Important calendar events
The dollar edged lower last week, and the dollar index dropped from 109.2 to 107.5. US treasury yields inched lower, with the US 10-year bond yield falling from 4.64% to 4.63%.
The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish message after the policy meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that future rate cuts will be slower, as inflation in the US remains above the central bank’s 2% target.
Markets this week will focus on the Fed’s rate decision on the 29th. The central bank is widely expected to keep interest steady this week and market odds of a rate cut are practically nil. Odds of another rate cut before summer are low and traders will focus on the Fed’s forward guidance to predict the timeline for future rate cuts.
Donald Trump’s Presidential inauguration at the US capitol attracted market attention last week as Trump was sworn in as the 47th president of the United States.
The dollar has been volatile as markets await Trump’s policies and trade tariffs. Trump has already announced a plan to impose 25% tariffs on imports from Canada and Mexico starting February 1 and he has hinted that his administration is considering universal tariffs on all imports to the US.
Trump renewed his threats of trade tariffs on Thursday, emphasizing that the US trade deficit with Canada is unsustainable. Later, Trump reiterated that tariffs imposed on imports from Canada and Mexico will start on February 1st. Rumors of a potential 10% duty on imports from China to the US ignited concerns that other nations may face trade tariffs as well. Trump later went back on his comments on imposing trade tariffs on China, after having a phone conversation with Chinese President Xi Jinping.
Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. The uncertainty surrounding Trump’s trade tariffs caused the dollar to plummet last week.
Trump’s speech at the World Economic Forum in Davos, on Thursday attracted considerable market attention. Trump commented on the Fed’s interest rate stating that he will demand an immediate cut in interest rates. The Fed’s monetary policy, however, is unlikely to be affected by Trump’s demands, and market odds of future rate cuts remained largely unchanged after Trump’s comments.
Economic activity data released last week for the US were underwhelming, putting pressure on the dollar. US Jobless Claims released on Thursday for the week ending January 18 came in at 223K, exceeding forecasts of 221K and the previous week’s print of 217K. US Manufacturing PMI climbed to 50.1 in January from 49.4 in December, exceeding forecasts of 49.8. The US Manufacturing sector has entered expansionary territory as indicated by a print above the threshold of 50.0. Services PMI, however, dropped sharply to 52.8 in January from 56.8 in December against expectations of a 56.4 print. The US Services sector continues to expand but at a diminished pace.
Disinflation in the US is progressing, which may affect the Fed’s rate outlook. Headline inflation rose by 2.9% year-on-year in December from 2.7% in November, which was in line with expectations. Monthly inflation rose by 0.4% in December against 0.3% in November, as expected. Core CPI, however, which excludes food and energy, rose by just 0.2% in December following a 0.3% rise in November and against expectations of a 0.3% print. Core CPI rose 3.2% year-on-year in December, below estimates for a 3.3% increase and November’s 3.3% gain.
Final GDP data for the third quarter of the year showed that the US economy expanded by 3.1% in the third quarter of 2024, up from 2.8% estimated earlier. In addition, the US economy expanded by 3.0% in the second quarter of the year and by 1.4% in the first quarter of the year. This coming week, GDP data on Thursday are expected to show that the US economy expanded by 2.7% in Q4 of 2024.
EUR/USD gained strength last week as the dollar weakened, with the currency rate rising from 1.029 to 1.049. If the EUR/USD pair declines, it may find support at 1.017, while resistance may be encountered near 1.053.
The ECB lowered its benchmark interest rate by 25 basis points in December, bringing its main refinancing rate to 3.15%. This was the fourth rate cut for the ECB this year, which started its easing cycle in June and has already lowered interest rates by a total of 100 bps. ECB President Christine Lagarde hinted at further easing in the coming months as Eurozone inflation nears the central bank’s target while the economy remains weak.
The central bank is currently expected to cut interest rates up to five more times in 2025, to a total of 125bps, until neutral policy settings are reached. Expectations that the ECB will return to a more normalized policy setting sooner than the Fed are putting pressure on the EUR/USD rate.
