earnings 

The S&P 500 is on track for its best profit growth in three years, with Q4 2024 earnings projected to rise by 11.9%, slightly below earlier forecasts of 14.5%. This marks the 17th consecutive quarter of revenue growth, with a 4.6% increase expected, led by strong performance in the technology sector driven by digital transformation and robust demand for tech services. Bank stocks have already delivered strong results, underscoring consumer resilience amid rising prices. ⁽⁵⁾  

Source: TradingView 

The S&P 500 is maintaining its uptrend after the price pulled back from $6,090 as its new recent high which formed resistance. Price formed a bullish flag which might influence a continuation in price. If the index maintains its ground above $5,940, bulls may look to target $6,090. Bears may monitor $5,770 as support if the price reverses its trend. 

BOJ Rate Cut: Is it Really Happening This Time? 

The Bank of Japan (BOJ) board that sets monetary policy is due to meet on January 23-24, with financial markets pricing in an 80% chance of a 25-bps rate hike. The BOJ ended years of negative interest rates in March and raised its short-term policy target to 0.25% in July. ⁽⁶⁾ 

Speculation of a rate hike has risen following comments by Governor Kazuo Ueda, who hinted at discussions tied to updated growth and inflation forecasts. The upcoming meeting is now seen as “live,” but officials must tread carefully to avoid market volatility, especially after past communication missteps. While a surprise decision to hold rates steady could weaken the yen initially, a hawkish tone could add some bullish sentiment. 

The inauguration of Donald Trump will be closely watched by markets. Any comments from the President elect surrounding US-Japan trade relations could cause the BOJ to delay its rate hike and buy more time to reassess its policy stance.  ⁽⁷⁾ 

Source: TradingView 

The USD/JPY pair pulled back from its recent high at 158.750 as the market favours the Yen. Price is near the pivot line around 154.700 which might provide an opportunity for buyers to move back in. Buyers might target 160 as potential resistance where bears might target a breach of 154 with support formed around 152. 

Sources: ¹⁾ ⁽²⁾ FX Street, ⁽³⁾ ⁽⁴⁾ Acuity , ⁽⁶⁾ ⁽⁷⁾ Reuters, ⁽⁵⁾ Marketwatch,  

The information provided is not intended to serve as investment advice or a sufficient basis for making investment decisions. It is meant solely for informational purposes.

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