Created on January 20, 2025

• During the daily analysis that I do of major currency pairs, the USD/JPY pair has captured my attention as we tried to break down below the ¥155 level, which is an area that has been important multiple times.
• In fact, it is almost as if the level acts like a brick wall, so that tells you just how much support there is there.

Furthermore, you should also keep in mind that the 50 Day EMA sits underneath the ¥155 level, and that of course in and of itself probably causes a little bit of technical support. With this being the case, the market is likely to continue to look at this as a market that is a “buy on the dips market”, for a whole plethora of reasons, not the least of which would be the way the market behaved during the last day or so. Ultimately, this is a market that still has a major interest rate differential, but there are some questions about things going forward.

Central Banks

Keep in mind that the central banks are very heavily influential in this pair, as we have seen the Federal Reserve look likely to be higher for longer at this point, and therefore it does make a certain amount of sense that we would see the US dollar remains somewhat strong. That being said, the market is also paying close attention to the Bank of Japan, which may have to tighten monetary policy sometime this year, but the interest rate differential would still be huge between the Americans and the Japanese. With that being the case, I think we continue to go higher over the longer term, but the last couple of days were probably necessary to shake out some of the “weak hands.”

Short-term dips should continue to be buying opportunities, and I have no interest in shorting this pair anytime soon. While things could change down the road, right now it looks like the Federal Reserve is light years away from starting to cut rates.

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January 19, 2025 – Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: Trump Inauguration, Sterling Vulnerability

Nomura notes Pound vulnerability, but it is still targeting a Pound to Euro (GBP/EUR) exchange rate to strengthen to 1.2270 at the end of 2025.

ING has shifted its forecasts and now expects GBP/EUR will weaken to 1.1765 at the end of the year.

Pound confidence dipped sharply early in the week amid a slide in UK bonds, with a jump in the 10-year yield to 16-year highs above 4.90%.

There were some fears over a re-run of the 2022 crisis,s with higher yields jeopardising the government’s economic strategy.

There was some stabilisation later in the week as the bond market recovered and yields declined.

Credit Agricole notes that the Pound has tended to come under pressure when there is a sell-off in bonds; “The UK has displayed, since Brexit essentially, and even more acutely over the past four years, a negative FX-bond differential correlation during some stress episodes.”

It added, “This underlines that FX moves in GBP and rates are driven more by inflows and outflows of capital than by the pure rate differential. The external financing issue can increase if the market cannot absorb even more public deficit but we remain far from the context of autumn 2022.”

According to ING, “Though we do not think UK comparisons to Liz Truss/Sep 2022 are fully justified, the FX options market is far more alarmed.”

Nomura considers that there is good value in buying the Pound on dips, but there are significant warning signs.

The banknotes several structural vulnerabilities; “The first is that these occurrences are becoming more common and longer lasting than in previous years. The second is that GBP’s external deficit is funded increasingly by volatile short-term inflows. The third is that valuations are rich and speculators haven’t yet shifted their positioning to be as short GBP as other currencies. The final issue is that the UK’s growth-inflation mix is worsening.”

Danske Bank; “With global financial conditions tightening and long-end global real rates moving higher, the UK is left vulnerable given its fragile fiscal position as it runs a large public debt and deficits.”

It added, “We are cautiously optimistic that the move in UK markets is overdone and expect long-end global yields to decline. More broadly, we think a relatively hawkish BoE and a growth pickup in the UK relative to the euro area in 2025 will weigh on the cross in the coming quarters.”

UK data was generally weak with November GDP growth held to 0.1% while the inflation data was weaker than expected with the core rate declining to 3.2% from 3.5%.

ING expects more substantial Bank of England interest rate cuts amid weak growth and declining inflation, which will undermine the Pound; “When it comes to BoE versus ECB market pricing of the 2025 easing cycles, the risks here are clearly to the upside for EUR/GBP. We think the BoE easing cycle will be far deeper than what is currently priced. Again, UK services inflation is key here.”

According to UBS, “Fiscal uncertainty motivated us to lift the EURGBP forecast for March to 0.84 (prev. 0.82). With our expectation for better economic growth in the UK during 2025, EURGBP should still gravitate back to 0.82 by year-end. (1.22 for GBP/EUR)

ING noted that GDP contracted in 2023 and 2024.