The ECB rate decision this week on the 30th is expected to attract considerable market attention. A 25-bp rate cut this week is fully priced in, which will bring the ECB’s main refinancing rate down to 2.90%. Lagarde, speaking at the World Economic Forum in Davos on Friday confirmed that the central bank is moving towards normalizing its monetary policy regardless of the threat of trade tariffs from the US. As a January rate cut seems to be a foregone conclusion, traders this week are expected to focus on the ECB’s forward guidance for signs of another rate cut in March.
The ECB is facing new challenges as threats of trade tariffs by the US loom. In an interview on Wednesday, Lagarde stated that Europe must be prepared for potential trade tariffs. The Euro is also under pressure as the EU might face trade tariffs by Trump’s administration, especially on natural gas imports from the US.
The minutes of the latest ECB meeting confirmed that ECB policymakers are likely to continue lowering interest rates, putting pressure on the Euro. Most ECB members agreed that interest rates should be lowered gradually if the progress of disinflation in the EU meets the central bank’s projections.
On the data front, Manufacturing PMI data released on Friday showed that the Eurozone Manufacturing sector is improving. Manufacturing PMI rose to 46.1 in January from 45.1 in December, beating market expectations of 45.3. The EU Manufacturing sector, however, remained in contractionary territory as evidenced by a print below the threshold of 50.0. EU Services PMI inched lower to 51.4 in January from 51.6 in December, which was in line with expectations. The EU Services sector continues to expand but the rate of expansion is slowing down.
German ZEW Economic Sentiment Index dropped to 10.3 in January from 15.7 in December, falling short of market expectations of a 15.3 print. The Eurozone ZEW Economic Sentiment Index rose to 18.0 in January from 17.0 in December against market expectations of 16.9.
Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates further. Eurozone inflation rose to 2.4% year-on-year in December from 2.2% in November. Every month, Eurozone inflation rose 0.4% in December after dropping 0.3% in November. Core CPI, which excludes food and energy, remained steady at 2.7% in December.
Flash GDP data showed that the Eurozone economy expanded by 0.4% in Q3 of 2024, rising from 0.2% in Q2. The Eurozone economy also expanded by 0.3% in the first quarter of 2024. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
GBP/USD gained strength last week, rising from 1.219 to 1.225 as the dollar weakened. If the GBP/USD rate goes up, it may encounter resistance at 1.260, while support may be found near 1.210.
The BOE kept interest rates steady at its latest policy meeting, having cut interest rates twice already this year. MPC members voted 6-3 to keep rates on hold, with three members in favor of cutting interest rates.
Bank of England Governor Andrew Bailey has stated that the central bank needs to adopt a gradual approach to future rate cuts. Bailey has also stressed that the BOE’s policy outlook will remain data-driven and refused to commit to a timeline or magnitude of future rate cuts.
On the data front, UK Manufacturing PMI edged higher to 48.2 in January from 47.0 in December, beating market expectations of 46.9. The British manufacturing sector continues to contract, however, with a PMI below the threshold of 50.0 which denotes industry expansion. Services PMI rose to 51.2 in January from 51.1 in December against expectations of a 50.8 print.
Public Sector Net Borrowing in the UK exceeded expectations according to data released on Wednesday, putting pressure on the Sterling. Public Sector Net Borrowing rose to 17.8B in December against expectations of 14.2B, while November’s print was revised upward to 11.8 B.
Labor data for the UK on Tuesday were overall mixed. The UK Unemployment Rate rose to 4.4% in November, exceeding estimates of 4.3%. Average Earnings for the three months ending in November rose by 5.6%, against a prior reading of 5.2%.
The British economy expanded by just 0.1% in November, disappointing expectations of 0.2% growth and following contraction by 0.1% in October. Final GDP data for the third quarter of the year have previously shown that the British economy is stagnating. Earlier forecasts indicated slight economic growth by 0.1% in the third quarter of 2024, but the British economy is being stifled by high interest rates and cannot expand.
