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Indices in the US and Europe declined due to the heavy selling of stocks triggered by investors exiting AI-related companies in the US. The reason for the relatively sudden sell-off was the rumoured high quality of AI model results from China’s DeepSeek-R1, unveiled on Monday. It is free for users, training was significantly cheaper than its US counterparts, and the results sometimes outperform ChatGPT.

In this environment, investors have started to exit the most popular trades of the past two years. Nvidia shares lost over 10% in the premarket, sending the Nasdaq-100 index down more than 5% from Friday’s closing level.

Markets are sensitive to this situation, as heightened price competition raises doubts about the timing of when profits from multi-billion-dollar investments will materialise. This is also putting pressure on Nvidia. Currently, it’s down 11% to levels below $127, testing the lower end of its trading range from October.

Technically, the latest decline breaks the upward trend of the entire 2024. The price is now approaching its 200-day moving average, above which it has traded solidly since early 2023. The situation looks like profit taking from the AI rally of the last two years, which is putting pressure on the market.

Nasdaq-100 index futures are trading below the 21000 level, back to the highs of last July. The fact that the market has reached these levels again after two weeks without updating the historical highs indicates increased seller activity. Under such conditions, the probability of the index dropping to a lower level is increasing.

The nearest target for sellers is the area of 20000. This is a significant level near which the 200-day moving average passes. Approaching this level attracted buyers in August and September last year, as well as in October 2023.

A fall below this level early in the week could trigger a further decline in share price, which could reduce market capitalisation by another 5-10%.

The Japanese yen has started the week with huge gains against the US dollar and has climbed to five-week highs. In the European session, USD/JPY is trading at 154.14, down 1.1% on the day.

Will BoJ continue its tightening cycle?

The Bank of Japan rate hike on Friday was expected by the markets but the Japanese yen continues to show strong movement in the aftermath of the rate decision. The yen initially recorded gains after the rate announcement but surrendered almost all of these gains on Friday. However, the yen has surged on Monday as investors are more confident that the BoJ will continue its move towards normalization and deliver additional rate hikes.

At a time when the major central banks are lowering interest rates, the BoJ is moving in the opposite direction. The move has been slow, as Friday’s hike was only the third since the tightening cycle began in March 2024. Governor Ueda said on Friday that “our basic thinking has not changed” but he also hinted at further interest rates, which has given the yen a sharp boost on Monday. Friday’s rate hike of 25 basis points brought the policy rate to 0.5%, its highest level since October 2008, during the global financial crisis.

What’s next for the BoJ? Governor Ueda didn’t provide any dates for a possible rate hike at his post-meeting press conference but noted that “there is still a considerable distance to the neutral rate”, a level that is not stimulative or restrictive to the economy. Ueda has repeatedly said that wage growth is needed to ensure that inflation remains sustainable and the rate statement expressed confidence that the annual spring labor talks would result in higher wages. If wages continue to rise, the BoJ could respond with another rate hike in May.

USD/JPY Technical

• USD/JPY has pushed below support at 154.90 and is testing support at 153.79
• 155.88 and 156.99 are the next resistance lines

The USD/CAD pair settled around 1.4393 after experiencing a volatile start to January. On Monday, the market showed interest in buying the Canadian dollar, which had earlier strengthened to a monthly high against the USD. This movement was driven by a weaker US dollar and a more favourable risk sentiment in global markets.

Factors influencing the Canadian dollar

The Loonie was boosted after US President Donald Trump called for an immediate interest rate cut by the Federal Reserve, which weighed on the USD. Additionally, enhanced risk appetite in the market supported currencies like the CAD.

However, the Canadian dollar’s ability to strengthen further is uncertain due to looming trade policy concerns. The potential of the US imposing 25% tariffs on Canadian imports in February 2025 has raised fears. This move could prompt the Bank of Canada to lower its interest rate by 25 basis points during its meeting.

Adding to the uncertainty is the continued decline in crude oil prices, a critical factor for the Canadian economy, given its reliance on commodities. The oil sector is particularly concerned about the potential impact of tariffs on Canada, Mexico, and China, as well as the broader implications for global energy demand and economic growth.

Technical analysis of USD/CAD

On the H4 chart, USD/CAD is in a broad consolidation range around the 1.4384 level. A short-term growth to 1.4455 is possible. After reaching this level, the pair may reverse and develop a downside wave targeting 1.4255. The MACD indicator supports this outlook, with its signal line positioned below the zero mark and signalling further potential for lower lows.

On the H1 chart, the pair completed a local decline wave to 1.4300 and then rebounded to 1.4377. The market is forming a consolidation range near 1.4377. If the pair breaks upwards, the range could extend to 1.4455. Conversely, a downward breakout would open the potential for a move towards 1.4255. This scenario is supported by the Stochastic oscillator, which shows its signal line below the 80 mark and trending sharply downwards towards 20, indicating bearish momentum.

Conclusion

The Canadian dollar’s recent gains reflect short-term factors such as a weaker USD and improved market risk sentiment. However, its outlook remains uncertain, with oil prices and potential US trade tariffs presenting significant risks. Technically, the USD/CAD pair is consolidating, with key levels to watch at 1.4455 on the upside and 1.4255 on the downside. Market participants will closely monitor developments in US trade policy and the Bank of Canada’s upcoming rate decision for further direction.

• EUR/USD sends bullish signals above 50-day SMA.
• A break above 1.0500 could bolster buying appetite.
• ECB rate decision due on Thursday, 13:15 GMT.