It expects a further struggle in 2025; “it is also becoming increasingly clear that even in a best-case scenario with reforms and investments, any new government will not try to overhaul the old economic business model, but rather try to rejuvenate the old one.”

Bank of America suggests that Euro pessimism may be overdone; “with the market consensus already being so negative and very low expectations for any EU reaction to address its challenges, including in response to US policies, we see risks for the EUR as asymmetrically positive beyond the short term and we believe that the bar is relatively low.”

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TAGS: Pound Euro Forecasts

Created on January 19, 2025

Fundamental Analysis & Market Sentiment

Weekly Forecast 19 January 2025

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

GBP/USD

EUR/USD

USD/JPY

Bitcoin

Created on January 19, 2025

• During my analysis of Bitcoin, the first thing that comes to the forefront is the fact that Bitcoin is rallying rather significantly, as we have broken through a significant short-term swing high, and now that we are above there, it looks like Bitcoin could continue to go looking to the upside.
• After all, the market had been in a major consolidation range, and now it looks like Bitcoin might go looking to get to the top of it.

Technical Analysis

The technical analysis for this pair is somewhat sideways at this point in time, but at this point in time it certainly looks as if the market favors the upside in general. The $90,000 level underneath was a major support level, while the $110,000 level is a major resistance barrier. All things being equal, this is a market that will continue to be noisy, but given enough time, I would finally expect this market to go to the upside and breakout, but the question is what will cause it to happen? After all, the Trump administration is already known to be pro crypto, but now we have to see them actually do something to really get the markets moving.

It’s also worth noting that the market had gone sideways for a while due to the fact that we had exploded to the upside, and with that being said I think we’ve got work off some of the noisy behavior that had previously been such a prominent part of this market. Nonetheless, I think this is a scenario where traders will continue to buy each and every dip, because it offers value that you can take advantage of. I have no interest in shorting Bitcoin, and quite frankly I think that the range holds as long as we can stay above the crucial $88,000 level, as the $90,000 level is essentially a “range of support.”

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Created on January 20, 2025

• The British Pound has fallen a bit during the trading session on Friday, which in and of itself isn’t surprising because we’ve seen it do that all week.
• However, this time, it doesn’t look like it’s ready to bounce as much as it was previously, and therefore I think you continue to see a lot of consolidation in this area, but the most important clue out of all of this is that the British Pound simply cannot hang on to the gains.

The 1.21 level underneath of course is a significant area from the past that I think comes into play with Market Memory 4 support. If we break down below the 1.21 level, then it opens up the possibility of a move to the 1.20 level. Any rally at this point in time should end up being a nice selling opportunity at the first signs of exhaustion, and that’s exactly how I’ve been playing this pair.

There are Massive Barriers Above

The 1.2350 level is an area that I think will be very difficult to get above. And if we can clear that, then you would be looking at 1.25. It’s really not until we get above there that I’d be convinced about the strength of the British pound, and I would also have to see the U S dollar fall apart in multiple currencies, not just this one. This is not a British pound story as much as it is a U S dollar story over the longer term.

Yes, there are budgetary concerns in Great Britain, but right now the US dollar is like a wrecking ball for pretty much everything, and the pound of course will not be immune to that. A breakdown below the 1.21 level again opens up the 1.20 level. Anything below there becomes really ugly, really fast. You can see that the trajectory of this market has been on the downside for a while, and it was quite vicious to get down here so it’s not a huge surprise that occasionally we will consolidate like we have been over the last week or so.

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• US core inflation missed forecasts in December. 

• US retail sales increased by a smaller-than-expected figure.

• Bank of Japan policymakers signaled a willingness to hike interest rates.

The USD/JPY weekly forecast indicates growing anticipation for a Bank of Japan rate hike that is supporting the yen.

Ups and downs of USD/JPY

The USD/JPY pair ended the week lower as the dollar eased on downbeat data, and the yen gained due to a surge in BoJ rate hike expectations. The greenback and Treasury yields eased after data revealed that US core inflation missed forecasts in December. The report raised expectations for Fed rate cuts in 2025. Additionally, retail sales increased by a smaller-than-expected figure, pointing to weak consumer spending.

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Meanwhile, Bank of Japan policymakers signaled a willingness to hike interest rates due to the improving economy and weak yen. Consequently, rate hike bets increased, boosting the yen.

