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MENAFN- Daily Forex) Fundamental Analysis & Market Sentiment
I wrote on 16
th February that the best trade opportunities for the week were likely to be:
Long of the NASDAQ 100 Index. This fell by 2.48% over the week. Long of the S&P 500 Index following a daily close above 6118.71. This fell by 1.77% over the week. Long of Gold in USD terms (also known as XAU/USD) following a daily close of spot Gold above $2,926. This set up on Tuesday, but the price ended the week practically unchanged from there. Long of Corn futures (CORN etf can also be used) following a daily close of the next ZC future at or above 498. This set up on Tuesday, but the price ended the week 2.19% lower. Long of Coffee futures (COFF etf can also be used) following a daily close of the next C future at or above 425.10. This did not set up.
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The weekly loss of 6.44% equals 1.29% per asset. However, my weekly forecast of rising Yen crosses helped make up some of this loss (3.91%).
Last week saw several data releases affecting the Forex market:
US FOMC Meeting Minutes – this was slightly hawkish, with the Fed showing to be in no rush to lower rates, with further progress on inflation required before any further cuts to be made.
UK CPI (inflation) – this was higher than expected, showing an annualized rate of 3.0% compared to an expected 2.8%, which was hawkish for the British Pound.
Canadian CPI (inflation) – the headline rate showed a month-on-month increase of 0.1% which was expected, but other inflation metrics ticked a fraction higher.
Australian Wage Price Index – a fraction lower than forecast, which is very marginally dovish for the Aussie.
Reserve Bank of Australia Policy Meeting – cut rates by 0.25% as expected.
Reserve Bank of New Zealand Policy Meeting – cut rates by 0.50% as expected but also a slight dovish tilt as the Bank made clear the pace of any further cuts would be much slower.
UK Retail Sales – the month-on-month increase was much stronger than expected, rising by 1.7% rather than the forecasted 0.4%, suggesting there is still strong consumer demand, bolstering the higher rate view.
US, French & German Flash PMI Services & Manufacturing – nothing very notable here.
US Unemployment Claims – almost exactly as expected.
Canadian Retail Sales – this showed a considerably stronger increase than expected month-on-month, 2.5% instead of the forecasted 1.5%, suggesting there is still strong consumer demand, bolstering the higher rate view.
Last week's key takeaways were:
Despite the hawkish tilt on US monetary policy, and the long-term bullish trend, the greenback declined over the week, while shows a kind of weakness in the USD right now.
US stock markets made record highs before dropping quite strongly at the end of last week.
The Japanese Yen saw strong gains last week on strong Japanese economic data, which boosted expectations of Bank of Japan rate hikes.
Rate cuts continue at many major central banks, even though global inflation seems to be mostly a bit stronger than expected, while the US Federal Reserve has essentially paused rate cuts and the Bank of Japan is positioned to make rate hikes, placing the JPY and USD as divergent currencies from the pack.
President Trump is taking a more conciliatory line on tariffs, stating that the EU is being“very nice” while also positioning to impose some reciprocal tariffs on other countries.
The Trump administration has continued talks with Russia over Ukraine, which triggered a boost in risk-on sentiment, although the sentiment is patchy as we saw at the end of last week.
It seems that any flow into safe havens is going to the Japanese Yen and maybe Gold.
A few commodities have been breaking to new record highs, although only Gold and Corn truly look strong Week Ahead: 24
th – 28
th February
The coming week has a lighter schedule of releases, so we are 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:
US Core PCE Price Index
US Preliminary GDP
German Preliminary CPI
German Federal Election Result
US CB Consumer Confidence
Australia CPI
Canadian GDP
US Unemployment Claims
Monday is a public holiday in Japan Forecast February 2025
For February 2025, I forecasted that the EUR/USD currency pair would decline in value. The performance so far is shown below.
Weekly Forecast 23
rd February 2025
Last week, I forecasted that the following currency pairs would fall in value over the week:
GBP/JPY – down by 1.64%. EUR/JPY – down by 2.27%.