EUR/USD opened the week with a slight gap lower at 1.0473 after running as high as 1.0520 on Friday. The pullback, however, could be temporary.

While a sustainable move above the 1.0500 level might be necessary for a continuation higher, Friday’s close above the 50-day simple moving average (SMA)– the first since October – is feeding hopes that the bulls could roar back. If the pair decisively holds above this line, there is potential for an extension towards the 38.2% Fibonacci retracement of the 2022-2023 uptrend at 1.0611. Then, the focus could turn to the 200-day simple moving average (SMA) currently seen near 1.0770.

The positive trajectory in the RSI and the MACD adds weight to the bullish scenario, though with the stochastic oscillator hovering within overbought zone, downside pressures cannot be ruled out, especially if the price dives below the support area of 1.0385-1.0400. If the bears breach this floor, the 20-day SMA may immediately come to the rescue near 1.0340. Otherwise, the price could tumble toward the 61.8% Fibonacci of 1.0260, and even slide into the 1.0168-1.0200 area, where the support line from February 2024 is sitting.

In summary, EUR/USD is maintaining a bullish stance in the short-term picture despite today’s minor pullback. A close above 1.0500 could provide the confirmation needed for a march higher. However, traders should keep an eye on downside risks if a dip below 1.0384-1.0400 takes place.

Bitcoin was sharply down and dipped below psychological 100K support in early Monday trading.

The price dropped around 6% in Asian session, in the biggest session drop in a weeks, mainly driven by risk-off selling.

Fresh drop weakened near-term structure, fueling risk of further losses, particularly if bears sustain break below 100K, although will face another significant supports which guard key 90K support zone.

On the other hand, larger picture shows that broader bulls remain in a consolidation phase and probably preparing for fresh push higher, as overall sentiment is positive, and traders await signals from Trump’s administration about promised overhaul and liberalizing of crypto market regulations in the US.

From this perspective, today’s drop looks like positioning for fresh rally, but price needs to hold above 90K breakpoint, to keep bullish stance.

It will be also interesting to watch January’s close, after Bitcoin repeatedly failed to register monthly close above 100K last month.

Another failure would signal prolonged sideways mode but also signal growing downside risk on formation of a double bull-trap above 100K on monthly chart.

Res: 100000; 101734; 102771; 104734
Sup: 97645; 96886; 93887; 91189

USDJPY, Daily

In the Daily timeframe, USDJPY sharply broke the lower trend line of the rising wedge. The lips crossed the jaw of the Alligator, and the Chaikin dropped below 0. In this case, the beginning of a bearish trend is possible, but we need to wait for confirmation.

• We can consider selling USDJPY ONLY on consolidation below 154,000 support with a target of 152,000;

Daily Pivots: (S1) 0.9458; (P) 0.9488; (R1) 0.9539; More....

Intraday bias in EUR/CHF is turned neutral first with today's steep retreat. On the downside, firm break of 0.9242 support will indicate rejection by 38.2% retracement of 0.9928 to 0.9204 at 0.9481. Deeper fall would then be seen back to channel support (now at 0.9373). However, strong rebound from current level will keep the choppy rally from 0.9204 intact.

In the bigger picture, fall from 0.9928 should have completed at 0.9204 with the current strong rebound, after failing to sustain below 0.9252 (2023 low). It's still early to confirm long term bullish reversal. But even as a corrective move, current rebound could extend to 61.8% retracement of 0.9928 to 0.9204 at 0.9651. On the downside, firm break of 55 D EMA (now at 0.9387) will maintain medium term bearishness and bring retest of 0.9204 low.

Daily Pivots: (S1) 0.8388; (P) 0.8425; (R1) 0.8447; More...

Focus remains on 0.8403 support in EUR/GBP. Sustained break there will confirm short term topping at 0.8472, and bring deeper pullback to 55 D EMA (now at 0.8350). On the upside, though, break of 0.8472 will resume the rally from 0.8221 to 0.8624 key cluster resistance zone next.

In the bigger picture, a medium term bottom should be in place at 0.8221, just ahead of 0.8201 key support (2022 low). Sustained trading above 55 W EMA (now at 0.8442) will pave the way to 0.8624 cluster zone (38.2% retracement of 0.9267 to 0.8221 at 0.8621), even just as a correction to the down trend from 0.9267 (2022 high). But still, medium term outlook will be neutral at best as long as 0.8621/4 holds.

Daily Pivots: (S1) 1.6549; (P) 1.6596; (R1) 1.6674; More...

Intraday bias in EUR/AUD remains neutral as it's staying in range below 1.6800. In case of another dip, strong support is still expected from 38.2% retracement of 1.5963 to 1.6800 at 1.6480 to contain downside. On the upside, firm break of 1.6800 will resume the rally from 1.5963. However, sustained break of 1.6480 will bring deeper correction 61.8% retracement at 1.6283 instead.

In the bigger picture, EUR/AUD is holding on to 1.5996 key support (2024 low) despite brief breach. Larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5996 will indicate that such up trend has completed and deeper decline would be seen.

Daily Pivots: (S1) 192.93; (P) 193.88; (R1) 195.67; More...

Intraday bias in GBP/JPY is turned neutral again with today's deep retreat. Overall outlook is unchanged that corrective pattern from 180.00 might extend. On the upside above 194.73 will target 198.94/197.79 resistance zone. On the downside, however, break of 192.05 minor support will turn bias back to the downside for 189.31 support instead.

In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.