Fundamental Analysis & Market Sentiment

I wrote on 19^th January that the best trade opportunities for the week were likely to be:

• Short of the EUR/USD currency pair. Unfortunately, his currency pair rose by 2.07% over the next week.
• Long of Bitcoin in USD terms following a New York close above $106,187. This did not set up.
• Long of Corn futures. Corn futures rose by 0.45% over that week.

The weekly loss of 1.62% equals 0.54% per asset.

Last week saw several very key data releases, and the directional movement was above average:

1. US Federal Reserve Policy Meeting – the Fed left its interest rate unchanged as widely expected, but the Fed also gave a minor hawkish tilt as it made clear it was in no rush to cut rates further over the near term.
2. US Core PCE Price Index – this was expected, showing a month-on-month increase of 0.2%.
3. European Central Bank Policy Meeting – no surprises with the 0.25% rate cut, but the Bank warned about the deteriorating Eurozone economy, and this helped push the Euro to fall in value over the week.
4. US Advance GDP – this was considerably lower than expected, showing an annualized rate of only 2.3% when 2.7% was expected, giving a tailwind to the recent decline in the USD.
5. Bank of Canada Policy Meeting – cut rates by 0.2% as expected, for the sixth consecutive policy meeting.
6. German Preliminary CPI – surprisingly, this was negative at -0.2% over the month, when a 0.1% increase was expected, suggesting declining inflationary pressure, which may increase pressure for further rate cuts and help sink the Euro.
7. Australian CPI – this was a fraction lower than expected.
8. Canadian GDP – this showed a decline a fraction lower than expected, confirming the recent weakening of the Canadian economy.
9. US CB Consumer Confidence – a fraction lower than expected.
10. US Employment Cost Index – exactly as expected.
11. US Unemployment Claims – this was a little better than expected.
12. Chinese Manufacturing PMI – this was a little worse than expected.

Last week’s key takeaways were:

1. A general continuing decline in inflation and the continuation of rate cuts in G7 nations, with the notable exception of the USA, which is finding inflation sticky although not far from its 2% target.
2. US President Trump has made good on his threats to impose tariffs on Canada and Mexico and China, with new tariffs taking effect last Saturday of 25% on Canada and Mexico (only 10% on energy imports) and 10% on China. President Trump has also begun to threaten BRICS nations with a 100% tariff if they do not drop plans to create an alternative global reserve currency to the USD.

Interestingly, these two developments should be helping an increase in the relative value of the USD, which is still in a valid long-term bullish trend. The US Dollar Index did increase in value last week, after a few weeks of relative weakness.

Canada has just responded to the new US tariffs by imposing a blanket 25% tariff on all imports from the USA.

Both the US and Canadian Dollars look likely to be interesting currencies to watch over the coming week, which will likely put the USD/CAD currency pair in focus over the coming days.

The Week Ahead: 3^rd – 7^th February

The coming week has a lighter schedule of releases, so we are very likely to see a lower level of activity and volatility in the Forex market.

The coming week’s important data points, in order of likely importance, are:

1. US Average Hourly Earnings
2. US Non-Farm Employment Change
3. Bank of England Policy Meeting
4. US JOLTS Job Openings
5. US ISM Services PMI
6. US ISM Manufacturing PMI
7. US Unemployment Rate
8. US Unemployment Claims
9. Canadian Unemployment Rate
10. New Zealand Unemployment Rate

Monday is a public holiday in China and Thursday is a public holiday in New Zealand.

Monthly Forecast February 2025

For February 2025, I forecast that the EUR/USD currency pair will decline in value.

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 final performance of this forecast was:

Weekly Forecast Performance

Weekly Forecast 2^nd February 2025

Two weeks ago, 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 Japanese Yen was the strongest major currency last week, while the Australian Dollar was the weakest. Volatility declined last week, with 37% of the most important Forex currency pairs and crosses changing in value by more than 1%. It is likely to fall further 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 printed a bullish candlestick that continued the long-term bullish trend, after bouncing off an area of support. There were two further price action signs:

1. The price closed right at the high of the week’s range.
2. The close was within the upper half of the previous week’s candle’s range.

The US Dollar got a tailwind last week from the Fed’s slightly hawkish tilt in its comments on inflation, and President Trump’s imposition of tariffs against Canada, Mexico, and China.

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

EUR/USD

The EUR/USD currency pair is in a valid long-term bearish trend. Just as I explained earlier about the US Dollar index, we see the same bearish technical signs. However, the price rose quite high over the previous week, so we are still some way off the long-term lows.