Next week’s key events for USD/JPY

Next week, market participants will watch the Bank of Japan policy meeting on Friday. The yen has faced significant downward pressure due to the rising dollar and a less dovish outlook for Fed policy. At the same time, the BoJ has remained cautious about rate hikes, citing uncertainty about Trump’s policies. 

However, recent yen weakness has increased pressure on the central bank to hike rates. As a result, policymakers have shifted their tone to a more hawkish one, boosting rate hike expectations. If policymakers vote to hike rates on Friday, the yen will rally.

USD/JPY weekly technical forecast: Trendline support retested

On the technical side, the USD/JPY price has paused at its support trendline after breaking below the 22-SMA. The SMA break indicates a bearish shift in sentiment. However, on a larger scale, the price trades in a bullish trend with a clear support trendline. 

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Therefore, although bears are in the lead in the short term, the price is making higher highs and lows. Bulls might resurface next week to push the price off the support. However, they must make a higher high to confirm a continuation of the bullish trend. 

However, while the price has made higher highs, the RSI has stalled, failing to enter the overbought region. This could be because the uptrend is a corrective after a strong trend. If this happens, the price will likely break below the trendline to make another impulsive leg. Therefore, it would breach the 150.05 support level.

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• USD/JPY has decoupled from US Treasury yields, creating uncertainty
• Trump inauguration may trigger significant market volatility, depending on tariff decisions
• BoJ’s rate decision looms, with a 25bp hike favoured
• USD/JPY upside hinges on a positive risk environment soft tariff stance

Summary

This analysis note explores the evolving drivers of USD/JPY, including the recent breakdown of its correlation with Treasury yields and other influences. With Donald Trump’s inauguration and the BoJ’s rate decision as focal points, it outlines key scenarios and their implications. Technical levels and momentum signals are highlighted to frame the risks and opportunities ahead for traders.

US Yield Domination crumbles

US Treasury yields have been a dominant force driving USD/JPY direction for much of the past year, but that has changed in early 2025. As seen in the chart below, its near-perfect correlation with longer-dated Treasury yields has disintegrated on a daily timeframe over the past month. Nor has there been any relationship with Japanese yields across the entire JGB curve, or with risk assets such as US stocks. While there has been a positive relationship with benchmark yield spreads between the United States and Japan—at 0.56 over the past month—even that relationship has weakened significantly.

Source: TradingView

While doubtful the relationship with interest rate markets has permanently broken down, for the first time in a while, USD/JPY is doing its own thing. Along with positioning over the calendar turn, which can deliver powerful yet temporary movements, the breakdown is likely explained by speculation about what Donald Trump will do when he takes office, along with what the BoJ will do with interest rates next week. Neither event has an obvious answer, creating an environment of extreme uncertainty.

Trump Tariffs: Bark Worse than Bite?

After Trump’s inauguration on Monday, markets will focus on what executive orders he puts in place regarding tariffs on imports entering the United States. During the election campaign, Trump flagged 25% tariffs on Canada and Mexico, up to 60% on China, and 10% on other nations. More recently, there has been speculation tariffs will be implemented gradually to avoid a sudden spike in inflation, rather than immediately.

It is impossible to say what markets have priced in, despite some of the commentary circulating in recent weeks. Depending on what is announced, there will be a sizeable market reaction, potentially violent if the details sit toward the extreme of plausible scenarios.

For USD/JPY, directional risks surrounding the inauguration look skewed to the upside.

While staggered tariffs and evidence of a willingness to negotiate will likely push Treasury yields lower, they would also deliver a significant boost to risk appetite. Directional risks under this scenario therefore screen as higher, as likely gains in riskier asset classes boost the appeal of yen carry trades.

At the other end of the spectrum, if Trump announces immediate and aggressive tariffs, it’s likely to spark a major risk-off episode in markets, potentially capping the rise in Treasury yields while losses in riskier asset classes pressure yen carry trades. That could lead to sizeable declines in USD/JPY.

A scenario somewhere in between may promote USD/JPY upside, as modestly higher Treasury yields and relief that extreme tariff risks have been avoided create an environment that may pressure the yen.

As for Trump’s approach, a look back to his first term as President suggests he tends to grade himself using the performance of the US stock market. Big losses on day one of his presidency would signal failure and deliver a substantial mark-to-market loss when he likely desires the opposite outcome. Therefore, on the balance of probabilities, the worst-case scenario screens as low to this scribe.

