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Key Highlights

• EUR/USD started a consolidation phase from the 1.0515 resistance.
• A key bullish trend line is forming with support at 1.0420 on the 4-hour chart.
• GBP/USD is showing positive signs above the 1.2560 support.
• Crude oil prices declined below the $71.50 and $70.50 support levels.

EUR/USD Technical Analysis

The Euro started a decent increase above 1.0400 against the US Dollar. EUR/USD tested the 1.0515 resistance before the bears appeared.

Looking at the 4-hour chart, the pair settled above the 1.0420 support, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair started a consolidation phase and corrected some gains below 1.0480.

On the downside, immediate support sits near the 1.0420 level. There is also a key bullish trend line forming with support at 1.0420 on the same chart.

The next key support sits near the 1.0395 level and the 100 simple moving average (red, 4-hour). The main support could be 1.0365. Any more losses could send the pair toward the 1.0300 level.

On the upside, the pair seems to be facing hurdles near the 1.0515 level. The next major resistance is near the 1.0530 level. The main resistance is now forming near the 1.0550 zone. A close above the 1.0550 level could set the tone for another increase. In the stated case, the pair could even clear the 1.0620 resistance.

Looking at GBP/USD, the pair remained stable above 1.2560 and might aim for more gains above the 1.2650 resistance.

Upcoming Economic Events:

• Euro Zone CPI for Jan 2025 (YoY) - Forecast +2.5%, versus +2.5% previous.
• Euro Zone CPI for Jan 2025 (MoM) - Forecast -0.3%, versus -0.3% previous.

Spanish ECB Governing Council member Jose Luis Escriva stressed caution in an interview published Sunday, highlighting uncertainty in the economic outlook. He stated that it is "very difficult to gauge the impact of events that are unfolding", emphasizing the need to "wait for doubts around certain issues to be cleared" before making monetary policy adjustments.

Escriva reinforced ECB’s meeting-by-meeting approach, stating there “isn’t a pre-established future path for interest rates.” He also noted that Eurozone demand remains weak, with "notable differences among countries."

Separately, French ECB Governing Council member Francois Villeroy de Galhau offered a more direct outlook on interest rate, stating that “seen from where we are today, we could be at 2% by the coming summer.”

New Zealand's Q4 retail sales volume rose 0.9% qoq to NZD 25B, surpassing expectations of 0.6% qoq. Excluding autos, sales jumped 1.4% qoq, well above the 0.3% qoq forecast.

Sales volume growth was broad-based, with 10 of 15 industries posting gains. The largest increases came from electrical and electronic goods (+5.1%), department stores (+4.2%), and accommodation (+7.6%). Meanwhile, food and beverage services rose 2.3%, but pharmaceutical and other retailing declined -3.4%.

Retail sales value climbed 1.4% qoq to NZD 30B, with 11 of 15 sectors reporting gains. Price effects were evident, particularly in accommodation (+11%), food and beverage services (+3.3%), and department stores (+2.9%).

Full New Zealand retail sales release here.

Retail spending levels rose 0.9% in the December quarter. That was slightly ahead of forecast. The details of today’s report point to a firming in discretionary spending appetites.

December quarter retail sales (volume of goods sold): +0.9% (Prev: flat)

• Westpac f/c: +0.7%, Market: +0.5%

December quarter nominal retail sales: +1.4% (Prev: -0.5%)

New Zealanders dusted off their credit cards and hit the malls over the holidays.

Retail spending rose a solid 0.9% over the December quarter. That was slightly ahead of our forecast for a 0.7% rise.

The December quarter increase follows soft spending earlier in the year, leaving spending around the same levels as they were this time last year.

The rise in spending over the past few months was due to increased spending in discretionary areas. That includes a lift in spending on household durables, like electronics (up 5%) and furnishings (up 4%). We also saw increased spending in department stores (up 4%) and on clothing (up 2%), as well as a solid rise in spending in the hospitality sector.

