US Q4 GDP in focus as markets hope for a Fed pivot

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European markets had another slightly negative session yesterday, weighed down by negativity from across the Atlantic after US investors reacted negatively to Microsoft’s weak outlook.

The Nasdaq 100 initially led lower and retreated sharply from its 200-day SMA, but a late rebound saw the index close well from the day’s lows after the Bank of Canada hiked rates by 25bps and also signaled an interest rate signal . pause for the next few meetings as they assess the impact of multiple rate hikes on the Canadian economy.

It appears that markets reacted to this announcement thinking that the Federal Reserve might do something similar at next Wednesday’s meeting, given that US markets reversed their lows after the Canadian interest rate decision was announced. This would be a huge assumption and could well end in tears next week. We certainly won’t have to wait long to find out.

After seeing Microsoft disappoint in guidance, attention quickly shifted to the next set of earnings, particularly Tesla after the bell, where we saw a similar focus on margins and guidance.

As a result of yesterday’s recovery in US markets, European markets look set to open higher this morning as we look ahead to today’s fourth quarter US GDP.

After starting the first half of last year with two consecutive quarters of negative GDP growth, the US economy returned to positive GDP growth of 3.2% in the third quarter, following a belated 2.9% revaluation at the end of last year, with personal usage coming in at 2.3%, a decent improvement from the 2% in Q2, and a significant improvement from the first iteration which was just 1.4%.

The upward revision came about as a result of a rebound in consumer spending and higher government spending.

Looking at today’s first draft of Q4 GDP, it seems quite likely that we will see a slowdown from the strong performance in Q3. A modest decline to 2.5% is expected, although there have been signs of consumer spending slowing in recent months, you might think there could be significant downside risks to that estimate. Despite these concerns, personal consumption estimates project an increase from 2.3% to 2.8%. The quarterly core PCE is expected to decline sharply from 4.7% to 3.9%.

Weekly jobless claims are also in the spotlight after falling to 190,000 last week and matching last September’s lows. The decline in claims since the peak of 241,000 in November suggests that the US job market is still very tight, with little indication despite recent job cut announcements in the tech sector that the job market is deteriorating. However, that doesn’t mean that what we’re starting to see in technology won’t spill over to the rest of the economy in time. Claims are expected to rise to 205,000.

EUR/USD – continues to range between this week’s highs at 1.0927, and broader resistance near 1.0950, which is a 50% retrace of the move from 2021’s highs to last year’s lows at 0.9536. A move through 1.0950 opens a move to 1.1110. Support remains back in the 1.0780 area.

GBP/USD – recovered from the 1.2260 area yesterday, retesting 1.2400 in the process. We need to see a move through the 1.2450 area to target further gains. Above 1.2450 there could be a move towards 1.2600. A move below 1.2250 could mean a move towards 1.2170.

EUR/GBP – pulled out of the 0.8850 area yesterday with resistance at the previous highs at 0.8900. Still have support above the 50- and 100-day SMA we saw last week in the 0.8720/30 area. Under 0.8720 targets 0.8680.

USD/JPY – slid back from the trendline resistance of the October highs, which now stand at 131.00, earlier this week. Further declines could lead to a return to the lows at 127.20. We have temporary support in the 128.20 area initially.

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