Dow Jones 30 Continues to Showcase Positive Market Sentiment

Traders' Opinions

Commodity

Summary:

Dow Jones gains traction, finding support at 37,800 and eyeing 40,000. Optimism stems from potential Fed intervention, keeping the market volatile yet on an upward trajectory. Bulls are in control.

Fundamental Analysis

The Dow Jones Industrial Average didn't have the smoothest start on Friday; there was a slight pullback. However, despite the initial hiccup, the index continued its upward momentum. The driving force behind this resilience seems to be the influx of capital into the market, creating a sense of optimism.

Investors are placing their bets on a potential recovery, counting on central bank intervention to steer the ship. Specifically, they're eyeing the Federal Reserve, hoping for a market boost through monetary policy adjustments. Essentially, the idea is that when the Federal Reserve injects liquidity into the markets, industries start buzzing with activity fueled by readily available cheap money. Traders, in turn, gravitate towards prominent industrial stocks, seeing them as indicators of economic recovery.

The belief that the Federal Reserve will play the superhero with loose monetary policies is a significant driving factor for the ongoing climb in stock prices. It's a sentiment that resonates especially with the Dow Jones 30, which stands out from the broader indices like the S&P 500 and the NASDAQ 100. The Dow Jones, comprising only 30 stocks, provides a more balanced snapshot of the overall economy.

In the current landscape, the prevailing wisdom is to buy on the dip, a strategy that seems to be the norm for most stock indices, particularly in the United States. The Dow Jones, in particular, has broken through to fresh highs, prompting the possibility of what traders commonly refer to as "FOMO trading" or the fear of missing out.

Now, let's talk strategy. Every time there's a pullback in this market, the prevailing sentiment is to buy. It's not just my perspective; it seems to be a collective stance shared by the broader trading public. The market's attitude appears to be steadfast, and I don't foresee a shift in this mindset anytime soon. However, it's essential to acknowledge the potential for volatility in this market, necessitating preparation for all scenarios.

In a nutshell, the Dow Jones Industrial Average is displaying a robust upward trajectory, fueled by the injection of funds into the market and hopes of a recovery supported by central bank intervention, particularly from the Federal Reserve. The strategy of buying on the dip remains a prevalent approach, and the recent highs reached by the Dow Jones only add fuel to the fire of potential FOMO trading. While the market's overall sentiment seems unyielding, it's crucial to stay vigilant given the potential for volatility in the near future.

This market journey is akin to riding a rollercoaster – there are highs, a few twists and turns, and the occasional drop. However, the general consensus among traders is to enjoy the ride, and every dip in the market is an opportunity to hop back on. The Dow Jones Industrial Average is like the lead car on this rollercoaster, breaking through to new heights and enticing others to join in the excitement.

As we navigate through the market's twists and turns, it's evident that the belief in the Federal Reserve's supportive role is a key driver. The notion that the central bank will step in with loose monetary policies is the wind beneath the market's wings. It's as if the market is saying, "Hey, as long as the Fed has our back, we're in good hands."

The Dow Jones 30's unique position as a more focused index offers a clearer lens into the overall economic landscape. It's like having a magnifying glass – you can scrutinize individual elements more closely. And right now, those elements are pointing towards resilience and optimism.

In terms of strategy, the idea of buying on the dip echoes through the market like a familiar refrain. It's a harmonious chorus of traders, echoing the sentiment that every downturn is a chance to jump back into the market. The recent surge to new highs in the Dow Jones only intensifies this melody, creating a crescendo of potential FOMO trading.

Yet, amidst the harmony, a note of caution is sounded. The acknowledgment of potential volatility serves as a reminder that, while the journey may be thrilling, it's not without its uncertainties. Preparation becomes the key as we navigate the peaks and valleys of this market landscape.

In conclusion, the Dow Jones Industrial Average is in the spotlight, continuing its rally with the support of buyers. The optimism is fueled by the expectation of intervention from the Federal Reserve, maintaining a bullish but potentially volatile market environment. The prevailing sentiment is to buy on the dip, and the Dow Jones, with its recent surge to new highs, adds an element of FOMO trading to the mix. As we ride this market rollercoaster, the unwavering belief in the Federal Reserve's role is the constant companion, guiding the journey through twists, turns, and the occasional dip.

