• Solid United States employment data smashed the odds for an interest rate cut.
• Hotter-than-anticipated European inflation to maintain the ECB on the dovish path.
• EUR/USD faces immediate resistance at 1.0197, the September 2022 monthly high.

The EUR/USD pair remained under selling pressure this week, with the US Dollar (USD) retaining its overall strength. The Greenback benefited from risk-aversion bouts, triggered by United States (US) President-elect Donald Trump’s tariffs plan. The pair heads into the weekend trading at around 1.0250, not far from the multi-year low posted on Friday at 1.0212.

Trade-war: Trump tariffs heat financial boards

The Washington Post reported on Monday that Donald Trump’s transition team was working on narrowing tariffs, focusing only on key sectors deemed vital to national security, such as defence, medical supplies and energy, narrowing the universal tariffs plan that Trump anticipated during his campaign. Latter in the day, however, Trump denied the headlines, saying that the story about paring back tariffs was wrong.

The EUR/USD pair jumped to 1.0431 with the initial headlines, as markets welcomed the idea of limited tariffs. Trump’s denial, on the other hand, boosted the US Dollar (USD) while sending stocks into a selling spiral.

Fears resumed mid-week when CNN reported that Trump was considering declaring a national economic emergency to impose widespread tariffs. Using the International Economic Emergency Powers Act (IEEPA) will unilaterally authorize a president to manage imports during a national emergency.

FOMC Minutes: Politics should not be in the way, but they are

The Federal Open Market Committee (FOMC) released the Minutes of the December Federal Reserve (Fed) monetary policy meeting on Wednesday, and the document brought some negative headlines.

Yet what caught investors’ attention is that the Minutes showed almost all members judged that the upside risk to inflation has increased. Officials mentioned “potential changes in trade, immigration, fiscal, and regulatory policies” as the reasons behind their fresh growth and inflation-related concerns.  Without saying it, officials said they are concerned about what Trump’s policies would mean to the economy.

Solid US employment data

Meanwhile, the US released multiple employment figures. The December ADP Employment Report showed that the private sector added 122K new jobs in the month, missing expectations of 140K. Additionally, Initial Jobless Claims for the week ended January 3 increased by 201K, better than the 218K expected and below the previous 211K. Also, US-based employers announced 38,792 cuts in December, a 33% decrease from the 57,727 cuts announced one month prior. It is up 11% from the 34,817 cuts announced in the last month of 2023, according to the Challenger Job Cuts report.

Finally, on Friday, the US published the Nonfarm Payrolls (NFP) report, which showed 256,000 new jobs were added in December. The reading was much stronger than the 160,000 anticipated and the November 212,000 reading. Even further, the Unemployment Rate edged lower to 4.1% from 4.2%, while the Labor Force Participation remained steady at 62.5%. Finally, annual wage inflation, as measured by the change in the Average Hourly Earnings, declined to 3.9% from 4%.

Markets turned risk-averse with the news, with the US Dollar rallying and stocks plummeting, as such figures suggest the Federal Reserve (Fed) will refrain from cutting interest rates in the upcoming months.

No good news in Europe  

European data fell once again short of encouraging. The preliminary estimate of the German Harmonized Index of Consumer Prices (HICP) was higher than anticipated, as the index rose 2.8% on its yearly comparison, above the 2.6% anticipated and the previous 2.4%. Retail Sales in the country fell 0.6% in November, while Factory Orders declined by 5.4% in the same period. 

The Eurozone HICP rose 2.7% in the year to December as expected, yet the Producer Price Index (PPI) was down 1.2% YoY in November, higher than the previous -3.3% or the -1.3% expected.

The European Central Bank (ECB) will likely continue trimming interest rates. That would keep the Euro on the downside, while a hawkish Fed means a stronger US Dollar. EUR/USD at parity is in the foreseeable future.

For the upcoming week, the focus will be on the US Consumer Price Index. The country will publish it next Wednesday, and Retail Sales will be published on Thursday. Other than that, the macroeconomic calendar has little relevant to offer.