The widespread increase in spending in discretionary areas points to a firming in households’ spending appetites. That’s consistent with the reduced pressure on households’ finances as inflation and interest rates have fallen, as well as the rise in consumer confidence in recent months.

We did see spending on groceries dropping back, but in part that will reflect that people have chosen to spend more on dining out.

What’s the outlook for the year ahead?

We expect spending levels will continue trending higher over the coming year. Interest rates have continued to drop. Importantly, the full impact of those declines is yet to be felt, as many mortgages are still on the relatively high interest rates from recent years. However, over the next six months, around half of all mortgages will come up for re-fixing, and many borrowers will have the opportunity to re-fix at lower rates. That will give spending a boost, especially through the second half of the year.

While the trend in spending over 2025 is likely to be to the upside, a couple of factors will limit the rise. First, unemployment is likely to rise from 5.1% currently to around 5.4%. In addition, inflation is likely to pick up over the coming year, with the NZ dollar likely to push up the price of some imported goods.

Even with the above headwinds, spending is likely to be firmer over 2025. That will be welcome news for many retailers and hospitality businesses who have faced tough trading conditions over the past couple of years.

Implications for GDP growth

We’re forecasting a 0.3% rise in GDP over the December quarter. Today’s result was a little ahead of our expectations. However, we’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on December quarter activity is released.

ECB Rate Decision: Inflation, Tariffs, and Market Sentiment Impact on EURJPY

The European Central Bank (ECB) is scheduled to announce its interest rates and monetary policy statement on March 6th, 2025, followed by its standard press conference. The meeting occurs during a period of heightened market uncertainty due to trade wars and tariff implications. The Eurozone inflation indicator, the Harmonized Index of Consumer Prices (HICP), rose from its low of 1.7% in September 2024 (a 5-year low) to 2.5% in December 2024. This increase in HICP was mainly due to rising costs in housing, energy, and transportation. The Core HICP remained steady at 2.7% during the same period.

EZ HICP – Source: https://ec.europa.eu/eurostat/en/

The increase in inflation, along with concerns about the impact of US tariffs on Eurozone inflation, may affect market sentiment. According to Bloomberg analyst surveys, 97.5% of participants expect the ECB to cut rates by 25 basis points at its March 6th, 2025, meeting. This is down from 135.0% on January 30th, 2025, when markets anticipated a possible 50 basis point cut.

Japanese Yen (JPY) Strength: Inflation, Interest Rates, and BOJ Policy Impact on USDJPY

The Japanese Yen has gained some strength against the US dollar in early 2025, rising approximately 6% as of early January 2025. While 6% is a significant move in currency trading, it is small compared to the Yen’s 35% weakness against the US dollar, which began in early 2021 and ended in July 2024.

Source: https://www.tradingview.com/chart/5SnueDXH/

The recent upward move was supported by a slower-than-anticipated interest rate cut path by the Federal Reserve and an increase in Japan’s inflation to a 2-year high of 4%, suggesting that BOJ’s rate hikes could be on the horizon. The Bank of Japan (BOJ) Policy rate decision is scheduled for March 18th, 2025, a day before the FOMC statement and the federal funds rate announcement. Last week, Bank of Japan Governor Kazuo Ueda stated in parliament that the “BOJ would buy bonds nimbly if yields rise sharply.” According to Bloomberg analyst surveys, expectations for a 25 basis point interest rate hike at the BOJ’s March 18th, 2025, meeting stand at only 1.8%, down from 38.7% in December 2024.

