What to Trade this Week as Safe Havens Rise
The Forex Market Roundup
Monday, February 24, 2025, Week 9
Welcome to your comprehensive forex market outlook for the week ahead. As we enter a pivotal week for global markets, traders are closely monitoring the diverging paths of major central banks, with particular focus on the aftermath of recent rate decisions. The RBNZ's 50 bps cut to 3.75%, RBA's cut to 4.10%, and BOJ's increasingly hawkish stance are creating significant trading opportunities.
The relative strength of major currencies, reflecting both fundamental factors and current market sentiment, ranks as follows:
US Dollar (STRONG/BULLISH) - Unchanged, supported by Fed's relatively hawkish stance
Japanese Yen (STRONG/BULLISH) - Strengthened since last report due to rising inflation and BOJ's hawkish shift
Swiss Franc (STRONG/BULLISH) - Maintained strength as safe-haven flows continue
British Pound (WEAK/BEARISH) - Deteriorated further after BOE rate cut
Euro (WEAK/BEARISH) - Weakened amid political uncertainty and ECB dovishness
Canadian Dollar (WEAK/BEARISH) - Weakened further following BOC easing
Australian Dollar (WEAK/BEARISH) - Deteriorated after RBA rate cut
New Zealand Dollar (VERY WEAK/VERY BEARISH) - Further weakened following aggressive RBNZ cut
US Dollar: Strong Federal Reserve Support Bullish Outlook
The dominant theme over the past seven weeks has been the Fed's relatively hawkish stance, maintaining rates at 4.25-4.50%. The past week's narrative focused on services PMI contracting to 49.7 and mixed economic signals.
The emerging theme is the balance between inflation concerns (3.0% CPI) and growth risks. This week's focus has been on the implications for Fed policy timing.
Looking ahead, the combination of attractive yields, safe-haven status, and relative policy stability should continue supporting the dollar. Market reaction to upcoming inflation and GDP data will be crucial.
The dollar remains a buy based on fundamentals and positioning. COT data shows asset managers long 22,451 contracts, with room for further accumulation.
Economic Indicators (Next 7 Days)
Feb 27: Durable Goods Orders MoM (Jan)
Previous: -2.20%
Impact: Key manufacturing sector indicator
Feb 27: GDP Growth Rate QoQ 2nd Est (Q4)
Previous: 2.30%
Impact: Critical for assessing economic strength
Feb 28: Core PCE Price Index MoM (Jan)
Previous: 0.20%
Impact: Fed's preferred inflation measure
Japanese Yen: Strong Fundamentals Support Bullish Outlook
The dominant theme over the past seven weeks has been the BOJ's decisive shift toward monetary tightening, highlighted by the January 24th rate hike to 0.50%. This past week's narrative centered on surprisingly strong inflation data, with January's core CPI reaching 3.2% and headline inflation hitting 4.0%, the highest since January 2023.
The emerging theme is the growing disconnect between inflation and BOJ policy, with Governor Ueda signaling readiness to increase bond purchases if yields rise too sharply. This stance has created some uncertainty about the timing of further rate hikes, despite strong inflation data.
Looking ahead, the combination of high inflation, relatively attractive yields, and safe-haven status should continue supporting the yen. The BOJ's careful balance between controlling yields and responding to inflation will be crucial for market sentiment.
The yen remains a strong buy based on both fundamentals and positioning. COT data shows dealers net short 33.0% of open interest, suggesting room for further appreciation as positions potentially unwind.
Swiss Franc: Strong Safe-Haven Status Supports Bullish Outlook
The dominant theme over the past seven weeks has been persistent safe-haven demand amid global uncertainties, particularly following Trump's tariff announcements and geopolitical tensions. This past week's narrative focused on the trade surplus narrowing to CHF 4.0B in January, though safe-haven flows continued to support the currency.
The emerging theme is the SNB's divergence from other central banks, maintaining stability despite its December rate cut to 0.50%. The market narrative this week centered on low inflation at 0.4% YoY in January.
Looking ahead, the combination of global uncertainties and political tensions should continue supporting the franc. The SNB's careful management of currency strength while maintaining price stability will be crucial for market sentiment.
The franc remains a strong buy based on fundamentals, though positioning suggests caution. COT data shows dealers long 71.5% of open interest, indicating potential for consolidation.
Economic Indicators (Next 7 Days)
Feb 27: GDP Growth Rate QoQ (Q4)
Previous: 0.40%
Impact: Key for assessing economic resilience amid strong currency
Feb 27: GDP Growth Rate YoY (Q4)
Previous: 2.0%
Impact: Will influence SNB policy expectations
Feb 28: KOF Leading Indicators (Feb)
Previous: 101.6
Impact: Forward-looking indicator for economic momentum
British Pound: Weak Fundamentals Support Bearish View
The dominant theme over the past seven weeks has been the BOE's shift to monetary easing with the February 6th rate cut to 4.50%. The past week's narrative focused on stronger-than-expected retail sales, rising 1.7% MoM in January.
