Key Insights

​As the trading week of December 28, 2024, unfolds, the US dollar is poised to end the year robustly.​ This confidence comes amid rising Treasury yields and limited market impediments. Key economic indicators, such as the ISM Manufacturing PMI and S&P Global Manufacturing PMIs, will be closely watched as a drop in these indices could influence dollar strength. The market remains sensitive to potential policy developments under President-elect Trump’s incoming administration, notably concerning tariffs and fiscal policy.

Market Overview

This past week, the Forex market witnessed notable developments. The US Dollar Index (DXY) has managed to maintain its upward trend, supported by strong Treasury yields and a bullish outlook ahead of key upcoming economic releases. Overall, the market is currently experiencing lower trading volumes typical of the holiday season, resulting in heightened volatility.

Investors are particularly focused on the ISM Manufacturing PMI set to be released on Tuesday, where a forecasted decline to 48.3 could reinforce concerns regarding manufacturing in the US, impacting the dollar’s momentum. Additionally, the Prices Index is projected to rise slightly, indicating persistent inflationary pressures, which could lead to further Federal Reserve responses.

Moreover, weak manufacturing data in the Eurozone continues to undermine the Euro, while the Yen’s recent weakness raises concerns about possible intervention from the Bank of Japan given the widening policy divergence with the US Federal Reserve.

Currencies Summary

🇺🇸 US Dollar (USD): The dollar is anticipated to sustain its bullish trajectory, riding on strong economic data and rising yields. However, volatility may be expected if the ISM Manufacturing PMI surprises the market. Last week’s Chicago PMI reflected a cautious market sentiment, suggesting that traders should prepare for possible adjustments.

🇪🇺 Euro (EUR): The Euro remains under pressure, exacerbated by disappointing manufacturing outputs. The looming threats from trade tariffs under the incoming US administration add to the Eurozone’s troubles. The market must monitor how upcoming Eurozone data, such as PMI indicators, may further influence the Euro’s standing.

🇬🇧 British Pound (GBP): The Pound is cautiously trading as UK data releases have been sparse. The exposure to US inflation rhetoric and potential tariffs remains a concern. As the market moves forward into the next week, GBP’s trajectory will heavily depend on sentiment from broader market developments.

🇦🇺 Australian Dollar (AUD): The Australian dollar faces challenges meted out by the anticipated economic indicators in China. Diverging data trends can have significant repercussions on the AUD, making it critical for traders to remain alert to any surprises from the Chinese PMIs.

🇯🇵 Japanese Yen (JPY): Continued yen weakness could prompt intervention from the Bank of Japan, especially with USD constraints tightening. The upcoming economic prints from Japan will be crucial while traders monitor policy shifts amidst the backdrop of growing fiscal pressure.

Upcoming Economic Calendar

In the upcoming week, traders should focus on various significant releases as the ISM Manufacturing PMI in the US can potentially shift market sentiment. Alongside the US data, traders should watch the S&P Global Manufacturing PMIs and various Japanese economic metrics, including the Tokyo CPI and jobless rate. These events are critically important as they hold the power to spring market surprises that could affect both currency valuations and trader strategies.

Conclusion

In conclusion, as we approach the new year, the market will continue to navigate through a mixture of economic indicators and geopolitical developments. The outlook for the US dollar appears strong, but traders should remain vigilant in their strategies, particularly with the slew of upcoming data that is likely to influence sentiment and market movements.