EUR/USD technical outlook  

From a technical perspective, the EUR/USD pair is down for a fifth consecutive week and there are no technical signs that suggest an interim bottom is nearby. Indeed, EUR/USD is oversold in the weekly chart, yet the Relative Strength Index (RSI) indicator keeps heading south despite being at 28. The Momentum indicator in the same chart bounced just modestly from extreme levels but remains far below its midline, not enough to suggest an upcoming bounce. Finally, the 20 Simple Moving Average (SMA) has accelerated its slump and crossed below a flat 100 SMA, reflecting sellers’ strength.

In the daily chart, EUR/USD has plenty of room to extend its slide. Technical indicators head south within negative levels, still far from oversold readings. Even further, the EUR/USD pair posted lower lows after a couple of failed attempts to overcome a bearish 20 SMA, currently providing dynamic resistance at around 1.0380. In the same chart, the 100 SMA crossed below the 200 SMA after holding above it for roughly five months. Both moving averages stand around the 1.0800 level, not only anticipating additional slides but also reflecting sellers’ strength.

September 2022 high at 1.0197 is the immediate support level, ahead of the 1.0100 figure. A break below the latter exposes parity, albeit further slides seem unlikely in the upcoming days. The 1.0300 – 1.0330 area provides near-term support ahead of the 1.0400 mark.

• GBP/USD continues losing ground for the fifth straight day and drops to over a one-year low.

• Stagflation fears and UK fiscal concerns continue to weigh on the GBP amid a bullish US Dollar.

• A slightly oversold RSI on the daily chart warrants some caution for aggressive bearish traders. 

The GBP/USD pair remains under heavy selling pressure for the fifth straight day and dives to its lowest level since November 2023, around the 1.2125 region during the Asian session on Monday. Moreover, the fundamental backdrop seems tilted in favor of bearish traders, though slightly oversold conditions on the daily chart warrant some caution before positioning for further losses.

Investors remain concerned about the risk of stagflation in the UK. This, along with the anxiety about the UK’s fiscal health, turn out to be key factors contributing to the British Pound’s (GBP) relative underperformance. Apart from this, the underlying strong bullish sentiment surrounding the US Dollar (USD), bolstered by firming expectations that the Federal Reserve (Fed) will pause its rate-cutting cycle, validates the negative outlook for the GBP/USD pair. 

From a technical perspective, the Relative Strength Index (RSI) on the daily chart has dropped below the 30 mark, making it prudent to wait for some near-term consolidation or a modest rebound before the next leg down. Any attempted recovery, however, might confront resistance and remain capped near the 1.2200 mark. That said, some follow-through buying beyond the Asian session top, around the 1.2210 area, could trigger a short-covering move. 

The GBP/USD pair might then accelerate the positive move towards the 1.2245-1.2250 intermediate hurdle before aiming to reclaim the 1.2300 round figure. The latter should act as a key pivotal point, which if cleared decisively could negate the negative bias and shift the near-term bias in favor of bullish traders. 

Meanwhile, the downward trajectory seems strong enough to drag the GBP/USD pair further towards testing sub-1.2100 levels, or the November 2023 low. Acceptance below the said handle could make spot prices vulnerable to decline further towards October 2023 through, around the 1.2035 region, en route to the 1.2000 psychological mark.

GBP/USD daily chart

January 12, 2025 – Written by Tim Boyer

STORY LINK Pound to Dollar Forecast for Week Ahead: Sell to 1.1750?

MUFG recommends selling the Pound to Dollar (GBP/USD) exchange rate with a target of 1.1750.

There was a slide in UK bonds during the week with a jump in yields as the 10-year yield hit a 16-year high while the 30-year yield hit the highest level since 1998.

Upward pressure on US yields contributed to the selling of US bonds.

There were fears that the government’s economic strategy would unravel with pressure for fiscal tightening. There were fears over a negative impact on UK growth.

This combination undermined confidence in the pound, resulting in losses across all major currencies.

GBP/USD posted sharp losses with 14-month lows just below 1.2200.