Technical Analysis

Recently, the Dow Jones Industrial Average experienced a brief retreat, only to make a turnaround and exhibit vitality around the 37,800 level. Notably, this level had previously posed as a substantial area of resistance, and the market's memory seems to have acknowledged this historical significance.

Observing this, it's reasonable to expect that the Dow Jones might be setting its sights on reaching the 40,000 level in the near future. Even in the scenario of a breakdown below the 37,800 level, there appears to be a robust support structure extending down to the 37,000 level. Adding to this support is the 50-day Exponential Moving Average (EMA), which is on the rise and aligning itself with the 37,000 level.

The 37,800 level, once a formidable barrier, has now become a point of interest as the Dow Jones charted a path of recovery from that point. The market's collective memory seems to recognize this as a significant juncture, underscoring the dynamic nature of support and resistance levels.

Looking ahead, the Dow Jones seems poised for an upward journey, with the 40,000 level looming as a potential destination. This optimism is supported not only by recent positive movements but also by the resilience displayed around key resistance-turned-support points.

In the event of a retracement below 37,800, a safety net appears to be in place, with substantial support extending down to 37,000. The 50-day EMA's upward trajectory toward this level adds an additional layer of reinforcement. This structural support provides a reassuring backdrop for traders and investors alike, mitigating potential downside risks.

In summary, the Dow Jones Industrial Average has navigated a recent pullback, showcasing a bounce-back around the 37,800 level. The historical significance of this level, once a major resistance area, is now evident as a notable point of support. The market's memory and current dynamics suggest a bullish outlook, with the 40,000 level emerging as a plausible target. Even in the face of a retreat, the Dow Jones appears well-supported, with the 37,000 level and the rising 50-day EMA acting as robust pillars of reinforcement. Dow Jones 30 Continues to Showcase Positive Market Sentiment_1

Dow Jones 30 Continues to Showcase Positive Market Sentiment_1

Risk Warnings and Disclaimers

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Zi Cheng

Traders' Opinions

Cryptocurrency

The UK finds itself increasingly isolated as one of the few major global markets resisting the approval of retail access to cryptocurrency exchange-traded products. While Continental Europe, Australia, Brazil, and Canada have embraced such products, the recent introduction of spot bitcoin ETFs in the US prompted even Hong Kong to express its intention to join the trend.

Despite Prime Minister Rishi Sunak's promotion of the UK as a cryptocurrency hub and his advocacy for a regulatory framework supporting the sector, the country remains hesitant. Even small investors in the UK are restricted from purchasing these products listed elsewhere.

The high-profile launch of 10 spot bitcoin ETFs on Wall Street, managed by well-known entities like BlackRock, Invesco, and Fidelity, accentuates the UK's deviation from the trajectory followed by most other financial hubs.

The UK's position stems from a 2021 ruling by its regulator, the Financial Conduct Authority (FCA), prohibiting the sale of cryptocurrency-related derivatives, including exchange-traded products, to UK retail investors. The FCA's decision, seemingly driven by concerns about leveraged products like contracts for difference offering up to 100 times leverage on the volatile bitcoin, affected both leveraged and unleveraged products such as plain vanilla ETPs and futures.

Critics argue that the FCA's line-drawing is questionable, as it didn't intervene in the direct trading of digital tokens by retail investors on crypto exchanges. Bradley Duke, Chief Strategist of London-based ETC Group, notes that UK retail investors "can invest in crypto, just not through regulated products." For instance, ETC Group's $1 billion Physical Bitcoin exchange-traded commodity is listed on various exchanges but cannot be on the London Stock Exchange due to the retail ban. Continental Europe currently boasts 120 crypto ETPs with €8.4 billion in assets, as per TrackInsight.

Duke emphasized that small investors are resorting to unregulated or under-regulated exchanges where no broker is involved, and there's no oversight ensuring the suitability of their investments. In such scenarios, investors are compelled to personally manage their cryptocurrencies, exposing them to significant risks.

Despite these concerns, Prosser remains skeptical that the FCA, which declined to provide a comment for this story, will yield to the arguments presented. In 2021, when the regulator announced its ban, it expressed apprehensions about the "integrity" of the underlying crypto market, its inherent volatility, and its potential connections to financial crime.

