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USD/CHF gyrated lower last week as consolidation from 0.9200 extended but downside was contained above 0.9007 support. Initial bias remains neutral this week first. On the upside, above 0.9107 minor resistance will turn bias back to the upside for retesting 0.9200, and probably to 0.9223 key resistance. On the downside, firm break of 0.9007 will bring deeper decline to 55 D EMA (now at 0.8954).

In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

In the long term picture, price action from 0.7065 (2011 low ) are seen as a corrective pattern to the multi-decade down trend from 1.8305 (2000 high). Fall from 1.0342 (2016 high) is seen as the second leg. Sustained break of 55 M EMA (now at 0.9131) will indicate that the third leg has already started. However, rejection by 55 M EMA again, followed by break of 61.8% retracement of 0.7065 to 1.0342 at 0.8317, will pave the way back to 0.7065.

AUD/USD's rebound from 0.6130 short term bottom extended higher last week. Initial bias stays on the upside this week for 55 D EMA (now at 0.6347) and above. But strong resistance is expected from 38.2% retracement of 0.6941 to 0.6130 at 0.6440 to limit upside to complete this corrective rebound. On the downside, break of 0.6252 minor support will turn bias back to the downside for retesting 0.6130 low.

In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6545) holds.

In the long term picture, prior rejection by 55 M EMA (now at 0.6846) is taken as a bearish signal. But for now, fall from 0.8006 is still seen as the second leg of the corrective pattern from 0.5506 long term bottom (2020 low). Hence, in case of deeper fall, strong support should emerge above 0.5506 to contain downside to bring reversal. However, this view is subject to adjustment if current decline accelerates further.

USD/CAD stayed in consolidation below 1.4516 last week and outlook is unchanged. Initial bias remains neutral for this week and more sideway trading could be seen. Further rally is expected as long as 1.4260 support holds. On the upside, firm break of 1.4516 will resume larger up trend to 1.4667/89 key resistance zone. Nevertheless, firm break of 1.4260 will turn bias to the downside for deeper pullback to 55 D EMA (now at 1.4216) and below.

In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as long as 1.3418 support holds.

GBP/JPY's stronger than expected rebound and break of 55 D EMA last week argues that fall from 198.84 has completed at 189.31. Initial bias remains on the upside this week for 198.94 resistance, as corrective pattern from 180.00 extends with another rising leg. On the downside, below 192.05 minor support will turn intraday bias neutral again first.

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.

In the longer term picture, while a medium term top was formed at 208.09 (2024 high), it's still early to conclude that the up trend from 122.75 (2016 low) has completed. But GBP/JPY is at least in a medium term corrective phase, with risk of correction to 55 M EMA (now at 173.49).

EUR/JPY's stronger than expected rebound last week suggests that corrective pull back from 164.89 has completed at 159.74 already. Initial bias remains on the upside this week for 164.89 resistance. Firm break there will resume the rise from 156.16, as another leg of the corrective pattern from 154.40. Next target is 100% projection of 156.16 to 164.89 from 159.74 at 168.47.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). The range of consolidation should have been set between 38.2% retracement of 114.42 to 175.41 at 152.11 and 175.41 high. However, decisive break of 152.11 would argue that deeper correction is underway.

In the long term picture, while 175.41 is at least a medium term top, it's still early to conclude that up trend from 94.11 (2012 low) has completed. A medium term corrective phase is in progress with risk of deeper fall back to 55 M EMA (now at 148.27).

EUR/GBP edged higher to 0.8472 last week but retreated notably since then. Initial bias stays neutral this week first. On the upside, break of 0.8472 will resume the rally from 0.8221 to 0.8624 key cluster resistance zone next. However, sustained break of 0.8403 will turn bias back to the downside for 55 D EMA (now at 0.8350).

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.

In the long term picture, price action from 0.9499 (2020 high) is seen as part of the long term range pattern from 0.9799 (2008 high). Range trading should continue between 0.8201 and 0.9499, until there is clear signal of imminent breakout.

EUR/AUD's consolidation from 1.6800 was still in progress last week and outlook remains unchanged. Initial bias stays neutral this week first. 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.

In the longer term picture, rise from 1.4281 is seen as the second leg of the pattern from 1.9799 (2020 high), which is part of the pattern from 2.1127 (2008 high). As long as 55 M EMA (now at 1.6073) holds, this second leg could still extend higher. However, sustained trading below 55 M EMA will open up the bearish case for extending the decline through 1.4281 low.

EUR/CHF's choppy rise from 0.9209 extended higher last week and there is no sign of topping yet. Initial bias stays on the upside this week for next fibonacci resistance at 0.9651. For now, further rally will remain in favor as long as 0.9424 support holds, in case of retreat.

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 would 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 0.9385) will maintain medium term bearishness and bring retest of 0.9204 low.

In the long term picture, as long as 0.9928 resistance holds, the multi-decade down trend remains intact, with fall from 1.2004 (2018 high) as another falling leg. Decisive break of 0.9252 (2023 low) will confirm long term down trend resumption to 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851.

Monday, Jan 27, 2025

Tuesday, Jan 28, 2025

Wednesday, Jan 29, 2025

Thursday, Jan 30, 2025

Friday, Jan 31, 2025

• US equities markets rose due to President Trump’s pro-business policies and decision to not impose tariffs on major trading partners yet.
• The Bank of Japan raised rates to 0.5%, the highest since 2008.
• The week ahead sees markets shift attention toward Central Bank policy with the ECB and Fed meeting in focus.