EURJPY Technical Analysis: Ascending Channel Breakout, Head and Shoulders Pattern, and Flag Formation

Source: https://www.tradingview.com/chart/PxTXLbsa/

EURJPY Weekly Japanese Candlestick Chart

• EURJPY has been trading within an ascending channel since mid-2020. Price action broke and closed below the channel, followed by two pullbacks (PB1 and PB2). Both attempts met resistance along the channel border extension. Two more pullbacks followed (PB3 and PB4), but a shortfall occurred as the price was unable to reach the channel border. The four pullbacks together completed a complex head and shoulders pattern, which had already broken below its neckline and reached its technical target.
• The overall price action following the breakout below the ascending channel completed a flag formation, a continuation chart pattern. (The flag chart pattern is highlighted in yellow.)
• A potential exhaustion downward gap formation took the price down to the head and shoulders technical target at the market open on February 3rd, 2025, following President Trump’s tariff announcement regarding Canada and Mexico.
• Currently, price action is at a confluence of support represented by the lower side of the flag formation and support level S1 of 157.07, where it previously found support in September 2024. (Purple arrows)
• Price is trading below its moving averages (EMA9, SMA9, and SMA20). The three moving averages intersect with the gap formation near the monthly pivot point of 161.88, forming a confluence of resistance above the price action.
• The default RSI 14 is at level 40 and approaching oversold territory, and the MACD line remains below its signal line.

Considering the confluence of technical factors, including the ascending channel breakout, head and shoulders pattern, and flag formation, along with the fundamental factors of ECB and BOJ policy decisions and inflation rates, EURJPY presents a complex trading landscape. Traders should closely monitor key support and resistance levels, moving averages, and momentum indicators like RSI and MACD. Robust risk management strategies are essential to navigate the potential volatility and capitalize on opportunities while mitigating downside risk.

• CADJPY broke support zone
•  Likely to fall to support level 104.00

CADJPY currency pair recently broke the support zone between the key support level 105.40 (which has been reversing the price from September) and the 61.8% Fibonacci correction of wave (2) from August.

The breakout of this support zone should accelerate the active impulse wave 3 of the intermediate impulse wave (3) from November.

Given the strong daily downtrend and the bullish yen sentiment seen today, CADJPY currency pair can be expected to fall to the next support level 104.00.

• GBPCHF reversed from resistance zone
• Likely to fall to support level 1.1300

GBPCHF currency pair recently reversed down from the resistance zone between the multi-month resistance level 1.1385 (which has been reversing the price from July) and the upper daily Bollinger Band.

The downward reversal from this resistance zone stopped impulse wave 5 of the intermediate upward impulse sequence (C) from January.

Given the strength of the resistance level 1.1385 and the triple bearish divergence on the daily Stochastic, GBPCHF currency pair can be expected to fall to the next support level 1.1300 (low of the previous minor correction 4).

Geopolitical developments dominated global headlines last week, particularly surrounding peace negotiations over Russia’s invasion of Ukraine and evolving US-Ukraine relations. While US President Donald Trump’s tariffs took a backseat, concerns over their impact on consumer spending and economic growth resurfaced by the end of the week, triggering renewed risk aversion.

Markets lacked clear direction for most of the week, with major assets struggling to gain momentum in either direction. However, risk sentiment soured late in the week as fresh worries emerged over the potential inflationary effects of tariffs, particularly on US consumers. This shift in tone could set the market narrative for the near term.

Against this backdrop, Dollar initially struggled but recovered some ground by the week’s close, finishing as the third worst performer overall. The late-week risk-off mood helped Dollar stabilize, with Dollar Index showing potential for a rebound off key Fibonacci support if risk aversion deepens further.

Euro finished as the second weakest currency, partly weighed down by disappointing PMI data. Hopes for a political boost from German election over the weekend could be short-lived, as renewed US tariff threats may quickly drag Euro lower again. The worst performer was Canadian Dollar, which faced additional pressure from concerns over trade and slowing economy.

In contrast, Yen emerged as the strongest currency, benefiting from increasing speculation of an earlier-than-expected BoJ rate hike. Divergence in yields also provided support, as Japan’s JGB yields rose while US Treasury yields declined.

Sterling and the Swiss Franc were the second and third strongest, respectively, as both benefited from uncertainty surrounding Euro. Australian and New Zealand Dollars ended mixed, weighed down by the late-week risk aversion. However, Kiwi ended up with a slight upper hand over Aussie.