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Economic

Stocks

Markets await direction from the Fed

Stocks were mixed on Monday amid a cautiously risk-on tone ahead of a very busy week for the markets that's expected to get heated up mid-week by the Fed's policy decision, culminating with the latest payrolls report on Friday. After a week of yet more upbeat economic indicators out of the United States, the soft landing narrative remained intact as the inflation data went in the opposite direction.

The slightly bigger-than-expected drop in core PCE on Friday underscored the view that price pressures in the US economy are cooling, paving the way for a rate cut sometime in the spring. But investors remain split as to the likelihood of the Fed chopping 25 basis points off the Fed funds rate as early as March, so the focus for the January meeting is entirely on what clues the FOMC statement and Powell's commentary will offer on the timing.

So far, the data has been moving in policymakers' direction, but the Fed has to tread carefully as the labour market is still churning out jobs at a solid pace. Chair Powell risks getting investors' hopes up by not reining in expectations, only for them to be dashed if Friday's jobs report surprises to the upside again.

Earnings and China risks for equities

Wall Street just enjoyed a third week of gains and although the major indices ended Friday mixed, the overriding mood is still positive amid the recent AI-driven optimism. Those bullish bets will be put to the test this week as the Big Tech earnings will continue in earnest, with Microsoft and Alphabet set to report their results tomorrow, followed by Apple and Amazon on Thursday.

Also helping sentiment today is the latest effort by Chinese authorities to bolster the local stock market. Chinese equities surged last week after the country's central bank cut the reserve requirement ratio for lenders and pledged more targeted stimulus to come. But the rally started to fizzle out on Friday and regulators stepped in today to announce fresh restrictions on short selling after the recent informal measures failed to spur much of a rebound.

However, even today's move may not go far enough as it's been overshadowed by the news that troubled property giant Evergrande has been placed under liquidation by a Hong Kong court. Moreover, Washington is considering forcing cloud service providers like Microsoft, Alphabet and Amazon to disclose the names of foreign companies developing AI on their platforms, potentially escalating frictions with Beijing.

China's CSI 300 index ended the session down 0.9%, bucking the trend in the rest of Asia, while most indices in Europe were in the red as US futures traded flat.

Euro struggles, pound flat as dollar holds firm

The US dollar, meanwhile, edged up slightly on Monday against a basket of currencies, but remained within the tight sideways range of the past two weeks. A breakout on either side of the range is likely imminent, with technicals supporting a move to the upside.

The euro continued to drift lower as investors are convinced that the ECB will begin cutting rates in April. Whilst President Christine Lagarde once again attempted to push back on early rate cut bets in her post-meeting press conference on Thursday, neither did she close the door completely to a policy shift before the summer. The euro is unlikely to find much support from this week's flash GDP and CPI figures due out of the Eurozone.

A dovish tilt is also possible by the Bank of England this week as inflation in the UK has fallen sharply in recent months and looks set to fall further in 2024. Although it's unlikely that Governor Bailey will be as forthcoming as Lagarde or Powell to talk about rate cuts, he may nevertheless tone down some of his hawkish rhetoric. Sterling was last trading flat around $1.27.

Heightened geopolitical risks lift oil and gold prices

In commodities, a flare up in tensions in the Middle East over the weekend sparked a jump in oil and gold prices on Monday.

Fears for a broader war in the region are rising after three US service members were killed and dozens injured from a drone attack on a US base in Jordan near the Syrian border, thought to have been carried out by Iran-backed militants. It comes after a Houthi missile attack targeted an oil tanker leaving the Red Sea on Friday.

Oil futures fell back after coming close to hitting a three-month high. Investors probably don't see a significant threat to oil supply for the time being despite the ongoing attacks, but the fragile situation nonetheless is supporting demand for safe havens like gold, which was up 0.5% on Monday.

To stay updated on all economic events of today, please check out our Economic calendar

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Chandan Gupta

Traders' Opinions

Economic

Forex

Fundamental Analysis

The euro saw a significant turnaround in Friday's trading session, reflecting the ongoing ups and downs that have been a hallmark of the currency market lately. This trend is particularly interesting given the increasing strength of price fluctuations in both upward and downward directions, adding complexity to the dynamics of the market.