Price pressures in the UK are easing, raising the odds of a BOE rate cut in February and providing support for the Sterling. Headline inflation in the UK rose to 2.5% year-on-year in December, dropping from 2.6% in November, against expectations of a 2.6% print. Core inflation, which excludes food and energy, also came in lower than expected, rising by 3.2% annually in December, against a 3.5% reading in November and 3.4% anticipated.
This coming week only minor fundamentals are scheduled to be released for the UK. Markets will focus on BOE Governor Andrew Bailey’s testimony on the Financial Stability Report on Wednesday. Before the Treasury Select Committee. Traders will follow Bailey’s speech closely for hints on the BOE’s policy outlook.
USD/JPY traded sideways last week, oscillating around the 155.8 level. If the USD/JPY pair declines, it may find support at 154.7. If the pair climbs, it may find resistance at 158.8.
The BOJ raised interest rates by 25 basis points after the conclusion of its monetary policy meeting on Friday. The BOJ raised its interest rate from 0.25% to 0.50%, its highest level since 2008. In addition, the BOJ adjusted its inflation projections upward, to reflect the depreciation of the yen and rising oil prices, hinting at more rate hikes down the road. Policymakers expect Japan’s inflation to rise to 2.4% in 2025, up from previous estimates of 1.9%, and above the central bank’s 2% target.
BOJ Governor Kazuo Ueda hinted that the central bank will continue to raise interest rates if Japan’s economy continues to improve and the BOJ 2% inflation target is reached. Ueda emphasized, however, that the timeline of future rate hikes will depend on economic and inflationary conditions.
Inflation in Japan is on the rise, raising the odds of future rate hikes and providing support for the Yen. The headline Tokyo CPI inflation rose to 3.0% annually in December, up from 2.6% in November. Headline inflation in Japan rose by 3.0% year-on-year in December from 2.7% in November, which was in line with expectations. In addition, BOJ Core CPI rose to 1.7% year-on-year in November from 1.5% in October against expectations of 1.5%.
Final GDP data for the third quarter of the year showed that Japan’s economy expanded by 0.3%, exceeding initial estimates of 0.2%, but down from 0.7% in the second quarter. The Japanese economy is expanding, after shrinking by 0.5% in the first quarter of the year.
Gold prices retained their bullish momentum last week, rising from $2,700 to $2,785 per ounce level. If gold prices rise, they may encounter resistance at $2,790 per ounce, while if gold prices decline, support may be encountered near $2,656 per ounce.
Gold prices gained strength last week, nearing their all-time high of $2,790 per ounce, boosted by a weaker dollar and uncertainty over Donald Trump’s proposed tariffs. Uncertainty over Trump’s future policies and trade tariffs promotes a risk aversion sentiment, raising the appeal of safe-haven assets, such as gold.
Gold prices have been typically directed by the dollar’s movement, as the competing gold loses appeal as an investment when the dollar rises. The dollar edged lower last week, and the dollar index dropped from 109.2 to 107.5. US treasury yields inched lower, with the US 10-year bond yield falling from 4.64% to 4.63%.
Donald Trump’s Presidential inauguration at the US capitol attracted market attention on Monday. Trump was sworn in as the 47th president of the United States.
Gold prices are gaining strength on market concerns over Trump’s future policies and trade tariffs. Trump has already announced a plan to impose 25% tariffs on imports from Canada and Mexico starting February 1 and he has hinted that his administration is considering universal tariffs on all imports to the US. Rumors of a potential 10% duty on imports from China to the US ignited concerns that other nations may face trade tariffs as well. Trump later went back on his comments on imposing trade tariffs on China, after having a phone conversation with Chinese President Xi Jinping.
US inflation data last week came in lower than anticipated, indicating that disinflation in the US is progressing, which may affect the Fed’s rate outlook. Headline inflation rose by 2.9% year-on-year in December from 2.7% in November. Monthly inflation rose by 0.4% in December against 0.3% in November. Core CPI, however, which excludes food and energy, rose by just 0.2% in December following a 0.3% rise in November. Core CPI rose 3.2% year-on-year in December, below estimates for a 3.3% increase and November’s 3.3% gain.
Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Markets this week will focus on the Fed’s rate decision on the 29th. The central bank is widely expected to keep interest steady this week and market odds of a rate cut are practically nil. Odds of another rate cut before summer are low and traders will focus on the Fed’s forward guidance to predict the timeline for future rate cuts.
Trump’s speech at the World Economic Forum in Davos, on Thursday attracted considerable market attention. Trump commented on the Fed’s interest rate stating that he will demand an immediate cut in interest rates. The Fed’s monetary policy, however, is unlikely to be affected by Trump’s demands, and market odds of future rate cuts remained largely unchanged after Trump’s comments.
Oil prices were bearish last week and WTI price dropped from $79.0 to $75.9 per barrel. If oil prices retreat, they may encounter support near $74.2 per barrel, while resistance may be found near $81.0 per barrel.
Donald Trump’s Presidential inauguration at the US capitol attracted market attention on Monday. Trump was sworn in as the 47th president of the United States. Oil prices are under pressure by concerns over Trump’s energy agenda. Trump has vowed to declare a national energy emergency and start drilling for oil immediately to build up US strategic reserves.
Speaking at the World Economic Forum in Davos, on Thursday, Trump urged OPEC members to lower oil prices. Trump’s statements put pressure on oil prices on Thursday. Trump said that he would ask Saudi Arabia and other OPEC countries to bring down the cost of oil.
On Tuesday, Trump issued a series of executive orders imposing tariffs on trading countries. Those tariffs have the potential to affect oil supply in the US, causing volatility in oil prices. Trump imposed a 25% tariff on imports from Canada starting February 1. Canada’s primary export is crude oil, which is chiefly bought by the US.
Increasing Western sanctions against Russia and Iran have been paying off, limiting the oil output of these countries. Former US President Joe Biden has imposed strict sanctions on Russian oil exports. Incoming US President Donald Trump, however, may ease restrictions on Russia’s oil exports in exchange for an agreement to end the war in Ukraine. Trump, on the other hand, is also expected to reinforce restrictions on Iran's oil exports.
OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices.
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Markets this week will focus on the Fed’s rate decision on the 29th. The central bank is widely expected to keep interest steady this week and market odds of a rate cut are practically nil. Odds of another rate cut before summer are low and traders will focus on the Fed’s forward guidance to predict the timeline for future rate cuts.
Bitcoin price surged to an all-time high of $109,880 early last week but lost its bullish momentum, trading just above the $104,000 level during the weekend. If the BTC price declines, support can be found at $97,100, while resistance may be encountered at the new all-time high of $108,880.
Ethereum traded sideways last week, oscillating around the $3,300 level. If Ethereum's price declines, it may encounter support near $2,900, while if it increases, resistance may be encountered near $3,740.
Bitcoin price registered a new all-time high of $109,880 on Monday ahead of Donald Trump’s inauguration but dipped later in the week due to uncertainty over Trump’s trade tariffs.
Trump’s proposed plans for building a Bitcoin strategic reserve have been boosting Bitcoin price. Donald Trump has openly declared his support of crypto markets, announcing that he will make the US ‘the crypto capital of the planet’. Growing expectations that the new government will adopt a pro-crypto regulatory and fiscal policy are boosting crypto markets.
On the other hand, uncertainty over Trump’s future policies and trade tariffs is generating a risk aversion sentiment, which puts pressure on crypto markets. Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries.
Cryptocurrency prices are also affected by central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Indications that the Fed will follow a more hawkish approach than previously anticipated are putting pressure on crypto markets.
Markets this week will focus on the Fed’s rate decision on the 29th. The central bank is widely expected to keep interest steady this week and market odds of a rate cut are practically nil. Odds of another rate cut before summer are low and traders will focus on the Fed’s forward guidance to predict the timeline for future rate cuts.
Trump’s speech at the World Economic Forum in Davos, on Thursday attracted considerable market attention. Trump commented on the Fed’s interest rate stating that he will demand an immediate cut in interest rates. The Fed’s monetary policy, however, is unlikely to be affected by Trump’s demands, and market odds of future rate cuts remained largely unchanged after Trump’s comments.
BTC/USD 1h Chart
ETH/USD 1h Chart
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