Created on January 28, 2025

• The EUR/USD currency pair is attempting to maintain its recent upward rebound gains, which recently reached the resistance level of 1.0533, the pair’s highest level in a month, before settling around 1.0490 at the time of writing this analysis.
• It is awaiting important US and European events that will determine the fate of the Euro-Dollar in the coming days.
• The euro is engaged in a short-term recovery against the dollar, and further gains are possible. Obviously, central bank decisions in both Europe and the United States constitute the most prominent risks in this week’s trading.

The US Dollar Declines Amid a Shift in Trump’s Policies

According to recent forex market trading, the US dollar declined to record its weakest performance in more than a year last week, as investors reduced their expectations for imposing comprehensive tariffs on US imports, which markets considered the most positive policy that Donald Trump could implement. Overall, Trump’s victory in November accelerated the rise of the US dollar index, as investors considered such a scenario. After a week in office, traders are increasingly certain that the comprehensive tariffs will not be implemented.

Instead, it became clear that US tariffs would be used as part of a geopolitical bargaining tool, allowing for negotiations and avoiding the worst outcomes from a trade perspective. In this regard, the transactional approach to tariffs was revealed on Sunday when Trump threatened Colombia with a 50% tariff on imports after refusing to allow a deportation flight to Colombia to land. The Colombian government quickly abandoned its position, and tariffs are now out of the picture.

As for the Eurozone, it appears that Trump will drop the tariff threat if European countries commit to buying more US oil and gas. That is not a huge hurdle to overcome for a region that is almost entirely devoid of its own oil and gas production. The developments therefore reduce the chances of reaching parity between the Euro and the US Dollar, although it should be noted that the downward exchange rate trend remains intact from a multi-week perspective and we may just see a pullback in the overbought US Dollar.

Meanwhile, resuming selling remains a high-risk outcome for the first half of 2025.

Trading Tips:

The Euro-Dollar will remain in its current range until the reaction to the central bank announcements this week and the signals coming from the US administration’s policies, so always be careful and do not take risks.

All eyes are on the US Federal Reserve

This week, the US Federal Reserve meeting comes amid Trump’s speech in Davos where he explicitly called for a cut in US interest rates, confirming that the Federal Reserve will face a more interventionist White House. As is known, the US Federal Reserve is independent, but verbal pressure from the executive branch could lead to 50-50 wrong decisions on the dovish side, i.e. more cuts than would have been the case previously. This is negative for the US Dollar against other major currencies.

The expectations are that the Federal Reserve will leave US interest rates unchanged, saying that more time is needed to reflect on the strong nature of the US economy and the impact of previous interest rate cuts. Concurrently, the market is pricing in just one cut this year A rate cut is essential to boost growth in the eurozone economy. Moreover, inflationary pressures remain stubbornly above the European Central Bank’s 2.0% target.

The ECB will therefore welcome last week’s unexpectedly higher-than-expected PMI reading, which suggested that the eurozone’s economic data pulse has bottomed out. This should allow the ECB to express some optimism and respond to calls for an acceleration in the pace of cuts, which could boost the euro exchange rate.

Furthermore, this could allow the EUR/USD pair to recover above the 1.05 resistance for a while.

EUR/USD Technical Analysis Today:

The EUR/USD exchange rate is trading at 1.0490 after last week’s 2.20% gain, its biggest weekly advance since July 2023. The advanced technical setup suggests that the euro has broken the downtrend line that defined the September-January sell-off, which could increase confidence in a short-term interim bottom. Now, EUR/USD has moved above its nine-day exponential moving average (EMA) as the bounce grows, confirming bullish momentum on the multi-day forecast horizon. However, the advance late last week means that the spot has deviated quite far from the nine-day EMA (currently at 1.0408), suggesting some neutrality towards this level is likely in the next couple of days.

EUR/USD is expected to hold between 1.0409 and 1.05 in the first part of the week, with a break higher in the latter part of the week likely to send it higher towards the near-term target of 1.0570. This level represents the 38.2% Fibonacci retracement of the September and January selloffs. Overall, this gain will depend on what the US Federal Reserve says about interest rate expectations at its policy meeting tomorrow, Wednesday, and what the European Central Bank says and does on Thursday. Furthermore, Donald Trump’s ongoing efforts to shape America and the world order in his image will overshadow the risks of the two central bank events. Ultimately, expect more tariff threats and musings from the US President to provide volatility in the near term.

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January 28, 2025 – Written by Frank Davies

STORY LINK Pound to Euro (GBP/EUR) Exchange Rate Muted despite Upbeat German Data

The Pound Sterling was trapped in a narrow range against the Euro on Monday despite the release of some better-than-expected German data.

At the time of writing, the GBP/EUR exchange rate was trading at around €1.1889, virtually unchanged from Monday’s opening levels.

Although flat against the Pound (GBP), the Euro (EUR) gained ground against several of its counterparts on Monday following the release of Germany’s latest IFO business climate index.

The index ticked up in January, rising from 84.7, the lowest level since May 2020, to 85.1, surpassing expectations that it would remain unchanged.

This positive data from the Eurozone’s largest economy bolstered the Euro at the beginning of the week, especially amid a generally cautious market sentiment.

As a safe-haven currency, the Euro also benefited from the risk-averse trading environment on Monday.

On Monday, the Pound stayed largely muted against most of its peers, owing to a lack of fresh economic data releases.