In the United States, the Federal Reserve has started hinting at a possible easing of monetary policy later in the year. On the other hand, the European Central Bank has been more hesitant to adjust its monetary stance. However, with Germany facing an impending recession, there are concerns about how long the ECB can postpone similar policy measures. The currency market is currently grappling with these uncertainties, trying to assess the potential impact on the euro.

Potential shifts in policy by both the Federal Reserve and the ECB could have a negative impact on the market. In the event of a major geopolitical incident favoring risk aversion, the US dollar is likely to strengthen. Conversely, a move towards a risk-on sentiment in the market could boost the euro. Currently, the EUR/USD pair price seems to be in a state of indecision, moving within its established range as it gathers enough momentum for a significant directional shift.

Ultimately, the euro's rebound on Friday underscores the ongoing volatility in the currency market. The EUR/USD pair is navigating a complex environment shaped by central bank policies and global economic uncertainties. Investors and traders are closely monitoring these developments, as they carry significant implications for the future direction of the euro against the US dollar. As the market continues to grapple with these factors, the EUR/USD pair is expected to maintain its current pattern of fluctuating movements within the defined consolidation range.

In summary, the currency market is currently a bit like a rollercoaster ride, with the euro being the star player. The ups and downs in its value are not just random; they are influenced by the policy decisions of major central banks, particularly the Federal Reserve in the US and the European Central Bank. Picture this: the US is considering easing its monetary policy, while the ECB is a bit more cautious. Meanwhile, Germany's economic struggles are throwing a wrench into the mix, making everyone wonder how long the ECB can hold off on making changes.

Now, let's talk about the potential impact on the market. If there's a major geopolitical event that makes everyone a bit risk-averse, the US dollar is expected to flex its muscles and get stronger. On the flip side, if the market is feeling a bit more adventurous and leans towards risk-taking, the euro might catch a tailwind. It's like a tug of war between the two currencies.

Currently, if you check the price of the EUR/USD pair, it's like watching a tennis match where the ball keeps going back and forth. It's in this limbo, collecting enough energy for a big move in one direction. The market is on the edge of its seat, waiting for that significant shift to happen.

To sum it up, the euro's bounce-back on Friday is a clear sign that the currency market is not for the faint-hearted. It's a wild ride, influenced by decisions made in high-rise offices by people in suits. Investors and traders are like spectators at a tennis match, tracking every move as it holds the key to where the euro might head next. As the market juggles these factors, the EUR/USD pair is expected to keep us entertained with its unpredictable dance within the established range.

Technical Analysis

The EUR/USD pair had a bit of a shaky start on Friday, showing a decline initially. However, things took a turn for the better as it found solid support at the 200-day Exponential Moving Average (EMA). This shift suggests that the market is keeping up with its habit of bouncing around, a trend we've seen play out in recent weeks.

Now, let's talk about the technical side of things. The 50-day EMA might throw a bit of resistance the euro's way, but it's the 1.09 level that seems to be the real player in this game. As the trading range widens, and the currency pair gains some momentum, it looks like the market is gearing up for a big move. Which way it'll swing is the million-dollar question.

For the time being, the EUR/USD is playing it safe within a consolidation range. Picture this range like a comfy bubble with the upper limit at the 1.10 level and the safety net at 1.075. It's been hanging out in this range for a while now, and the reason behind this steady behavior is largely the anticipated monetary policies of the big shots – the major central banks worldwide.

So, to sum it up in simpler terms, the EUR/USD pair had a bit of a wobble at the beginning of Friday, but it found its footing thanks to the trusty 200-day EMA. Now, it's eyeing the 50-day EMA and the crucial 1.09 level, wondering which way to go. Meanwhile, it's comfortably chilling in a consolidation range, with the upper limit at 1.10 and the lower support at 1.075. The reason behind this calm is the looming influence of central banks and their monetary policies. It's like watching a game of chess – every move calculated, and everyone waiting for that strategic play. Euro Hopes for Economic Boost Ahead_1

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Devin

Economic

Central Bank

First rate-setting meeting for 2024

The Bank of England holds its first gathering for 2024 on Thursday at 12:00 GMT, a day after the respective Fed meeting. The same setup in December 2023 proved favourable for the pound as during the December 13-15 sessions it managed to record a quick 2.5% rally against the dollar. The main reason was the divergent rhetoric of the two central banks, with the market getting excited by the comments such as "the decision to hike or to hold was again finely balanced" appearing in the December BoE statement.

