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Dollar Buyers Gain Strength Amid Key Economic Data Releases

24 January 2024 Written by Feng Zhou  Senior Market Analyst Feng Zhou

The US dollar index, currently positioned at 103.25, is poised for potential growth as the market anticipates important economic data releases. Today's focus is on the January data regarding business activity in the US manufacturing and services sectors, as reported by S&P Global. Analysts are particularly optimistic about a rebound in the services sector, which could bolster the US dollar's position. This week further heightens the anticipation, with the release of Q4 Gross Domestic Product (GDP) data on Thursday and the Personal Consumption Expenditure (PCE) Price Index on Friday.

Dollar Buyers Gain Strength Amid Key Economic Data Releases

These critical indicators are expected to significantly influence the Federal Reserve's decisions on monetary policy adjustments. Current forecasts suggest a 2% growth in the US economy for the last quarter. If these projections are realized, the likelihood of a rate cut in March could decrease to below 40%. In light of these developments, maintaining long positions in the dollar appears to be a strategic choice for investors.

For those considering market entry, a buy stop at 103.30 with a target profit (TP) of 103.90 and a stop loss (SL) at 103.10 is recommended.

In the USD/JPY pair, stability is observed at the 148.00 mark. The Bank of Japan's recent decision to hold interest rates steady and continue with its yield curve control (YCC) policy, which caps the 10-year government bond yield around 1%, is noteworthy. Despite acknowledging a gradual increase in the likelihood of achieving their 2% inflation target, the central bank stressed the importance of carefully analyzing financial and foreign exchange market movements and their impacts. The bank's commitment to potentially implementing additional economic stimuli if needed is perceived as a commitment to maintaining an accommodative monetary policy, likely exerting continued pressure on the yen.

For USD/JPY, a buy stop at 148.00 with a TP of 149.00 and an SL of 147.70 is advised.

The USD/CAD pair is currently steady near the 1.30 level. All eyes are on the Bank of Canada's impending monetary policy announcement, with expectations that the interest rate will hold at 5.00%. Amid recent dips in inflation, there is speculation that the central bank might hint at an earlier easing of monetary policy, which could impact the Canadian dollar. Additionally, the sustained struggle of the oil market to break the $80 per barrel resistance further contributes to the Canadian dollar's downward trajectory. In this context, the USD/CAD pair may see additional growth.

A strategic move for USD/CAD could be a buy stop at 1.3480, with a TP of 1.3580 and an SL of 1.3450.

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