Stocks Slide as Consumer Confidence Plunges, Dollar Index Holds Key Support

US stocks ended the week notably lower as earlier resilience turned into steep selloff on Friday. S&P 500, which had set a new record high, ended the week with -1.7% loss, while DOW and NASDAQ both fell -2.5%. DOW’s -700-point drop on Friday marked its worst trading day of the year, catching many investors off guard and raising concerns over broader market sentiment.

At the heart of the selloff was the unexpected deterioration in consumer sentiment. The University of Michigan Consumer Sentiment Index for February was finalized at 64.7, significantly below January’s 71.7 and the preliminary reading of 67.8. This was the lowest level since November 2023, signaling growing unease among US households about economic conditions.

Adding to market anxiety, inflation expectations surged. Households now expect inflation over the next year to rise to 4.3%, the highest since November 2023, up from 3.3% last month. Over the next five years, inflation expectations climbed to 3.5%, the highest level since 1995, compared to 3.2% in January.

Some analysts attribute the drop in sentiment to uncertainty over US President Donald Trump’s policies, particularly the potential for inflationary effects from new tariffs. The University of Michigan noted that the deterioration in sentiment was led by the -19% drop in buying conditions for durable goods, as consumers fear tariff-driven price hikes. Additionally, expectations for personal finances and the short-run economic outlook fell by nearly -10%.

However, there are differing views on the inflationary impact of tariffs. Some analysts argue that Trump’s tariff threats are more of a strategic negotiation tool aimed at broader geopolitical objectives, such as pressuring Canada and Mexico on fentanyl issues. If these concerns fade, inflation expectations could retreat, allowing consumer confidence to rebound.

Technically, DOW's steep decline and strong break of 55 D EMA (now at 43848.97) is clearly a near term bearish sign. However, current fall from 45054.36 are seen as the third leg of the corrective pattern from 45073.63 only. Hence, while deeper fall could be seen to medium term rising channel support (now at around 42530) or below, strong support should emerge around 41884.89 to complete the pattern and bring up trend resumption.

However, decisive break of 41844.89 will complete a double top reversal pattern (45073.63, 45054.36). DOW would then be at least in correction to the up trend form 32327.20. That would open up deeper correction to 38.2% retracement of 32327.20 to 45054.36 at 40204.49, or even further to 38499.27 support. But then, this is far from being the base scenario at this point.

For now, Dollar Index is still sitting above 38.2% retracement of 100.15 to 110.17 at 106.34. Near term risk aversion could help Dollar Index defend this support level, with prospect of a bounce from there. Firm break of 55 D EMA (now at 107.40) should bring stronger rally back towards 110.17 high. However, Decisive break below the 106.34 support would deepen the decline to 61.8% retracement at 103.98, even still as a correction.

Yen Ends Week Strong as BoJ Might Hike Rates Again Sooner

Yen ended last week as the best-performing currency, thanks to robust inflation data and hawkish remarks from BoJ officials. The rally briefly paused midweek after BoJ Governor Kazuo Ueda signaled readiness to intervene in the bond market, causing Japan’s 10-year JGB yield to retreat from its 15-year high. However, this setback proved temporary, as Yen quickly regained strength amid rising risk aversion and falling US Treasury yields.

According to the latest Reuters poll, 65% of economists (38 out of 58) expect BoJ to raise rates from 0.50% to 0.75% in July or September. Among the 39 analysts who gave a specific month, 59% (23 respondents) chose July, while 15% (six analysts) expected a June hike. The remaining 10 analysts were evenly split between April and September.

However, stronger-than-anticipated inflation could give BoJ further cause to pull the timetable forward. Last week's data already showed core CPI surging more than expected to 3.2% in January, marking the fastest pace in 19 months. If consumer price pressures remain elevated, markets speculate that policymakers might prefer to act sooner rather than wait for the second half.

