FTSE rises to fresh record highs

• Attention is on Trump’s policy changes
• Rightmove data shows strong house price growth
• GBP/USD remains bellow 1.22
• FTSE rises to 8515

The Betsy has risen to a new record high, rising about Friday and closing at 8505, the previous record. The index was led higher by a broad range of sectors, including miners, banks, and utilities.

The FTSE 100 is supported after soft data last week, which reassured expectations that the Bank of England could cut interest rates more aggressively than the 1 cut the market had priced in.

GBP/US struggles below 1.22 at the multi-year low, which fits the multinationals that make up the large majority of the FTSE index.

Attention is on Donald Trump’s second inauguration and the measures he will implement immediately. While the UK isn’t necessarily in line for a direct hit from trade tariffs, it will likely be impacted indirectly should Trump adopt an aggressive stance. The US stock market is closed today.

The UK economic calendar is quiet, and figures from Rightmove have failed to buoy the house-building sector. Average asking prices for newly listed homes in the UK have seen the biggest start-of-the-year increase since 2020. According to Rightmove, the average price rose by 1.7% between December 8th and January 11th compared to the same period a year ago.

While the housing market gained some momentum on hopes that borrowing costs would continue to fall, the uncertainties surrounding BoE could limit gains going forward. The market is pricing two 25 basis point cuts this year, up from one at the start of last week. However, the BoE has guided towards four rate cuts.

FTSE forecast – technical analysis

The FTSE has broken out of range, rising above 8490 to fresh all-time highs. With blue skies above, buyers could consider the 8600 round number.

However, the RSI is very overbought, so buyers should be cautious some consolidation could be on the cards. Immediate support is at 8490 and 8400 below here. Should sellers take out 8325, the price returns to the familiar range within which it traded for much of the past 9-months.

USD/JPY holds steady in cautious trade ahead of Trump’s inauguration

• Attention is squarely on Trump’s inauguration
• BoJ could cut rates this week
• USD/JPY recovers from 155 support

USD/JPY is holding steady at the start of the new week as investors await cautiously ahead of chumps inauguration. President-elect Donald Trump is expected to make a flurry of policy announcements in the first hours of his second presidency. Meanwhile, the Bank of Japan is expected to hike interest rates at the end of the week.

Trump will take the oath at noon Eastern Time (19:00 GMT). He is expected to sign a slew of executive orders that will set the tone for his presidency. Monday is a US holiday, with stock markets closed for Martin Luther King Day. So, the forex market will see an immediate reaction to his inauguration pledges, while the stock markets will likely react when they open on Tuesday.

Where the US dollar goes from here greatly depends on how aggressively Trump implements trade tariffs and tax cuts. These measures are inflationary.  The USD has rallied on expectations of few rate cuts since Trump’s victory. Any sense of a more relaxed approach could pull the US dollar lower.

The USD fell last week after weaker-than-expected underlying US inflation saw the market ramp up Fed rate cut expectations. Dovish comments from Federal Reserve governor Christopher Waller also weighed on the USD.

The yen rallied last week on hints from the BoJ that a rate hike could be discussed at this week’s BoJ rate meeting.

Before the BoJ meeting on Friday, Japanese inflation data will be released.

USD/JPY forecast -technical analysis

USD/JPY eased back from a six-month high of 158.90 reached last week before finding support at 155.00, around the 50 SMA. The price holds steady around 156.20, while the RSI gives away few clues at its neutral level.

Buyers will need to rise above 156.20 and 157.00, the 78.6% Fib retracement level, to bring 158.90 into focus. A rise above here is needed to create a higher high and turn attention to 160.00.

Support is seen at 155.00, ahead of 154, the rising trendline dating back to 2022, and 153.30, the 61.8% fib retracement.

• EUR/USD clings to daily gains above 1.0300 heading into the American session.
• The technical picture highlights a buildup of bullish momentum in the near term.
• Investors await comments from Donald Trump at the inauguration ceremony.

EUR/USD started the week on a firm footing and climbed above 1.0300. The upbeat market mood makes it difficult for the US Dollar (USD) to stay resilient against its rivals and allows the pair to continue to stretch higher.

Stock and bond markets in the United States (US) will be closed in observance of the Martin Luther King Jr. Day holiday on Monday. Hence, EUR/USD’s action could remain subdued in the first half of the American session. Later in the day, Donald Trump will deliver a speech at his inauguration ceremony.

Investors remain optimistic about Trump’s refraining from introducing an aggressive tariff policy right away. On his call with Chinese President Xi Jinping, Trump said: “It is my expectation that we will solve many problems together, and starting immediately.”

Earlier in the day, the data from Germany showed that the Producer Price Index (PPI) declined by 0.1% on a monthly basis in December, against the market expectation for an increase of 0.3%. This data, however, failed to trigger a noticeable market reaction.

On Tuesday, the ZEW Survey – Economic Sentiment for the Euro area and Germany will be scrutinized by investors. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 60, reflecting a buildup of bullish momentum. At the time of press, EUR/USD was trading at around 1.0325, where the 100-period Simple Moving Average (SMA) is located. Once the pair rises above this level and confirms it as support, technical buyers could remain interested. In this scenario, 1.0390-1.0400 (Fibonacci 50% retracement of the latest downtrend, 200-period SMA) could be seen as the next bullish target before 1.0440 (Fibonacci 61.8% retracement).

