The market is already looking ahead to next week

After Tuesday's US inflation data, we have already finished all first-order publications that may have any impact on next week's decision. Federal Reserve. Today we will also see retail sales and the dynamics of producer prices. These could certainly create more volatility, especially if they are weaker than expected, confirming the trend of the last few weeks. However, I do not expect their results to change anything regarding the FOMC's approach.

Fear index at a low level

Until next week's decision FOMC not much should happen in the Eurodollar market. The Federal Reserve meeting promises to be interesting because, in addition to the decision on rates (the current level is expected to be maintained), we will also receive an update of the "dot plot" chart and new macro inflation projections, economic growth and unemployment. The market will have something to interpret. Until then, I do not expect a major breakthrough on either the FX market or the stock index market.

Optimism still dominates the markets. Wall Street wasn't too concerned about slightly higher inflation readings on Tuesday. The fear index is still at very low levels, so there is no warning signal. Today rather PPI data and retail sales should not "confuse" on stock index charts. The start of the technical correction, which will begin sooner or later, should be initiated by a more important event, which will take place next Wednesday.

Eurodollar in an upward trend

Stock market declines could be triggered by a marked change in FOMC members' median expectations regarding the future path of interest rates. The December result indicated three cuts of a total of 75 bp. If the new dot plot shows that we will see a smaller reduction and interest rates in the following years will be higher than previously expected, the market may react with declines, because it would then be a clearly hawkish turn in the attitude of the United States central bank.

From yesterday's European data, it is worth noting that industrial production decreased by 3,2% in January. on a monthly basis. The decline turned out to be stronger than expected. On an annual basis, we also received a decline of 6,7%. The industry's weakness can be partly linked to supply chain disruptions after tensions rose in the Middle East.

After the publication, the euro started to gain against the dollar. Course main currency pair from the level of 1,0920 it increased to 1,0960 and thus the quotations broke out of the potential short-term "flag" formation. The increases dominate and should be maintained at least until the middle of next week.

Source: Łukasz Zembik, OANDA TMS Brokers