This currency pair often has very reliable trends, so I am generally interested in being short.

This is backed by fundamentals and sentiment. The Euro is weaker after the ECB not only cut its interest rate but more importantly, also warned against a weakening Eurozone economy, and the US Dollar is getting a boost from a hawkish Fed and the imposition of new tariffs by President Trump.

I see this currency pair as a sell. It is probably the most reliable trade opportunity right now in the entire Forex market.

USD/CAD

The USD/CAD currency pair advanced strongly last week to a new 4-year high price, continuing the long-term bullish trend ad breakout which has been ongoing for a few months now.

This trend has legs because the US economy is relatively strong while the Canadian one is relatively weak, but also, and more importantly over the short-term, President Trump has just imposed a 25% tariff on non-energy imports from Canada (energy will be subject to a 10% tariff). Canada has just announced a retaliatory 25% tariff, with Prime Minister Trudeau urging Canadians to “buy Canadian”.

These tariffs are likely, overall, to boost the US Dollar and hurt the value of the Canadian Dollar.

Technically although it is worth noting that the price gave up some of its gains, as shown by the upper wick of last week’s candlestick, this is due more to volatility than due to the end of an upwards spike.

It is quite likely that this currency pair will continue to rise over the coming week.

XAU/USD

Gold advanced last week to reach a new all-time high above $2,800 per ounce. The price gave up some of its gains towards the weekly close to end the week back below the round number of $2,800. However, looking at the weekly price chart below, we can see that the price closed above the previous record high made in December 2024.

This trend may see a relatively slow rise, but we can see how steadily and strongly Gold gained over the past year, so this looks likely to be a solid trend.

I am not sure that Gold will reach $3,000 per ounce over the coming week, but this target is certainly in sight now.

Coffee Futures

The price chart below shows that Coffee futures have been breaking out to long-term high prices over a period of more than 6 months, although last week’s strong price rise was the most aggressive seen through this time. This is suggestive of a climax, which would make going long dangerous, but the weekly closing price was very near the high price of the week, so that may not be the case.

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 be long here.

Arabica coffee has reached an all-time high, due partly to climatic factors such as the recent drought in Brazil, and partly due to political factors, both of which are working to reduce supply, while demand continues to be as high as it ever has been.

Unfortunately, Coffee futures are quite expensive and usually just too large for retail traders, but there is an ETF called COFF which can be used to participate in increases in the price of Coffee. However, note that this ETF does not always cleanly mirror the price action of coffee futures, so if you are using the ETF, be careful.

I think Coffee is a buy.

Corn Futures

Corn futures have been breaking to new highs, although the last two days of last week saw the price decline for consecutive days.

I think Corn is a buy but only if it makes a new daily high closing price.

Although we clearly have a medium or maybe long-term bullish trend in Corn, this bullish move is relatively new and may already have run out of steam, which is why I am cautious.

Many analysts see this move as mostly seasonal in nature, and do not think the price is going to make a new high and time soon.

I will be prepared to enter a new long trade if we see Corn futures make a new 6-month high closing price at the end of any day over the coming week.

Bottom Line

I see the best trading opportunities this week as:

• Long of Gold in USD terms (also known as XAU/USD).
• Long of Corn futures (CORN etf can also be used) following a daily close of the next ZC future at or above 498.
• Long of Coffee futures (COFF etf can also be used).

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• The Fed held rates during its policy meeting.

• Trump renewed his threats to impose tariffs on Mexico and Canada.

• The BoE will likely cut interest rates next week.

The GBP/USD weekly forecast shows a looming Bank of England rate cut that will likely push the pound lower.

Ups and downs of GBP/USD 

The GBP/USD pair had a slightly bearish week as the dollar strengthened and the pound fell ahead of a BoE rate cut. The greenback gained after the Fed held rates during its policy meeting and signaled no rush to lower borrowing costs. At the same time, Trump renewed his threats to impose tariffs on Mexico and Canada, boosting the US currency. 

Meanwhile, market participants looked forward to next week’s BoE policy meeting. The central bank will likely cut interest rates, weighing on the pound.

Next week’s key events for GBP/USD

Next week, market participants will focus on manufacturing business activity data from the US and the UK. Traders will also watch the Bank of England policy meeting on Thursday. Finally, the US will release its crucial monthly employment report.  

Economists expect the Bank of England to lower borrowing costs by 25-bps on Thursday. At the same time, markets will wait to see whether policymakers project more rate cuts for this year. The UK economy has slowed down significantly, piling pressure on the central bank to cut interest rates. 