Week in Review: Trump Effect Takes Hold as Uncertainties Rise

Markets had a bit of a roller coaster ride this week thanks to the incoming Trump administration in the US. Markets got some of what they expected while they also received a fair amount of shocks to keep market participants guessing.

US equities got off to a flying start which was not a surprise as President Trump was always seen as pro business and growth. A number of executive orders followed the inauguration and focused on business growth and lowering taxes.

However, the biggest decision this week and one which shows some form of growth and maturity from President Trump as opposed to his first term, was his take on tariffs.

Even though President Trump talked tough about  protectionist trade policy during his campaign, he decided not to impose tariffs on major trading partners this week. On Thursday night, he eased tensions with China by saying he’d prefer not to use tariffs against them. This sparked a positive reaction in the markets that pushed the S&P 500 to fresh all-time highs.

The S&P 500 has risen 2% this week (at the time of writing), putting it on course for the best start for a new president since Ronald Reagan took office in 1985.

Source: Bloomberg (click to enlarge)

On the FX front, the US dollar faced challenges because President Trump’s tariff strategy wasn’t expected to drive inflation as much as immediate tariffs would. This coupled with his pledge to bring the cost of living down has stoked hopes that inflation may continue to fall and rate cuts may arrive at a quicker pace than previously thought.

This is a fluid situation and could change as more data and tariff discussions take place.

The Bank of Japan meanwhile did proceed with the expected rate hike of 25 bps as discussed in last week’s market outlook. This brings the policy rate to 0.5%, its highest level since October 2008, during the global financial crisis. The Japanese yen climbed sharply after the decision but was unable to consolidate these gains. For a full breakdown on the decision, read BoJ hikes rates, yen pares gains. 

The Euro and the GBP have put in impressive runs at the back end of the week with both breaking out of periods of consolidation and run into key levels of resistance.

The commodities complex saw Gold run toward its all time highs, falling just short at the time of writing with a daily high of 2786.88. The gains in Gold look to be down to concerns around tariffs as despite President Trump holding off on tariffs now he did also mention that Canada, Mexico and China may be hit with tariffs on February 1.

Oil prices struggled and President Trump once again played his part. The US President stated on Thursday and Friday that he wants to see OPEC cut the price of Oil. This as well as the potential of tariffs affecting global growth weighed on Oil prices this week.

The crypto sector like US equities were significant beneficiaries of the incoming administration and its policies. For a full read on the impact and way forward for Bitcoin, read Bitcoin (BTC/USD) Volatility Measures are Tightening Up. Is it Time for Another Major Move?

The Week Ahead: Central Bank Meetings to the Fore, ECB and Fed

Asia Pacific Markets

The main focus this week in the Asia Pacific region is month-end data from Japan and another look at China’s manufacturing sector with PMI data being released.

From Japan we will be getting the month-end data dump, covering inflation, labor, industrial production, and retail sales. The Tokyo CPI is expected to drop from 3.0% in December to 2.6% in January, thanks to the government’s utility subsidies.

The Bank of Japan should watch service prices, which may rise due to better household incomes. The job market remains tight, with unemployment at 2.5%. This will be interesting after the Bank of Japan’s rate hike this week, with hope that data continues to trend in a positive direction.

China’s Lunar New Year holiday starts next week, so most key data will be released on Monday. Before that, January’s PMI data will be out, and I do think a slight increase in the manufacturing PMI to 50.3 from 50.1 in December. Also on Monday, China’s December industrial profits are expected to show a year-on-year decline for 2024, and the MLF rate is likely to stay at 2.0%.

Lastly we look at Australia, where we have Q4 inflation data being released with markets expecting a YoY print of 2.5% down from the previous print of 2.8%.

Europe + UK + US

In developed markets, the FOMC and European Central Bank meetings will be the main focus.

The US Fed cut rates by 100 basis points in late 2024 and now wants to see signs of economic weakness and lower inflation before making more cuts. Fed policymakers also remained concerned about the impact of potential tariffs on inflation as indicated by the previous meeting minutes.

The tone adopted by Fed Chair Powell as well as his remarks will no doubt be closely monitored. Any references to slower or more aggressive rate cuts are likely to shake up markets.

In Europe we have the European Central Bank meeting.  Unlike the lead-up to the ECB’s December meeting, there’s been little public discussion before next week’s meeting. There’s a growing agreement on the need for more rate cuts as growth continues to struggle. ECB President Christine Lagarde hinted that a 25 basis point rate cut next week is almost certain, and more cuts are likely to follow.

GDP data for the Euro Area will also be released which should confirm the sluggish growth mentioned as the reason for further rate cuts. The Euro Area may also be suffering from a weaker winter as well before growth improves which leads me to believe that a rate cut is necessary.

Chart of the Week

This week’s focus is on the US Dollar Index (DXY) after it continued its descent from two-year highs.

The Dollar Index struggled this week after breaking below the ascending trendline on Monday in the aftermath of the Presidential Inauguration.

Since then the DXY has extended its losses with a bearish Thursday and Friday.

The index has now bounced off a key area of support at the 107.20 handle which is the upper band of the support zone that stretches till 106.85.

A bounce from here could push the DXY back toward resistance at the 108.00 handle before the 108.50 and 109.00 come into focus.

Now if the DXY is able to break below the support zone between 107.20 106.85 then attention turns to key support areas at 106.13 and 105.63.

US Dollar Index (DXY) Daily Chart – January 24, 2025

Source: TradingView.Com (click to enlarge)

Key Levels to Consider:

Support

• 106.85
• 106.13
• 105.63

Resistance

• 108.00
• 108.49
• 109.00