What has happened since December 14?

Going into this week's meeting and data releases have been mixed since December 14, forcing the BoE doves to minimize their rhetoric to a minimum. Inflation remains elevated with the core CPI component proving stubborn and still hovering north of 5%. Retail sales have taken a dive despite the fact that average earnings remain very strong and cause concern in the BoE corridors about future inflation. Interestingly, PMI surveys are edging higher and potentially opening the door to a gradual growth acceleration.

Having said that, the overall rhetoric at this meeting will most likely be a tad more dovish than the December one, but not as dovish as the market might be hoping for. Therefore, in order to justify its 100bps of rate cuts expectations for 2024, the market will most likely pay more attention at three factors: 1/ the number of BoE members voting in favour of a rate hike, 2/ Governor Bailey's possible effort to add a dovish twist at the press conference, and 3/ the quarterly projections.

How many will vote for another rate hike?

BoE members Greene, Haskel and Mann have been very quiet lately but considering the incoming data, analysed above, it looks unlikely that they would change their stance at this meeting. This is very important for market sentiment as a reduction in the number of the BoE members voting for a rate hike at this meeting would immediately commence the countdown for the much-touted rate cut, currently priced in for June 2024.

On Thursday there is a press conference taking place with Governor Bailey having the chance to further explain the BoE's thinking process. He has always been a true believer of BoE's inherit dovishness and, despite the record-breaking inflation in the 2022-2023 period, he managed to keep rate hikes to a minimum. Considering his monetary policy pedigree, there is a risk of him appearing more dovish than circumstances currently demand.

Quarterly projections to play a key role

At the end of the day, the quarterly projections would stir up the discussion. The November Monetary Policy Report had headline inflation dropping to 3.1% and 1.9% by the end of 2024 and 2025 respectively. Any hint of an upgrade in the latter figure could somewhat derail market expectations.

Similarly, the year-end Bank Rate projections for 2024 and 2025 in November 2023 stood at 5.1% and 4.5% respectively. This means that in November, the BoE staff were expecting a single 25bps move lower during 2024. More rate cuts could be added to Thursday projections, but it looks premature for the BoE to fully adopt the market's current stance of four rate cuts in 2024. Therefore, a figure around 4.8% could please the BoE doves and the market without angering the more hawkish members of the Bank of England.

Pound's performance to be driven by the Fed and BoE meetings

Pound bulls would clearly enjoy a repeat of the December post-meeting performance in the pound-US dollar pair. For this outcome to take place, the Fed has to be more dovish than currently expected and the BoE more hawkish than foreseen. In this case, pound-dollar could finally overcome the 1.2750 level, which has been acting as a strong resistance point in the past two months, and then have a go at reaching 1.3011.

On the flip side, should the BoE send a strong dovish signal, pound bears could have the chance to push the pound-dollar pair much lower. There are numerous support levels on the way down with the 200-day simple moving average at 1.2552 level being the most plausible target for the pound bears. Could BoE Maintain Its Hawkish Stance?_1

Could BoE Maintain Its Hawkish Stance?_1

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Ukadike Micheal

Economic

Political

Palestinian-Israeli conflict

UN Secretary-General António Guterres has urged global leaders to continue funding the UN Relief and Works Agency (UNRWA) for Palestinian refugees. This appeal follows the suspension of support by several countries, including the US, UK, Germany, Italy, Finland, Australia, and Canada. The move comes in response to allegations that UNRWA staff participated in Hamas's October 7 attacks in Israel, leading to the dismissal of nine employees.

While expressing horror at the allegations, Guterres emphasized the importance of financial support for the two million civilians in Gaza who depend on UNRWA for daily survival. The agency, responsible for aid, schools, and hospitals for Palestinian refugees, faces funding challenges as a result of the controversy.

The UK, Germany, and Italy are among the countries that have suspended support pending the investigation's outcome, while Norway continues its financial assistance, emphasizing the need to distinguish between individual actions and UNRWA's broader mission. UNRWA Commissioner-General Philippe Lazzarini urged reconsideration, highlighting the impact on Gaza's people and regional stability if humanitarian support is disrupted.