Meanwhile, the US nonfarm payrolls report will show whether the labor market remains resilient. An upbeat report will convince the Fed to keep rates elevated. On the other hand, softness will increase rate cut expectations, weighing on the dollar.

GBP/USD weekly technical forecast: Bulls trigger a channel breakout

On the technical side, the GBP/USD price has broken out of its bearish channel with a solid bullish candle. At the same time, the price broke above the 22-SMA, indicating a bullish shift in sentiment. Meanwhile, the RSI trades slightly below 50, showing that bearish momentum remains. 

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The breakout comes after bears met a solid hurdle at the 1.2203 support level. Initially, the price had maintained a strong downtrend. However, the price kept puncturing the SMA resistance, showing bulls were not so weak. 

Moreover, the RSI failed to dip into the oversold region during the decline, showing bears were holding back. Bulls eventually overpowered bears at the 1.2203 support. The price will break above 1.2550 next week if they remain in the lead.

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Ethereum price (ETHUSD) fluctuates around the EMA50 that forms good resistance against the price, and stochastic loses its positive momentum clearly, waiting to motivate the price to resume the expected bearish trend for the upcoming period, which targets 3222.00$ followed by 3017.304 as next main stations.

On the other hand, we should note that breaching 3510.00$ will push the price to build bullish wave that its targets begin by testing 3680.00$ areas.

The expected trading range for today is between 3240.00$ support and 3500.00$ resistance.

Trend forecast: Bearish

• Trump emphasized his plans to impose tariffs on Canada and Mexico.

• The US economy grew by 2.3%, compared to estimates of 2.7%.

• The yen is set to end the week with an over 1.5% gain.

The USD/JPY price analysis indicates an increasing likelihood of a 25% US tariff on goods from Mexico and Canada, supporting the dollar. Meanwhile, the yen eased at the end of a strong week as BoJ remarks weighed.

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The dollar rebounded Thursday as US President Donald Trump emphasized his plans to impose tariffs on Canada and Mexico. Market participants have remained cautious, anticipating the proposed Trump tariffs. If they come on February 1 as promised, it will open the door for more tariffs, boosting the US currency. These tariffs will discourage trade between these countries and likely cause tensions. However, production and demand for US goods will increase, boosting the economy.

Meanwhile, traders also focused on US data, which showed a smaller-than-expected economic expansion. According to the report, the economy grew by 2.3%, compared to estimates of 2.7%. However, the report also revealed a significant increase in consumer spending. 

Meanwhile, the Bank of Japan chief said on Friday that the central bank must keep rates low to allow underlying inflation to increase. His remarks led to a retreat in the yen. However, Japan’s currency is set to end the week with an over 1.5% gain. The yen has soared since the BoJ increased borrowing costs last Friday.

USD/JPY key events today

• Core PCE Price Index m/m
• Employment Cost Index q/q

USD/JPY technical price analysis: Bulls challenge the 30-SMA resistance

On the technical side, the USD/JPY price has rebounded after failing to break below the 154.01 support level. However, the price still trades below the 30-SMA, showing bears are in the lead. Additionally, the RSI favors bearish momentum below 50. 

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Currently, the price is retesting the 30-SMA resistance. If it holds firm, USD/JPY will return to the 154.01 support. A break below this level will confirm a continuation of the downtrend. On the other hand, if bullish momentum surges past the 30-SMA, the price will likely retest the 156.51 resistance level. Moreover, the break would signal a shift in sentiment to bullish. 

Meanwhile, to confirm a new bullish trend, the price would have to break past the 156.51 resistance and start making higher highs and lows.

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The EURGBP price formed some correctional negative waves recently, achieving the target mentioned in our previous report by reaching 0.8355 to test the major support line that appears on the chart.

Now, stochastic exit from the oversold areas will motivate the price to form bullish waves to expect targeting 0.8400 followed by 0.8435 levels soon, while breaking the current support will confirm postponing the positivity to force the price to suffer additional losses by crawling towards 0.8345 before any attempt to achieve the previously mentioned gains.

The expected trading range for today is between 0.8350 and 0.8400

Trend forecast: Bullish

The GBPJPY pair faced strong negative pressures yesterday to notice crawling below 191.90 level and suffering some losses by touching 191.15 level, while the current positive rebound won’t allow the price to regain the bullish track due to the MA55 consolidation near 50% Fibonacci correction level at 194.10, to confirm confining trades within the negative track for the near-term trades.

Also, stochastic crawl below 50 level will increase the negative pressures to expect suffering additional losses by crawling towards 190.60 followed by reaching the next support at 189.50.