This was a good and profitable call.
This week, I forecast that the following currency crosses will rise in value over the coming week:
The Japanese Yen was the strongest major currency last week, while the Euro was the weakest, putting the EUR/JPY currency cross and other Yen crosses in focus. Volatility decreased last week as expected, with only 26% of the most important Forex currency pairs and crosses changing in value by more than 1%. It is likely to decline again 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 AnalysisUS Dollar Index
Last week, the US Dollar Index again moved lower after invalidating the long-term bullish trend the previous week, following a major bearish reversal a few weeks ago near the resistance level at 110.00.
It seems clear that the dominant price action is bearish, while the long-term trend is mixed: the price is below its level of 3 months ago but above its level of 6 months ago. However, it looks increasingly as if this trend is over, despite new US tariffs and a more hawkish Fed which is still grappling with inflation which stubbornly remains above its 2% target, leading to the Fed signaling it is not likely to cut rates any time soon.
The Dollar is likely to continue falling over the coming week, although the bearish momentum has slowed down.
S&P 500 Index
After making a new record earlier in the week, the S&P 500 index made a deep bearish retracement at the end of the week. The weekly candlestick closed very near its low, which is a sign of short-term bearish momentum.
Despite this recent bearishness, he linear regression analysis applied to the daily price chart below shows that the current bullish trend has been driving this market for almost 2 years, which is a relatively mature bull market.
The price is still not far from its record high, and it has continued to make new record highs quite frequently, so I think if we see a recovery to new highs, it will make sense to look for a new long trade entry here.
USD/JPY
The USD/JPY currency pair printed a large bearish weekly candlestick, closing near its low, and making its lowest weekly closing price in almost 4 months. The price seems to have become established below the big round number at ¥150. These are all bearish signs.
The driver here is the newly strong Japanese Yen, which has begun to jump dramatically every time Japanese economic data is released which shows the return of wage inflation, which is the key driver for pushing the Bank of Japan into further rate hikes after more than 15 years with an ultra-dovish monetary policy. Strong Japanese CPI and PMI data recently have helped boost the Yen.
The US Dollar has been weak lately despite strong fundamentals. Although this weakness may be somewhat hard to explain, it is useful as it gives a pair with a cheap spread here to trade to exploit Yen strength.
Despite the bearish momentum seen here backed by fundamentals and sentiment, the short-term moving averages remain above the long-term ones, which makes me want to wait a bit longer before entering any new short trades here.
XAU/USD
Gold advanced again during the week to reach a new all-time high above $2,950 per ounce. However, the price truly moved little during the week, unable to really make a bullish breakout. However, the price is not falling either, so the dominant bullish trend should still be respected.
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.
Gold seems to be doing well in the current market environment, where both risky and some safe-haven assets are performing well – Gold plays a role as both.
I'd ideally like to see a new record high daily closing price before entering any new long trade – above $2,939.39. However, I am long of Gold right now and as the price is so close to this level, it could be worthwhile being long anyway without waiting for a new high closing price.
Corn Futures
Corn futures have been breaking to new highs recently, with the price of Corn trading at a new multi-month high price a couple of weeks ago. However, last week saw a decline.
Many analysts question the bullish trend here, seeing the recent jump in corn prices as an essentially seasonal development, and sure to end soon. This may be true, but I think when trading commodities it is better to be guided by the price than by your own preferred fundamental supply and demand scenario logic.
I think Corn is a buy only if it makes a new daily high closing price, and to me it looks 50-50 whether this will happen or not soon.
I will be prepared to enter a new long trade only if we see Corn futures make a new 6-month high closing price at the end of any day over the coming week, above 502.
Bottom Line
I see the best trading opportunities this week as:
Long of the S&P 500 Index following a daily close above 6141.60. Long of Gold in USD terms. Long of Corn futures (CORN etf can also be used) following a daily close of the next ZC future at or above 502.
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