Markets Week Ahead: S&P 500, US Dollar, Crude Oil, Gold, FOMC, Liquidity Conditions

Equities charged higher across the globe this past week as the ‘risk-on’ tone in financial markets continued recovering after some choppiness in late January. On Wall Street, the Dow Jones, S&P 500, and Nasdaq Composite climbed 1.00%, 1.23%, and 1.73% respectively. Meanwhile, the FTSE 100 and Nikkei 225 advanced 0.94% and 2.72% respectively.

The rosy mood certainly made its way into foreign exchange markets, where the anti-risk US Dollar and similarly-behaving Japanese Yen were some of the worst-performing G10 currencies. Meanwhile, the growth-oriented Australian Dollar outperformed its major counterparts. Taking a look at commodities, crude oil prices soared 4.67% as gold traded relatively flat.

US fiscal stimulus continues to be a key focus for investors, with President Joe Biden aiming to pass his US$1.9 trillion COVID-relief package using budget reconciliation given a lack of Republican support in the Senate. Longer-dated Treasury yields have been on the rise, with the 30-year rate climbing to its highest since February 2020.

Exchanges in China and Hong Kong are offline for the Lunar New Year, with Wall Street closed on Monday for the Presidents’ Day holiday. Expect lower-than-usual liquidity conditions, which raises the risk of volatility around breaking headlines. Speaking of which, the economic calendar docket is still relatively light ahead.

A notable event risk ahead includes FOMC meeting minutes where the central bank may continue to reiterate its accommodative setting without an urgency to expand current QE paces. US retail sales are also on tap. Japanese and Euro Area GDP data will cross the wires as Australia release its latest jobs report. What else is in store for markets in the week ahead?

FUNDAMENTAL FORECASTS:

Euro Forecast: EUR/USD Outlook Improves as US Dollar Slides

Last week’s benign US inflation data and bearish comments from the Federal Reserve’s Jerome Powell have undermined the US Dollar and improved the prospects for EUR/USD accordingly.

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