The expected trading range for today is between 190.60 and 192.60

Trend forecast: Bearish

The EURGBP price formed some correctional negative waves recently, achieving the target mentioned in our previous report by reaching 0.8355 to test the major support line that appears on the chart.

Now, stochastic exit from the oversold areas will motivate the price to form bullish waves to expect targeting 0.8400 followed by 0.8435 levels soon, while breaking the current support will confirm postponing the positivity to force the price to suffer additional losses by crawling towards 0.8345 before any attempt to achieve the previously mentioned gains.

The expected trading range for today is between 0.8350 and 0.8400

Trend forecast: Bullish

• GBP/USD trades near 1.2400 in the European session on Friday.
• The technical outlook highlights a buildup of bearish momentum.
• The pair could face next support at 1.2370.

GBP/USD struggles to hold its ground and retreats toward 1.2400 after closing in negative territory on Thursday. The pair’s technical outlook suggests that sellers could look to retain control in the near term.

The US Dollar (USD) struggled to gather following mixed macroeconomic data releases on Thursday. Later in the American session, however, the cautious market stance didn’t allow GBP/USD to edge higher.

The US Bureau of Economic Analysis (BEA) reported on Thursday that the US’ Gross Domestic Product grew at an annual rate of 2.3% in the fourth quarter, below the 3.1% expansion recorded in the third quarter and the market estimate of 2.6%. Other data from the US showed that weekly Initial Jobless Claims in the US declined to 207,000 in the week ending January 25 from 223,000 in the previous week. 

Meanwhile, US President Donald Trump reiterated late Thursday that the US is set to impose a flat 25% import tax “because of fentanyl” on all goods crossing the border into the US from Canada or Mexico. 

In the second half of the day, the BEA will publish Personal Consumption Expenditures (PCE) Price Index data for December. On a monthly basis, the core PCE Price Index is expected to rise 0.2%. A reading of 0.3%, or higher, could lift the USD and force GBP/USD to push lower heading into the weekend.

GBP/USD Technical Analysis

GBP/USD stays below the 200-period SMA and the Fibonacci 50% retracement of the latest downtrend, currently located in the 1.2440-1.2420 area, and the Relative Strength Index (RSI) indicator on the four-hour chart drops toward 40, reflecting a buildup of bearish momentum.

On the downside, 1.2400 (static level, round level) could be seen as immediate support before 1.2370 (Fibonacci 38.2% retracement) and 1.2315 (100-period SMA). Looking north, resistances align at 1.2420-1.2440, 1.2500 (round level, static level) and 1.2530 (Fibonacci 61.8% retracement).

The EURUSD price trades negatively since yesterday, and by taking a deeper look at the chart, we find that the price formed head and shoulders’ pattern that its confirmation line located at the current areas around 1.0385$, thus, breaking this level will push the price to continue the decline and achieve our negative targets that start at 1.0325$ and extend to 1.0220$ after breaking the previous level.

Therefore, we will continue to suggest the bearish trend for the upcoming period, taking into consideration that breaching 1.0455$ will stop the expected decline and lead the price to achieve bullish correction on the intraday and short-term basis.

The expected trading range for today is between 1.0300$ support and 1.0455$ resistance

Trend forecast: Bearish

Created on January 31, 2025

• The euro has gone back and forth pretty significantly during the trading session on Thursday, as we have seen a lot of noise, mainly due to the idea of the ECB out there cutting rates.
• The noise around the press conference kind of left people wondering if they are really going to continue to cut or are they in a wait and see mode? And they may very well be in a wait and see mode.

One thing is for sure, the Jerome Powell press conference the previous day did not help this situation. So, I think we’re settling into a trading range in between the 1.05 level and the 1.03 level below. All things being equal, this is a market that I prefer to be short of instead of long, but I also recognize that it’s not always going to be moving. And right now, it’s just not moving. It’s a lot of back and forth Brownian motion.

Looking to Fade this Market on Rallies

I like the idea of fading a short-term rally anywhere near the 1.05 level that shows signs of exhaustion and that resistance extends all the way to the 1.06 level. If we were to break down below the 1.03 level, then it opens up the possibility of 1.02 and then maybe even lower than that down to the parity level, which I do think we get to sooner or later, because despite the fact that the Fed really didn’t do much, there is a very real world in which the Federal Reserve does not cut interest rates at all in 2025. At this point in time, I think it’s going to come down to European data, but for what it’s worth, the advanced GDP numbers in the United States came in cooler than anticipated. So that’s part of the confusion as well.

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