MUFG expects that ongoing pressure on the UK bond market will work in tandem with further Pound selling; “If Gilt yields continue to push higher, adding to the UK government’s funding costs, doubts will continue to build over fiscal plans triggering a further loss of confidence in the GBP.”

It added, “We are not expecting the BoE or government to step up and support the Gilt market in the near-term, leaving it vulnerable to further near-term weakness.”

MUFG also noted the negative implications of higher energy prices.

US developments have added to pressure on global bond markets and contributed to upward pressure on UK bond yields, a twin negative for GBP/USD.

US non-farm payrolls increased 256,000 for December compared with consensus forecasts of around 165,000, while the November increase was revised slightly lower to 212,000 from the flash reading of 227,000.

The unemployment rate declined to 4.1% from 4.2% and compared with expectations of no change.

The University of Michigan consumer confidence data also recorded an increase in 5-year inflation expectations to a 16-year high.

Following the data, markets ruled out the potential for a Fed rate cut in January and considered that the chances of a March cut had dipped to around 25%.

Markets also considered that the Fed may only cut rates once during the year.

Bank of America, for example, now expects that there will not be any further rate cuts this year.

The US 10-year bond yield increased to above 4.75%, the highest level since October 2023, maintaining pressure on the UK bond market.

Seema Shah, chief global strategist at Principal Asset Management, noted the adverse global implications; “The important payroll beat will be good news for the U.S. economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts.”

She added, “For global bonds, the strength of the U.S. jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.”

Rabobank expressed concerns over the UK fundamentals; “the UK is a price taker in sovereign debt markets, particularly exposed to the whims of foreign/nonbank investors because of its fiscal deficit and its current account deficit.”

The bank’s economists expect that the government will have to announce further fiscal tightening in the March budget.

It added, “If so, that would work out disinflationary instead of inflationary, and that would give the BoE enough policy space to at least stick to their theme of gradualism.”

It expects quarterly interest rate cuts by the BoE.

SocGen added, “GBP/USD is likely to remain under pressure due to US economic strength and a widening US-Europe/Asia rate differential.”

Capital Economics chief UK economist Paul Dales put the developments in context; “This week’s leap in gilt yields creates more problems for the Chancellor and is an extra headwind for the economy. But it is not a crisis and the cause mostly originates overseas rather than being home-grown.”

Bank of America also noted the risk of dollar logs being cut; “A USD reversal, if it happens, could be amplified by trend follower unwinds.”

It did, however, add, “Lingering fiscal and inflation concerns, coupled with negative sentiment, suggest caution before re-entering GBP longs.”

UBS will still look to buy Pound dips; “While we do not expect significant near-term weakness, we think that investors should use further strength in the dollar to diversify into other preferred currencies, including the British pound and Australian dollar.”

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TAGS: Currency Predictions Pound Dollar Forecasts

Fundamental Analysis & Market Sentiment

I wrote on 5^th January that the best trade opportunities for the week were likely to be:

The weekly profit of 0.90% equals 0.45% per asset.

Last week saw several key data releases, although the directional movement was average:

1. US Average Hourly Earnings – as expected, showing a month-on-month increase of 0.3%.
2. US FOMC Meeting Minutes – no real surprises, notable takeaway was warnings on inflation reaching 2% target.
3. US Non-Farm Payrolls – there was a strong outperformance, with almost twice as many new jobs created than was expected.
4. US JOLTS Job Openings – notably stronger than expected, mirroring the item above.
5. US ISM Services PMI – a little better than expected.
6. German Preliminary CPI (inflation) – slightly higher than expected.
7. Australian CPI (inflation) – slightly higher than expected.
8. Swiss CPI (inflation) – as expected.
9. US Unemployment Claims – slightly lower than expected.
10. US Unemployment Rate – an unexpected fall to 4.1%.
11. Canadian Unemployment Rate – unexpectedly fell to 6.7% from 6.8%, when it was expected to rise to 6.9%.

Last week saw continued risk-off sentiment, with particular fears of President-Elect Trump’s recent tariff threats and of slowing growth data in many G20 nations. This was accompanied by an ongoing bullish focus on the US Dollar, with US treasury yields rising and the anticipated tariffs boosting the greenback and hitting other currencies, notably commodity currencies.

