The US dollar index is exhibiting a steady performance as it hovers around the 103.00 mark, with the financial markets poised for the release of significant US economic data later this week. The upcoming release of the Q4 Gross Domestic Product (GDP) data on Thursday and the Personal Consumption Expenditures (PCE) price index on Friday are expected to be pivotal. These indicators are crucial as they could significantly influence the Federal Reserve officials' stance on the timing of future interest rate adjustments. The US economy is anticipated to demonstrate a 2% expansion, a figure that suggests resilience even in the face of the Fed's stringent monetary policies. Presently, market speculations place the probability of a rate cut in March at 43%. In light of these factors, the dollar is seen as retaining potential for growth.
For investors considering a strategic position in the dollar, the recommended approach would be to initiate a buy stop at 102.90, with a target profit (TP) at 103.50 and a stop loss (SL) at 102.70.
The gold market, particularly XAU/USD, is also in focus as it trades around the $2,030 level. Gold prices are under downward pressure, largely due to market skepticism regarding the Federal Reserve's willingness to ease monetary policy soon. Statements from Austan Goolsbee, President of the Federal Reserve Bank of Chicago, and Mary Daly, President of the San Francisco Fed, have highlighted the necessity of a sustained inflation slowdown before any decisive move towards reducing borrowing costs can be considered. With the Fed’s firm stance on bringing inflation back to the 2% target level, and the consequent potential rise in the dollar and lower Treasury yields, gold’s growth prospects appear constrained.
Investors looking to trade gold might consider a sell stop at 2025, targeting a profit at 2010 and placing a stop loss at 2030.
In the USD/JPY pair, the currency is maintaining stability at 148.00. The Bank of Japan's recent decision to keep its rate unchanged has reinforced this stability. The bank's stance that any policy tightening would depend on inflation trends is noteworthy, especially considering that Japan's inflation dropped to a yearly low of 2.3% in December. Without any immediate indication from the regulator about adjusting monetary policy in the next quarter, the yen is likely to continue facing downward pressure. Additionally, the pair is expected to find support from strong macroeconomic data in the United States, which diminishes the prospects of a shift towards a more dovish US monetary policy stance.
For those trading USD/JPY, a buy stop at 147.90 with a target profit at 149.00 and a stop loss at 147.50 could be a prudent strategy.