BoJ Hike No Certainty to Spark Yen Strength

Friday’s BoJ interest rate decision is the other big event for USD/JPY traders this week. Like Trump’s inauguration, the outcome is anything but clear. Not only is the announcement time uncertain – typically around 12:30 pm JST unless there is a significant policy change – but there is also no certainty about how much rates will be increased, if at all. Unlike other central banks that tend to move in quarter-point increments, the BoJ has raised rates by 20 and 15 basis points during this tightening cycle, leaving the key overnight rate at 0.25%.

Source: Bloomberg

After positive remarks on wages growth last week from BoJ Governor Ueda and his deputy Ryozo Himino, swaps markets have ramped up bets for a 25bp move on Friday, with the implied probability sitting at 88%. That is aggressive, leaving only modest room for yen appreciation if the bank follows through. A smaller hike or no change would see USD/JPY surge higher. A positive market reaction to Trump’s inauguration would increase the likelihood of the BoJ delivering a hike in line with expectations.

With markets pricing in two 25bp hikes this year, the BoJ’s updated inflation forecasts will need to support further hikes to avoid triggering a yen sell-off. When last updated in October, the BoJ forecast CPI less fresh food prices and CPI less fresh food and energy prices to rise by 1.9% in 2025, just shy of the BoJ’s 2% target. Similar or higher forecasts will likely be required to prevent yen weakness. Also watch for commentary on wages and inflation trends from Governor Ueda during his regular press conference at 3:30pm JST.

Source: BoJ

Event Calendar 

The remaining events calendar for the week ahead is found below. Other than the BoJ decision, none screen as particularly important, although Japan’s inflation report would generate volatility if an unlikely sizeable downside surprise were to occur. All times shown are US eastern time.

Source: Refinitiv 

USD/JPY Technical Picture

USD/JPY suffered a rare weekly decline heading into the inauguration and BoJ decision, with a sizeable reversal in US Treasury yields likely contributing to the downside break of the rising wedge it had been sitting in over the past month. Recent price action, alongside bearish signals from momentum indicators such as RSI (14) and MACD, suggests selling rallies and downside breaks may be the preferred strategy. However, given the event risk and assessment that upside risks could dominate, this signal arguably carries less weight than usual.

Source: TradingView

155.00 is where the recent downturn stalled, making it an initial focal point for traders. The key 50-day moving average and the September uptrend are other downside levels to watch. A break below the latter appears unlikely in the near term, especially with the important 200-day moving average nearby.

On the topside, dips toward 156.00 were bought before the latest leg lower, suggesting sellers may now be active around this level. Other notable resistance levels include 158.88, 160.23, and 161.95.

— Written by David Scutt

Follow David on Twitter @scutty

• USD/JPY has decoupled from US Treasury yields, creating uncertainty
• Trump inauguration may trigger significant market volatility, depending on tariff decisions
• BoJ’s rate decision looms, with a 25bp hike favoured
• USD/JPY upside hinges on a positive risk environment soft tariff stance

Summary

This analysis note explores the evolving drivers of USD/JPY, including the recent breakdown of its correlation with Treasury yields and other influences. With Donald Trump’s inauguration and the BoJ’s rate decision as focal points, it outlines key scenarios and their implications. Technical levels and momentum signals are highlighted to frame the risks and opportunities ahead for traders.

US Yield Domination crumbles

US Treasury yields have been a dominant force driving USD/JPY direction for much of the past year, but that has changed in early 2025. As seen in the chart below, its near-perfect correlation with longer-dated Treasury yields has disintegrated on a daily timeframe over the past month. Nor has there been any relationship with Japanese yields across the entire JGB curve, or with risk assets such as US stocks. While there has been a positive relationship with benchmark yield spreads between the United States and Japan—at 0.56 over the past month—even that relationship has weakened significantly.

Source: TradingView

While doubtful the relationship with interest rate markets has permanently broken down, for the first time in a while, USD/JPY is doing its own thing. Along with positioning over the calendar turn, which can deliver powerful yet temporary movements, the breakdown is likely explained by speculation about what Donald Trump will do when he takes office, along with what the BoJ will do with interest rates next week. Neither event has an obvious answer, creating an environment of extreme uncertainty.

Trump Tariffs: Bark Worse than Bite?