The British Pound and the Australian and New Zealand Dollars are notably weak in the Forex market, while the US Dollar and the Japanese Yen are strong.

The high-impact data last week showed that the US economy is still hot, which in turn boosts expectations of a slower pace of US interest rate cuts, and keeps the US Dollar advancing to new 2-year high prices.

Another standout issue last week was growing alarm at the state of the UK’s finances, with the new British government rapidly losing credibility in the market, which is sinking the British Pound. The British government is trying to weather the storm by stating its fiscal rules are “non-negotiable”.

The Week Ahead: 13^th – 17^th January

The coming week has an even more vital schedule of releases, so we are very likely to see increased market activity and volatility in the Forex market.

The coming week’s important data points are:

1. US CPI (inflation)
2. US PPI
3. US Retail Sales
4. UK CPI (inflation)
5. UK GDP
6. US Unemployment Claims
7. UK Retail Sales
8. Australian Unemployment Rate

Monday is a public holiday in Japan.

Monthly Forecast January 2025

For January, I forecasted that the USD/JPY currency pair would rise in value and that the EUR/USD currency pair would fall in value. The performance so far of this forecast is:

Weekly Forecast 12^th January 2025

Last week, I made no weekly forecast as there were no unusually strong price movements in currency crosses, which is the basis of my trading strategy.

The US Dollar was the strongest major currency last week, while the British Pound was the weakest. Volatility was slightly lower last week, with 26% of the most important Forex currency pairs and crosses changing in value by more than 1%. It is likely to remain at a similar level over the coming week.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

Last week, the US Dollar Index again printed a bullish candlestick that continued the long-term bullish trend, again bullishly breaking out to make its highest close in more than 2 years. The price is above its price from three and six months ago, suggesting a healthy long-term bullish trend in the greenback that should be exploitable. The weekly candlestick has little upper wick and closed above the previous week’s high. These are bullish signs.

I have plenty of fundamental reasons to be bullish on the US Dollar after seeing the US unemployment rate unexpectedly fall to 4.1% after higher-than-expected non-farm payrolls data last week. We also seeing US 10-Year Treasury Yields rising to levels not seen in several months, currently above 4.75%, which is helping boost the greenback.

The Dollar is likely to rise over the coming week. The price has room to rise to at least the next resistance level at 110.00.

GBP/USD

The GBP/USD currency pair is in a valid long-term bearish trend. It fell strongly last week, with the weekly candlestick shown in the price chart below closing very near its low with little lower wick, suggesting bearish momentum. The price reached a 1-year low on unusually high volatility, which is another sign of momentum in this currency pair.

This pair was the biggest mover last week and is in focus because both currencies are newsworthy.

The US Dollar is advancing to new 2-year highs in a strong bullish trend, boosted by incoming President Trump’s policies and their likely momentary consequences of higher for longer interest rates. Rising US yields, especially 10-year yields, are pushing the greenback higher.

On the other hand, the British Pound has suddenly become very weak as the new British government becomes unpopular very quickly, with its fiscal projections and monetary policies beginning to be called into serious question by the capital markets. Bets against the British Pound using options have reached historically high levels.

I see this currency pair as an obvious sell.

EUR/USD

The EUR/USD currency pair is in a valid long-term bearish trend. After a period of consolidation within this trend, the price has begun to move lower with stronger bearish momentum. The price reached a new 2-year low last week but was ultimately held by the support level at $1.0223.

This currency pair often has very reliable trends, so I am interested in being short, especially as the price is now trading in “blue sky”.

The Euro is not especially weak, with the bearish momentum being driven mostly by a strong US Dollar which is advancing almost everywhere.

I see this currency pair as a sell, in fact, it is probably the most reliable trade right now in the entire Forex market, with the possible exception of the GBP/USD currency pair, which is probably dragging the price here lower.

USD/JPY

The USD/JPY currency pair was not impressive last week, as it was notable that the Japanese Yen was not willing to fall significantly against the very strong USD. This led to this currency pair being one of the few ones where the US Dollar made only a very small gain, ending the week quite a way off its highest daily close at ¥155.34.