The emerging theme is the mixed signals from economic data, with manufacturing PMI contracting at 46.4 while retail sales show strength. This week's focus has been on the implications for BOE policy.
Looking ahead, the combination of BOE easing bias and mixed economic data suggests continued pressure on sterling. Market reaction to upcoming GDP and employment data will be crucial.
The pound warrants a hold position based on mixed signals. COT data shows asset managers short 103,316 contracts, suggesting potential for relief rallies on positive data.
Euro: Weak Fundamentals Drive Bearish Outlook
The dominant theme over the past seven weeks has been the ECB's dovish policy shift, marked by the January 30th rate cut to 2.90%. The past week's narrative centered on stagnant PMI data at 50.2 in February, confirming economic weakness.
The emerging theme is growing political uncertainty ahead of the German federal election. This week's focus has been on potential implications for European economic policy and integration.
Looking ahead, the combination of weak growth, political uncertainty, and dovish monetary policy is likely to maintain pressure on the euro. Market reaction to the German election results will be crucial for near-term sentiment.
The euro remains a sell based on fundamentals and positioning. COT data shows dealers short 161,726 contracts, though asset manager longs suggest watching for potential short squeezes.
Canadian Dollar: Weak Oil and Policy Pressure Bearish Outlook
The dominant theme over the past seven weeks has been BOC easing, with the January 29th rate cut to 3.00%. The past week's narrative centered on expectations of a 0.4% retail sales decline in January.
The emerging theme is political uncertainty following Trudeau's resignation announcement. This week's focus has been on potential policy implications and economic impact.
Looking ahead, the combination of weak oil prices below $71.8/barrel, political uncertainty, and monetary easing suggests continued pressure on the Canadian dollar. Upcoming GDP data will be crucial for currency direction.
The loonie warrants a hold position despite bearish fundamentals. COT data shows asset managers short 172,680 contracts, suggesting limited room for further selling.
Economic Indicators (Next 7 Days)
Feb 28: GDP Growth Rate Annualized (Q4)
Previous: 1.00%
Impact: Critical for BOC policy path
Feb 28: GDP Growth Rate QoQ (Q4)
Previous: 0.30%
Impact: Key for assessing economic momentum
New Zealand Dollar: Very Weak Fundamentals Support Very Bearish Outlook
The dominant theme over the past seven weeks has been the RBNZ's aggressive monetary easing cycle, culminating in the February 19th OCR cut to 3.75%. The past week's narrative focused on the trade deficit data, which showed a significant deterioration to NZ$-0.486B against expectations of NZ$0.225B.
The emerging theme is potential economic stabilization, highlighted by the Services PMI expansion to 50.4 in January, marking the first expansion after ten consecutive months of contraction. This week's focus has been on assessing whether this represents a genuine turning point.
Looking ahead, the combination of RBNZ easing, confirmed technical recession (-1.0% GDP in Q3), and global uncertainties suggests continued pressure on the NZD. However, recent Services PMI improvement warrants monitoring for signs of economic recovery.
The kiwi remains a strong sell based on fundamentals and positioning. COT data shows dealers long 62,179 contracts versus asset managers short 52,919 contracts, indicating potential for further downside.
Australian Dollar: Weak Fundamentals Support Bearish Outlook
The dominant theme over the past seven weeks has been the RBA's shift to monetary easing, with the February 18th rate cut to 4.10%. The past week's narrative centered on strong employment data, with 44,000 jobs added versus 20,000 forecast.
The emerging theme is labor market resilience, with unemployment holding at 4.1%. This week's focus has been on assessing whether this strength can persist amid monetary easing.
Looking ahead, the combination of RBA easing, Chinese economic concerns, and commodity market volatility suggests continued pressure on the AUD. However, labor market strength could provide some support.
The aussie warrants a hold position despite bearish fundamentals. COT data shows asset managers short 87,989 contracts versus long 45,658, suggesting potential for short covering on positive data.
Market Outlook and Key Focus Areas
The coming week presents a complex trading environment dominated by central bank policy divergence and crucial economic data releases. Key takeaways include:
Focus on GDP readings to gauge policy impact
Monitor German election results for EUR direction
Watch BOJ commentary for signs of further policy normalization
Track safe-haven flows amid ongoing geopolitical tensions
Observe commodity price impacts on AUD and CAD
Top Economic Indicators:
Feb 27: Swiss GDP (Q4) - Important for CHF safe-haven status
Feb 28: Canadian GDP (Q4) - Key for BOC easing trajectory
Feb 28: Core PCE Price Index (US, Jan) - Crucial for Fed outlook
Sources
Federal Reserve, ECB, BOJ, BOE, RBA, RBNZ, SNB, BOC, Bloomberg, Reuters, Trading Economics, Financial Juice.