This absence of new information left Sterling without a clear direction at the start of the week, however, saw the Pound remain relatively steady.

Given the anticipated scarcity of UK economic data throughout the week, it’s likely that the Pound will continue to oscillate without any major economic drivers influencing its movement.

Looking ahead to Tuesday, the main factor influencing the Pound Euro exchange rate will likely be several speeches from European Central Bank (ECB) officials.

Both ECB official Piero Cipollone and ECB President Christine Lagarde are set to speak on Tuesday.

If either policymaker hints at a potential ECB interest rate cut, EUR exchange rates could weaken as a result.

For the Pound, with UK data remaining sparse, GBP exchange rates are likely to continue struggling to find a clear direction this week.

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• GBP/USD loses traction after posting gains for three consecutive days.
• The technical outlook is yet to point to a buildup of bearish momentum.
• Investors are likely to ignore US data releases ahead of the Fed meeting.

GBP/USD climbed to its highest level in three weeks above 1.2500 on Monday and posted gains for the third consecutive day. Early Tuesday, however, the pair reversed its direction and declined below 1.2450.

In the absence of high-tier data releases, investors continue to react to headlines surrounding US President Donald Trump’s trade policy. 

US Treasury Secretary Scott Bessent said late Monday that he is pushing for universal tariffs on imports to start at 2.5% and rise gradually, per the Financial Times. While speaking to reporters in the early Asian session on Tuesday, President Trump responded to these remarks, saying that he wants tariffs “much bigger than 2.5%.” Moreover, Trump noted they are going to be placing tariffs on foreign production of computer chips, semiconductors and pharmaceuticals “in the very near future,” to return production of these essential goods to the US.

Later in the day, December Durable Goods Orders and January CB Consumer Confidence Index data will be featured in the US economic calendar. More importantly, the Federal Reserve’s (Fed) two-day monetary policy meeting will start on Tuesday. Before the Fed announces policy decisions on Wednesday, market participants could stay focused on comments from Trump, or his administration, on tariffs.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated but managed to hold comfortably above 50, reflecting sellers’ hesitancy. 

In case GBP/USD confirms 1.2450 as resistance, where the Fibonacci 50% retracement level of the latest downtrend and the 200-period Simple Moving Average (SMA) align, additional losses toward 1.2400 (static level, round level), 1.2370 (Fibonacci 38.2% retracement) and 1.2320 (100-period SMA) could be seen.

If GBP/USD stabilizes above 1.2450, resistances could be spotted at 1.2500 (round level, static level) and 1.2530 (Fibonacci 61.8% retracement).

• The yen rallied as investors scrambled for safety after news of a new free Chinese AI.

• Trump announced plans to impose tariffs on specific goods.

• Market participants eagerly awaited the FOMC policy meeting.

The USD/JPY price analysis shows the dollar regaining its footing against the yen as market participants look forward to the FOMC meeting. At the same time, Trump’s remarks on tariffs in the previous session revived the greenback.

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On Monday, the yen rallied as investors scrambled for safety after news of a free Chinese AI model shook markets. Risks appetite plunged after reports revealed that DeepSeek, a Chinese company, was introducing an AI model that uses less data and lower-cost chips. 

The AI industry in the US has supported a strong rally in equities in recent years. Therefore, the threat of low cost AI in China significantly hurts the risk appetite. However, this was bullish for the yen, considered a traditional safe-haven.

Nevertheless, there was some support for the dollar when Trump announced plans to impose tariffs on steel, imported computer chips, and pharmaceuticals. As a result, demand for locally produced goods will increase, boosting the economy. 

At the same time, market participants eagerly awaited the FOMC policy meeting. Economists expect the Fed to maintain interest rates. Moreover, analysts believe policymakers might maintain a cautious tone. Trump’s policies and their impact on the economy remain uncertain. Therefore, the US Central Bank might prefer a gradual approach as the economy adjusts to the new administration. Such an outlook will likely boost the dollar.

USD/JPY key events today

• US CB consumer confidence

USD/JPY technical price analysis: Bullish RSI divergence 

On the technical side, the USD/JPY price has rebounded and paused at the 30-SMA resistance. Meanwhile, the RSI trades slightly above 50, showing bulls are gaining momentum. The previous downtrend started showing weakness when the price punctured the 30-SMA resistance. However, bulls were unable to break above the 156.51 resistance level. As a result, the price fell to a lower low near the 154.01 support level. 

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Although price action indicated a continuation of the downtrend, the RSI made a bullish divergence, showing fading momentum. Consequently, bulls resurfaced at the 154.01 support, pushing the price to the 30-SMA. 

Given the divergence, the price will likely breach the SMA resistance. However, bulls must also break above 156.51 to confirm a reversal. If this happens, USD/JPY will retest the 158.50 resistance level.

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Ethereum price (ETHUSD) shows new positive trades to test 3222.00$ level again, getting positive signals through stochastic to support the chances of continuing the rise in the upcoming sessions, but we notice that the EMA50 forms negative pressure against the price, to face contradiction between the technical indicators that makes us prefer to stay aside until we get clearer signal for the next trend, through breaching 3222.00$ resistance or breaking 3017.30$ support.

Note that breaching the mentioned resistance will lead the price to achieve more gains and head towards 3425.50$ as a main positive target, while breaking the support represents the key to suffer new losses that reach 2765.00$.

The expected trading range for today is between 3030.00$ support and 3340.00$ resistance.

Trend forecast: Neutral