The US dollar has strengthened for four consecutive days, and the yield on 10-year US bonds briefly exceeded 4%. Gold prices are facing the risk of a sharp decline

Since the beginning of the year, the U.S. stock market has continued to decline, while U.S. bonds began to rise after the release of the Federal Reserve's last meeting notes. On Wednesday (January 3), the Nasdaq 100 index fell by 1.1%, the longest consecutive decline in more than two months. Investors are pulling back from technology stocks that performed well last year. The S & P 500 Index also fell by 0.8%, while the Russell 2000 small-cap index suffered its biggest decline since the banking crisis in March. Tesla and semiconductor stocks plunged. Gold prices closed down for four consecutive trading days. The short-term bearish signal has strengthened significantly. You need to beware of the risk of a sharp decline in the market outlook.

The dollar has strengthened against most G10 currencies for four straight days, its longest rally since November. Federal Reserve policymakers said interest rate limits could be longer than expected last month and noted a rate cut before the end of the year. Swap traders have been keeping bets on rate cuts in check.

Treasury yields closed near intraday lows on Wednesday, with the 10-year yield reversing after climbing earlier in the day to just over 4 per cent, its highest level since mid-December. "Overall, this is the hawkish update from the Fed," said Ian Lyngen, analyst at BMO capital markets. "Although the tone has clearly been snubbed."

"The FOMC meeting notes are focused on better balancing risks to growth and inflation, but policy will remain restrictive for some time," wrote Ellen Zentner, analyst at Morgan Stanley. "We don't think the Fed plans to cut rates anytime soon."

Markets rallied last month after Federal Reserve Chairperson Jerome Powell said policy makers had discussed a rate cut.Other Fed officials have tried to dampen market enthusiasm for faster and deeper rate cuts in the coming days. Thomas Barkin, the Richmond Fed chairperson, did not predict when the Fed would cut rates for the first time. "Things are changing. So will our approach," he said. "So buckle up. Even if you expect a soft landing, this is the safer approach to apply.”

Data released on Wednesday showed that the Institute for Supply Management's manufacturing index stood at 47.4 last month and has remained below the 50 level since the end of 2022, indicating a contraction in manufacturing. Separately, the data showed that the number of job openings in the United States fell slightly in November from the revised figure last month.

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, believes that overall, the labor market remains strong, but demand is cooling and achieving a better balance with supply. The data is good news for policymakers and supports the Fed's view that the next step in interest rates could be lower, possibly in the second quarter.James Knightley, an analyst at ING, said Friday's jobs report was likely to further cement the cooling trend, arguing that the composition of job growth was almost as important as the number of jobs themselves in determining the outlook for a 2024 rate cut.

In corporate news, Bob Iger, the chief executive of The Walt Disney Company, is trying to win over investors to escape pressure from billionaire activist Nelson Peltz, while Barrick Gold is testing some anchors at First Quantum Minerals Ltd to gauge their support for a potential acquisition.

Looking ahead, the market's focus will be on Friday's jobs report.The report is likely to further solidify the current market view of the cooling economy and have implications for future policy making. Investors will also be watching corporate earnings and macroeconomic data to understand market dynamics and economic trends.

In Friday's financial calendar, we will closely monitor several key economic indicators.First, the change in US ADP payrolls in December will give us an insight into private sector employment. This will be followed by last week's quarterly jobless claims in the US for insight into the health of the labour market. In addition, the EIA crude oil inventory change will also provide an update on the energy market.

In the currency market, the performance of EUR, GBP and JPY is worth watching. EUR/USD fell on Wednesday and closed at 1.0921, a decline of 0.16%; technical analysis shows that the preliminary resistance to the upside of the exchange rate is at 1.0959, while the preliminary support below is at 1.0886. On the other hand, GBP/USD rose on Wednesday and closed at 1.2664, an increase of 0.41%; on the upside, the preliminary resistance is at 1.2691, and the preliminary support below is at 1.2620. Finally, USD/JPY rose by 0.92% on Wednesday and closed at 143.28. On the technical side, the preliminary resistance above is at 144.083, while the preliminary support below is at 142.124.

When formulating a trading strategy, it is essential to consider these factors and keep a close watch on market dynamics.