I think this pair’s failure to seriously rise shows that the days of a weak Japanese Yen might really be coming to an end, even though this pair is technically in a long-term bullish trend. However, the weekly candlestick was not far from being a doji, showing indecision in the price action.

Another factor lowering my confidence in the bullish trend is that the Bank of Japan will eventually start implementing a more hawkish monetary policy. When that finally really starts to happen with the Bank of Japan’s next rate hike, the price will be very likely to start moving down, so the trend is vulnerable to policy.

The Yen is also benefitting from the flow out of stock markets looking for a safe haven.

Technically, a daily close above ¥155.34 could be a good long trade entry signal, but I doubt it.

AUD/USD

Last week, the AUD/USD currency pair printed a very strongly bearish and large outside candlestick, closing right on its low, which was a new 4-year low. A look at the weekly chart below shows that the bearish momentum has been strong here since October, and the trend here has been stronger and clearer than any other trend in the Forex market, except maybe the one in the USD/CAD currency pair. It is difficult to image being more technically bearish. The linear regression analysis applied within the price chart below shows the strength and reliability of the trend over the past few months.

The story is really about US economic success and a more hawkish Fed boosting the greenback, while Australia is dealing with a weakening economy which will make more rate cuts a matter of necessity, and this will probably have to go increasingly deeper. Adding to the pressure on the Aussie is the fact that stock markets and other risky assets have been selling off, and the Aussie tends to perform poorly during periods of risk-off sentiment such as we have seen in recent days. On the other hand, the Aussie has been selling off even as several stock indices made record highs over recent months, so maybe this is not such a big factor.

This currency pair does not trend very reliably, so I don’t take long-term trades in it, but it certainly looks very weak. All the commodity currencies except maybe the Canadian Dollar are looking weak right now, so it might be an idea to use the AUD and the NZD together as the short component of any Forex trades you are making this week, or at least part of the short component by creating a basket. For example, if you were short two lots EUR/USD, you might also be one lot of AUD/USD long.

Natural Gas Futures

Last week, Natural Gas futures printed a strong and quite large bullish candlestick, which closed right on its high at a new 4-year high closing price, after it made a new 4-year high price the previous week before giving up some of its earlier gains.

Natural gas has been driven higher by strong demand due to cold weather in the USA and Europe. However, there are obviously deeper factors at work which are pushing the price to new highs and triggering a real bullish breakout last week.

Taking long trades when major commodities break out to new 6-month highs has historically been a very profitable trading strategy, which is the main reason that I want to get long here when the market opens on Monday. This bullish price pattern shown in the chart below is just starting to show an expansion of volatility, and we could see a very strong rise as the price has plenty of room to advance, especially once it clears the big round number at $4.

Micro futures in natural gas are available at the CME, so this commodity can be quite affordable to trade. There are also ETFs which hold natural gas such as UNG but note that the price of UNG is looking much less bullish than natural gas futures are, so it might not be a good idea to use that right now.

Corn Futures

Last Friday, Corn futures printed a strong and large bullish candlestick, which closed at a new 6-month high closing price. However, it is notable that the price has not cleared the inflection point at 475. I think once this is cleared, the price will look much more bullish, so more cautious traders might want to wait for the price to make a bullish breakout beyond 475.

Taking long trades when major commodities break out to new 6-month highs has historically been a very profitable trading strategy, which is the main reason that I want to get long here. However, I do not have as much faith in this trade as I do in the natural gas trade I outlined above.

Unfortunately, Corn futures are quite expensive and just too large for retail traders, but there is an ETF called CORN which can be used to participate in increases in the price of corn. Here, this ETF is outperforming the relevant futures, which puts a bit of a question mark above corn.

I think it will be wise to wait for a daily close above 475 in corn futures before going long.

Bottom Line

I see the best trading opportunities this week as:

• Short of the EUR/USD currency pair.
• Long of Natural Gas futures.
• Long of Corn futures following a daily close above 475 (CORN etf can also be used).

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