The situation has geopolitical implications, with talks held in Paris involving representatives from Israel's Mossad, Qatar's Prime Minister, and the CIA director discussing a possible Gaza ceasefire and the release of Israeli hostages held by Hamas since October 7. The Israeli government, under pressure to secure hostage release, rejects Hamas's demand for a permanent ceasefire.

The Palestine Liberation Organisation warns of political and humanitarian risks due to the funding suspension, stressing the vital role UNRWA plays in providing essential services. Amnesty International criticizes the UK's decision, emphasizing the impact on Palestinian civilians amid ongoing conflicts.

UNRWA schools in Gaza, targeted in recent Israeli military actions, face challenges as the Israel Defense Forces respond to alleged militant fire. The agency, often criticized by Israel, is viewed by some as perpetuating the refugee issue and obstructing peace.

The funding suspension poses a threat to UNRWA's humanitarian efforts, affecting the lives of Palestinians in Gaza. The situation reflects broader geopolitical tensions in the region, requiring careful consideration to balance humanitarian needs with political concerns.

Source: Financial Times

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Owen Li

Commodity

Speculators have built their most bearish-ever January view across U.S. grains and oilseeds, and the collective net short is among the largest on record, driven by further selling in soybeans and meal last week.

Money managers combined net short across Chicago-traded corn, wheat, soybeans and soy products, plus Kansas City and Minneapolis wheat, totaled 554,019 futures and options contracts as of Jan. 23. That is the sixth-largest all-time behind five weeks in April and May 2019.

Soybean meal was the only major CBOT grain or oilseed to notch losses in the week ended Jan. 23, falling nearly 3%. Soybeans were up 1%, wheat rose 2.5%, soybean oil rose 2% and corn was up 0.7%.

But funds were sellers of corn and soybeans that week despite the pop off multi-year lows. The managed money net short in CBOT corn futures and options rose by less than 5,000 contracts to 265,285 contracts, though new gross longs entered the mix for the first time in a month. Funds Continue Cultivating Massive CBOT Grain, Oilseed Short_1

Funds Continue Cultivating Massive CBOT Grain, Oilseed Short_1

That is funds’ most bearish corn stance for the date and is among the most bearish all-time, behind a few weeks in 2019 and 2020.

Money managers expanded their net short in CBOT soybean futures and options to 91,842 contracts from 76,797 a week earlier, marking their most bearish soy position since February 2020. Gross longs have come out of the market for 10 consecutive weeks through Jan. 23. Funds Continue Cultivating Massive CBOT Grain, Oilseed Short_2

Funds Continue Cultivating Massive CBOT Grain, Oilseed Short_2

The epic soybean meal sell-off continued through Jan. 23, as money managers increased their net short by nearly 15,000 contracts to 19,016 futures and options contracts, the most bearish since October 2021.

In the eight weeks through Jan. 23, funds were net sellers of nearly 155,000 meal contracts of 100 short tons each. Prior to 2024, the largest eight-week meal sell-off was under 100,000 contracts.

Funds Continue Cultivating Massive CBOT Grain, Oilseed Short_3

Open interest in CBOT corn, soybean and soybean meal futures and options continued the upward surge last week, rising 6%, 7% and 3%, respectively, in the week ended Jan. 23. Corn open interest is average for the date and soybeans are above average, but meal open interest is easily record-high for January.

The selling trend continued between Wednesday and Friday, as most-active soybeans lost 2.4% and soymeal shed 3.4%, though corn futures were basically unchanged. Corn and soybeans avoided fresh lows in the last three sessions, but soymeal futures finished at $349 per short ton on Friday, their lowest settle in more than two years.

Excellent weather in top meal exporter Argentina has weighed on the market as has better weather for Brazil, which is in the early stages of harvesting what is expected to be a sufficiently large soybean crop. U.S. corn export sales have been average though those of soybeans are sluggish, reflecting sagging demand in China and ample supplies in South America.

Most-active CBOT wheat futures continue to hover around $6 per bushel, though soybean oil has been sinking for months, reaching an eight-month low of 46.08 cents per pound on Friday.

Money managers hold decently large net shorts in both wheat and soyoil, but there has been little change in recent weeks. They were mild net buyers of both in the week ended Jan. 23.

Both the CBOT wheat net short of 64,541 futures and options contracts and the soyoil net short of 44,705 contracts as of Jan. 23 are consistent with the previous few weeks' averages.