On the downside, first support could be spotted at 1.0290-1.0300 (50-period SMA; 20-period SMA, Fibonacci 23.6% retracement) ahead of 1.0250 (static level) and 1.0200 (end-point of the downtrend).

• Trump’s presidency might be bullish for the dollar.

• Trump’s tariffs will increase demand for locally produced goods.

• Traders expect the Bank of Japan to hike rates this week.

The USD/JPY forecast shows indecision ahead of Trump’s inauguration speech. At the same time, market participants are gearing up for the Bank of Japan policy meeting. However, trading might remain thin due to the Martin Luther King Jr. Day Holiday in the US. 

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USD/JPY fluctuated on Monday, with the greenback steady amid anticipation of Trump’s policies. Meanwhile, the yen was also steady as market participants priced a high likelihood of a Bank of Japan rate hike on Friday. 

Analysts have predicted that Trump’s presidency will be bullish for the dollar since his policy proposals might boost economic growth. Traders will wait to see whether he will implement his proposals to cut taxes and impose tariffs on imported goods. Tax cuts will favor the economy by improving the business environment. Meanwhile, tariffs will increase demand for locally produced goods. At the same time, experts believe this will lead to a spike in inflation that would force the Fed to keep interest rates at restrictive levels.

On the other hand, traders expect the Bank of Japan to hike rates this week to support a weak yen. At the same time, since Trump’s policies will likely support the dollar, a BoJ rate hike will keep the yen from dropping too much. 

USD/JPY key events today

Market participants do not expect any key reports from the US or Japan. Consequently, market participants will focus on Trump’s inauguration. 

USD/JPY technical forecast: Bulls pause at 30-SMA hurdle

On the technical side, the USD/JPY price has recovered after finding support at the 155.01 key level. However, the bullish move has paused after meeting the 30-SMA resistance line. Moreover, the bearish bias remains intact since the price trades below the 30-SMA, with the RSI below 50. 

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Therefore, bears might soon overpower bulls to revisit the 155.01 support level. A break below this support will confirm a continuation of the downtrend as it would form a lower low. Moreover, it would clear the path for USD/JPY to retest the 153.25 support level. 

On the other hand, a break above the SMA and the 157.01 resistance level would indicate a bullish shift in sentiment. However, the price would have to start making higher highs and lows to confirm a bullish trend.

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• EUR/USD trades in positive territory above 1.0300 in the European morning.
• The near-term technical outlook points to a lack of seller interest.
• Financial markets in the US will remain closed on Monday.

EUR/USD closed the previous week in positive territory and continued to stretch higher early Monday. The pair’s near-term technical outlook points to a bullish tilt.

The selling pressure surrounding the US Dollar (USD) at the beginning of the new week helps EUR/USD hold its ground. 

Stock and bond markets in the US will be closed in observance of the Martin Luther King Jr. Day holiday on Monday. However, investors will pay close attention to Donald Trump’s comments on his Inauguration Day. In case Trump refrains from speaking on his tariff policy and adopts a softer tone regarding the US-China relations, the USD could have a hard time staying resilient against its rivals.

Over the weekend, Trump noted on Truth Social that he had a call with Chairman Xi Jinping of China. “It is my expectation that we will solve many problems together, and starting immediately,” Trump said.

Nevertheless, there could be a delayed reaction to this event. Once the bond market returns to action, it will likely become more clear how Trump’s inauguration could drive the USD’s performance in the near term.

EUR/USD Technical Analysis

EUR/USD holds above the Fibonacci 23.6% retracement of the December-mid-January downtrend and the Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 60, reflecting a buildup of bullish momentum.

On the upside, the 100-period Simple Moving Average (SMA) forms immediate resistance at 1.0325. Once EUR/USD rises above this level and starts using it as support, 1.0390-1.0400 (Fibonacci 50% retracement, 200-period SMA) could be seen as the next bullish target. On the downside, 1.0290-1.0300 (50-period SMA; 20-period SMA, Fibonacci 23.6% retracement) aligns as strong support area before 1.0250 (static level) and 1.0200 (end-point of the downtrend).

Despite the EURJPY pair forming sideways trades and fluctuating near 160.65 now, that won’t affect the main bearish track due to the frequent consolidation below the additional barrier 161.70, in addition to the continuous negative momentum coming by the major indicators.

These factors will keep our bearish overview to attempt to renew the pressure on 159.80 obstacle to open the way to resume the negative attack and reach the additional stations represented by 159.10 and 157.85 levels.

The expected trading range for today is between 159.10 and 161.20

Trend forecast: Bearish

The EURUSD didn’t show any strong move in the previous sessions, to continue fluctuating around the EMA50, and still bearish the main bearish trend line that appears on the chart, to continue suggesting the bearish trend for the upcoming period, waiting to test 1.0220$ initially, reminding you that breaking it will push the price towards 1.0100$ as a next negative station.

Note that breaching 1.0325$ will stop the expected decline and push the price to start bullish correction that its first target located at 1.0455$.

The expected trading range for today is between 1.0210$ support and 1.0350$ resistance

Trend forecast: Bearish

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

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