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What a busy week to start the new year! We’ve got a handful of CPI releases, the FOMC minutes, and of course the U.S. NFP.

Before all that, ICYMI, check out our quick and wacky predictions for 2023!

And now for the closely-watched potential market movers this week:

Major Economic Events:

CPI readings from Europe – First off, we’ve got Switzerland’s CPI release (Jan 4, 7:30 am GMT) around the middle of the week.

The December 2022 inflation report might reflect another slowdown in price pressures for the economy, as the reading is slated to show a 0.1% decline for the month.

Meanwhile the rest of the region would get a glimpse of the eurozone flash CPI data (Jan. 6, 10:00 am GMT) later in the week.

A dip in headline inflation is eyed for December, as the reading could fall from 10.1% to 10.0% year-over-year, while the core figure could hold steady at 5.0%.

Weaker than expected results would suggest that tightening measures are starting to kick in, possibly convincing the ECB to slow down its pace of rate hikes in the coming months.

FOMC meeting minutes (Jan. 4, 7:00 pm GMT) – In their December meeting, the Fed decided to tone down their aggressiveness by hiking at 0.50% as expected.

Although this represented a slower pace of tightening from their previous 0.75% hikes, a few hawkish twists were still announced.

For one, the FOMC upgraded their inflation forecasts for 2023 and 2024, hinting that more tightening moves are in the cards. Apart from that, Fed head Powell reiterated that they won’t be complacent about the slight downturn in price pressures.

The transcript of their meeting should shed more light on what policymakers have up their sleeve for the next few months, possibly setting the dollar’s direction in the near term.

U.S. non-farm payrolls (Jan. 6, 1:30 pm GMT) – Another big event to watch out for this week is Uncle Sam’s NFP release, which might give some follow through on the Fed’s outlook.

Number crunchers are predicting yet another slowdown in hiring for December 2022, as the reading could come in at 200K for the month. This should be enough to keep the unemployment rate steady at 3.7%.

As always, the average hourly earnings figure would likely draw interest as well since wage growth is considered a leading indicator of inflation. The reading is slated to dip from 0.6% to 0.4% in December.

Other leading indicators such as the ADP non-farm employment change, JOLTS job openings, ISM manufacturing PMI and Challenger job cuts are worth watching throughout the week.

Forex Setup of the Week: USD/JPY

USD/JPY Daily Forex Chart

USD/JPY Daily Forex Chart

For forex market participants, the FOMC minutes and NFP release are shaping up to be the big market movers early this year, so I’d stay on the lookout for dollar volatility!

USD/JPY appears to be forming a head and shoulders pattern as it hovers around the neckline near the 130.00 major psychological mark.

Strong hawkish vibes from the FOMC might spur a bounce from support, but the upside could be limited to the area of interest at 140.00. If so, this would complete the second shoulder and possibly send the pair back to the neckline.

A break lower might then set off a drop that’s the same height as the chart pattern, which spans close to a couple thousand pips!

Technical indicators on the daily time frame are still reflecting bullish vibes, as the 100 SMA is above the 200 SMA while Stochastic is pulling higher.

Just note that the gap between the moving averages is already narrowing and that the pair has tumbled below both indicators, so these might hold as dynamic resistance levels from here.