The past week was not the most successful from the perspective of bullish investors. A sharp sell-off in the stock market linked to concerns about artificial intelligence was amplified by the narrative of rising inflation due to the frenzy in crude oil prices.
This week promises to be extremely intense, bringing an unprecedented concentration of key macroeconomic data and corporate earnings. Investors will have to face three decisions from the world's most important central banks: the US Federal Reserve (Wednesday), the European Central Bank (Thursday), and the Bank of Japan (Friday).
From the standpoint of economic fundamentals, US GDP data and the Fed's preferred measure of inflation, PCE, will prove decisive as they collide with Friday's GDP readings for the euro area and inflation data from major Old Continent economies.
At the same time, the market enters the most crucial phase of the Wall Street earnings season, where the largest tech players, such as Alphabet and Microsoft, will present their reports. Given the immense density of potential catalysts, it is worth paying special attention to markets such as EURUSD, US100 (Nasdaq 100 fut.), and USDJPY in the coming days.
EURUSD
The main currency pair will find itself at the very center of market turmoil this week. The direction of trading will primarily be decided by the clash between Wednesday's Fed interest rate decision and Thursday's ECB meeting.
Investors will be looking for signals regarding end-of-year moves, as no changes are currently expected following the September rate hikes. Beyond monetary policy itself, valuations will be tested by hard data.
Key US GDP and PCE inflation reports will arrive on Thursday, and a day later attention will shift to Europe, where we will also learn euro area GDP and preliminary inflation readings from several economies.
As we have repeatedly observed in the past, the simultaneous publication of key growth and inflation indicators on both sides of the Atlantic, juxtaposed with central bank meetings, acts as a perfect catalyst for capital, forcing a rapid revision of expectations regarding interest rate divergence.
US100 (Nasdaq 100 fut.)
For the tech index, the ultimate test of strength for a slowly exhausting trend is approaching. While the interest rate environment dictated by the Federal Reserve (Wednesday) always determines the medium-term sentiment around growth company valuations, this week will unquestionably be dominated by quarterly earnings season.
Alphabet and Microsoft will reveal their cards after Wednesday's session, and Amazon and Intel will present reports on Thursday (joining giants like Boeing and Visa on Tuesday). The market will scrutinize revenue momentum, cloud spending, and AI monetization with surgical precision.
History shows that with the high expectations under which Wall Street is currently operating, even the slightest disappointment in forward guidance has previously served as a pretext for sharp, multi-point drops in major indices. Nevertheless, at this point, investor attention will primarily focus on AI infrastructure investments and its monetization.
USDJPY
This week outlines a classic scenario for triggering sharp reshuffles in the Japanese yen, whose valuation will be caught in a figurative pincer movement. On one hand, Wednesday's decision from Washington and Thursday's US macroeconomic data will set the tone for the dollar and dictate the direction of local bond yields. On the other hand, the market will learn the Bank of Japan's (BoJ) interest rate decision on Friday morning.
No hike is currently expected, but signals regarding readiness for such a move by the end of the year could support the yen.
Historically speaking, the collision of Fed and BoJ meetings in a single week has repeatedly resulted in massive, multi-figure moves in the USDJPY pair. Any deviations from consensus—whether a surprisingly hawkish tone from Tokyo or a discrepancy in US GDP data – will test current technical levels and could force a sudden unwind of speculative carry trade positions.
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