Charting the path: Market dominance and economic fortitude in the week ahead

Amidst a backdrop of rising risk appetite in the financial markets, last week witnessed record highs across major indices worldwide, despite looming concerns over potential inflation resurgence in the US. As global bond yields surged and Bitcoin reached two-year highs, investors grappled with evolving dynamics. This week, key events and themes are poised to shape market sentiment and asset trajectories. From Nvidia's pivotal earnings report to the release of critical PMI surveys, investors brace for a week of significant developments that will undoubtedly influence trading decisions and market trends.

Highlights:

• Nvidia's earnings: A crucial test for bulls
• Thursday’s PMI surveys: Gauge of economic momentum
• Technical trends and currency pairs

1. Nvidia's earnings: A crucial test for bulls

The semiconductor behemoth Nvidia, whose market cap surpassed tech giants Alphabet/Google and Amazon last week, stands as a significant focal point. Positioned at the epicenter of the AI revolution, Nvidia trades at a substantial multiple, reflecting elevated market optimism. However, the continuation of its robust growth trajectory remains pivotal for sustaining investor enthusiasm.

Traders eagerly await Nvidia's earnings report, with expectations set at $4.18 for EPS and $20.4B for revenue. Beyond financial metrics, attention will be keenly directed towards the company's guidance and outlook for the remainder of the fiscal year. Notably, the implied volatility on NVDA options suggests anticipation of a significant move, with investors bracing for a potential +/- 11% swing in response to earnings. Such volatility underscores the importance of Nvidia's performance in shaping market sentiment, especially given recent strong results from industry peers like AMD, SMCI, and TSMC.

Earnings per share:

Source: https://www.nasdaq.com/

2. Thursday’s PMI surveys: Gauge of economic momentum

US PMI:

As reported by Institute for Supply Management, in January 2024, the ISM Manufacturing PMI in the US rose to 49.1, its highest since October 2022, up from December's 47.1, exceeding the expected 47. Despite ongoing sector contraction, demand improved moderately, with stable output and favorable input conditions.

Source: https://tradingeconomics.com

UK PMI:

The S&P Global reported that UK Manufacturing PMI for January 2024 was adjusted downward to 47, a decrease from the initial projection of 47.3. Both output and new orders sustained declines, leading to increased layoffs and diminished procurement and inventory levels. Manufacturers encountered supply chain difficulties stemming from the Red Sea crisis, necessitating the redirection of input shipments away from the Suez Canal. Despite these challenges, the situation in the manufacturing sector persisted.

What about this week?

Thursday's release of PMI surveys from the US, UK, and Eurozone emerges as a pivotal event for traders seeking insights into current economic dynamics. Widely regarded as leading indicators of on-the-ground economic activity, these surveys offer crucial guidance on whether January's momentum has translated into sustained growth in February.

With market participants actively pricing out expectations of interest rate cuts by major central banks since the year's outset, the significance of robust PMI data cannot be overstated. A continuation of strong survey results may serve to forestall near-term bearish reversals, bolstering investor confidence in the resilience of economic recovery efforts amidst lingering uncertainties.

United Kingdom Manufacturing PMI Forecast. Source: https://tradingeconomics.com

The week ahead presents a confluence of events and themes that will likely shape market sentiment and asset trajectories. From Nvidia's earnings to the release of PMI surveys, investors remain vigilant amid evolving economic landscapes and shifting risk dynamics. As traders navigate these challenges, attention to key indicators and developments will be paramount in identifying emerging opportunities and mitigating potential risks.

3. Market analysis: Technical trends and currency pairs

US Dollar Index

The US Dollar Index revealed a candlestick that closed higher than its open last week, hinting at bullish activity. However, the formation of an outside bar and a bearish pin bar introduced uncertainty regarding its direction. Despite this, the weekly close exhibited a slight uptick compared to prices from 3 and 6 months ago, suggesting the potential emergence of a bullish long-term trend.

Source: TradingView

Transition: Nonetheless, caution prevails due to the absence of clear bullish momentum in the price action.

NASDAQ 100 Index

The NASDAQ 100 Index faced a decline last week following its initial surge to a new record high. Its closing price settled at the week's lowest point, indicating prevailing bearish sentiment. However, the overarching bullish trend in US stocks implies that this downturn may present a favorable buying opportunity.

Source: TradingView

Transition: Despite the ongoing retracement, the enduring bullish momentum in stocks is anticipated to endure.

S&P 500 Index

The S&P 500 Index concluded slightly lower last week post achieving a fresh record high early on. While it outperformed the NASDAQ 100, showcasing relative strength in non-technology stocks, it remains under some downward pressure.

Source: TradingView

Transition: Nonetheless, historical data and prevailing market conditions lend support to a bullish outlook for the S&P 500.

Bitcoin

Bitcoin recently witnessed a robust bullish breakout, surpassing the $50,000 mark and reaching new highs over the past 20 months. The approval of Bitcoin ETFs has further solidified investor confidence, propelling prices upwards.

Source: TradingView

Transition: Despite the bullish momentum evident in the weekly candlestick, prudence is advised given recent daily price fluctuations.

GBP/USD

The GBP/USD pair identified potential support at $1.2538, a level historically known to act as both support and resistance. Observing price rejections at pivotal levels, such as during last Wednesday's London session, can furnish valuable trading opportunities.

Transition: Leveraging "role reversal" levels can furnish traders with advantageous entry points boasting favorable risk-reward ratios.*-

USD/JPY

The USD/JPY pair encountered potential support at ¥148.97, manifesting a bullish rejection at the outset of last Monday's New York session. The relative weakness of the Yen offers traders opportunities to leverage potential trends in currency pairs like USD/JPY.

Transition: Ongoing market dynamics and monetary policy considerations underscore persistent opportunities for trading currency pairs involving the Yen.