After Trump’s inauguration on Monday, markets will focus on what executive orders he puts in place regarding tariffs on imports entering the United States. During the election campaign, Trump flagged 25% tariffs on Canada and Mexico, up to 60% on China, and 10% on other nations. More recently, there has been speculation tariffs will be implemented gradually to avoid a sudden spike in inflation, rather than immediately.

It is impossible to say what markets have priced in, despite some of the commentary circulating in recent weeks. Depending on what is announced, there will be a sizeable market reaction, potentially violent if the details sit toward the extreme of plausible scenarios.

For USD/JPY, directional risks surrounding the inauguration look skewed to the upside.

While staggered tariffs and evidence of a willingness to negotiate will likely push Treasury yields lower, they would also deliver a significant boost to risk appetite. Directional risks under this scenario therefore screen as higher, as likely gains in riskier asset classes boost the appeal of yen carry trades.

At the other end of the spectrum, if Trump announces immediate and aggressive tariffs, it’s likely to spark a major risk-off episode in markets, potentially capping the rise in Treasury yields while losses in riskier asset classes pressure yen carry trades. That could lead to sizeable declines in USD/JPY.

A scenario somewhere in between may promote USD/JPY upside, as modestly higher Treasury yields and relief that extreme tariff risks have been avoided create an environment that may pressure the yen.

As for Trump’s approach, a look back to his first term as President suggests he tends to grade himself using the performance of the US stock market. Big losses on day one of his presidency would signal failure and deliver a substantial mark-to-market loss when he likely desires the opposite outcome. Therefore, on the balance of probabilities, the worst-case scenario screens as low to this scribe.

BoJ Hike No Certainty to Spark Yen Strength

Friday’s BoJ interest rate decision is the other big event for USD/JPY traders this week. Like Trump’s inauguration, the outcome is anything but clear. Not only is the announcement time uncertain – typically around 12:30 pm JST unless there is a significant policy change – but there is also no certainty about how much rates will be increased, if at all. Unlike other central banks that tend to move in quarter-point increments, the BoJ has raised rates by 20 and 15 basis points during this tightening cycle, leaving the key overnight rate at 0.25%.

Source: Bloomberg

After positive remarks on wages growth last week from BoJ Governor Ueda and his deputy Ryozo Himino, swaps markets have ramped up bets for a 25bp move on Friday, with the implied probability sitting at 88%. That is aggressive, leaving only modest room for yen appreciation if the bank follows through. A smaller hike or no change would see USD/JPY surge higher. A positive market reaction to Trump’s inauguration would increase the likelihood of the BoJ delivering a hike in line with expectations.

With markets pricing in two 25bp hikes this year, the BoJ’s updated inflation forecasts will need to support further hikes to avoid triggering a yen sell-off. When last updated in October, the BoJ forecast CPI less fresh food prices and CPI less fresh food and energy prices to rise by 1.9% in 2025, just shy of the BoJ’s 2% target. Similar or higher forecasts will likely be required to prevent yen weakness. Also watch for commentary on wages and inflation trends from Governor Ueda during his regular press conference at 3:30pm JST.

Source: BoJ

Event Calendar 

The remaining events calendar for the week ahead is found below. Other than the BoJ decision, none screen as particularly important, although Japan’s inflation report would generate volatility if an unlikely sizeable downside surprise were to occur. All times shown are US eastern time.

Source: Refinitiv 

USD/JPY Technical Picture

USD/JPY suffered a rare weekly decline heading into the inauguration and BoJ decision, with a sizeable reversal in US Treasury yields likely contributing to the downside break of the rising wedge it had been sitting in over the past month. Recent price action, alongside bearish signals from momentum indicators such as RSI (14) and MACD, suggests selling rallies and downside breaks may be the preferred strategy. However, given the event risk and assessment that upside risks could dominate, this signal arguably carries less weight than usual.

Source: TradingView

155.00 is where the recent downturn stalled, making it an initial focal point for traders. The key 50-day moving average and the September uptrend are other downside levels to watch. A break below the latter appears unlikely in the near term, especially with the important 200-day moving average nearby.

On the topside, dips toward 156.00 were bought before the latest leg lower, suggesting sellers may now be active around this level. Other notable resistance levels include 158.88, 160.23, and 161.95.

— Written by David Scutt

Follow David on Twitter @scutty