The April 30 - May 1 policy meeting could stand out as an appropriate window for BoJ to act. By then, BoJ will have access to Shunto wage negotiation results and an updated economic outlook, providing the necessary justification for an earlier rate hike.

USD/JPY's extended decline last week suggests that rebound from 139.57 has already completed with three waves up to 158.86. Fall from 158.86 is now seen as the third leg of the pattern from 161.94.

Deeper fall is expected as long as 150.92 support turned resistance holds, to 61.8% retracement of 139.57 to 158.86 at 146.32. Firm break there will pave the way back to 139.57. Meanwhile, break of 150.92 will delay the bearish case and bring some consolidations first.

Any extended USD/JPY weakness should limit Dollar’s rebound. However, this alone shouldn't be enough to push DXY below key fibonacci support at 106.34 mentioned above.

AUD/NZD Reverses after RBA and RBNZ Rate Cuts

Both RBA and RBNZ delivered rate cuts last week, with RBA lowering its cash rate by 25bps to 4.10% and RBNZ cutting by 50bps to 3.75%, in line with expectations.

RBA maintained a cautious tone, with Governor Michele Bullock emphasizing "patience" before considering another cut. The accompanying statement warned against easing "too much too soon," highlighting concerns that disinflation progress could stall and inflation could settle above the midpoint of the target range if policy is loosened aggressively.

Australian economic data also reinforced RBA’s cautious stance, with strong job growth and elevated wage pressures supporting a measured pace of policy easing.

Meanwhile, RBNZ delivered a more defined path for easing, with Governor Adrian Orr clearly ruling out further 50bps cuts barring an economic shock. Instead, the central bank has outlined two additional 25bps cuts in the first half of the year.

In the currency markets, AUD/NZD saw a sharp decline, falling back toward its 55 D EMA (now at 1.1063). The key driver of this move is likely the perception that RBNZ is nearing the end of its rate-cutting cycle, while RBA has only just begun easing, leaving room for further reductions if economic conditions weaken.

With the OCR at 3.75% already close to the neutral band, there is limited downside for RBNZ, while RBA at 4.10% has more room to cut rates. This policy divergence, particularly if Australia's economy slows further due to trade tensions between US and China, could keep downward pressure on AUD/NZD in the near term.

Technically, sustained trading below 55 D EMA should confirm rejection by 1.1177 resistance. Fall from 1.1173 would be seen as the third leg of the corrective pattern from 1.1177. Further break of near term channel support (now at 1.1029) would pave the way back to 1.0940 support next.

EUR/USD Weekly Outlook

Range trading continued in EUR/USD last week and outlook is unchanged. Initial bias remains neutral this week first. Price actions from 1.0176 are seen as a corrective pattern only. IN case of further rise, upside should be limited by 38.2% retracement of 1.1213 to 1.0176 at 1.0572. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, focus stays on on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong rebound from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

In the long term picture, down trend from 1.6039 remains in force with EUR/USD staying well inside falling channel, and upside of rebound capped by 55 M EMA (now at 1.0929). Consolidation from 0.9534 could extend further and another rising leg might be seem. But as long as 1.1274 resistance holds, eventual downside breakout would be mildly in favor.

Range trading continued in EUR/USD last week and outlook is unchanged. Initial bias remains neutral this week first. Price actions from 1.0176 are seen as a corrective pattern only. IN case of further rise, upside should be limited by 38.2% retracement of 1.1213 to 1.0176 at 1.0572. On the downside, break of 1.0400 support will turn bias back to the downside for 1.0176/0210 support zone. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, focus stays on on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong rebound from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

In the long term picture, down trend from 1.6039 remains in force with EUR/USD staying well inside falling channel, and upside of rebound capped by 55 M EMA (now at 1.0929). Consolidation from 0.9534 could extend further and another rising leg might be seem. But as long as 1.1274 resistance holds, eventual downside breakout would be mildly in favor.