Your Guide to Navigating the Markets as Trump Second Reign Begins
What to Buy and What to Sell
Monday, January 20, 2025, Week 4
The Forex market begins 2025 amidst a complex interplay of diverging central bank policies, geopolitical uncertainty, and evolving economic data. The US dollar's strength persists, fueled by the Fed's hawkish tilt. Meanwhile, other major central banks maintain easing biases, creating volatility and opportunities for traders. Geopolitical risks, stemming from the incoming Trump administration's trade policies and ongoing tensions with China, add another layer of complexity. This week's economic calendar features key data releases, including US inflation figures and the Bank of Canada's rate decision. These releases will be crucial in shaping market expectations and driving currency movements. The Bank of Japan's policy meeting is also a focal point, with the market anticipating a potential shift towards normalization.
USD (Very Strong - Very Bullish): Hawkish Fed, robust US economy, and safe-haven demand support the dollar's strength. (Rating: No change).
JPY (Strong - Bullish): Expectations of a BOJ policy shift and a moderately recovering economy drive the Yen higher. (Rating: No change).
CHF (Moderately Strong - Moderately Bearish): Safe-haven appeal supports the CHF, but the SNB's dovish stance and potential intervention limit upside. (Rating: Downgraded from Strong - Moderately Bullish).
EUR (Weak - Bearish): ECB's dovish stance, political uncertainty, and a stronger USD weigh on the Euro. (Rating: No change).
GBP (Weak - Bearish): BoE's cautious approach, sluggish growth, and persistent inflation pressure the GBP. (Rating: No change).
AUD (Weak - Bearish): Cautious RBA, weak domestic data, China concerns, and a stronger USD contribute to a bearish AUD outlook. (Rating: No change).
CAD (Weak - Bearish): Dovish BoC, slowing growth, political uncertainty, and potential US tariffs weigh on the CAD. (Rating: Downgraded from Moderately Weak - Bearish).
NZD (Very Weak - Very Bearish): Recession, aggressive RBNZ easing, and external headwinds create a very bearish NZD outlook. (Rating: No change).
USD: Dollar Dominance Continues Amid Fed Hawkishness and Trump Uncertainty
The US dollar (USD) maintains its Very Strong fundamental rating and Very Bullish sentiment outlook. The Federal Reserve's hawkish shift, signaling fewer-than-expected rate cuts in 2025, is a primary driver. Robust US economic data, including the strong December jobs report, further bolsters the dollar's appeal. Safe-haven demand amid global uncertainties adds another layer of support. The potential for fiscal stimulus and tariffs under the incoming Trump administration also contributes to the bullish outlook.
Over the past six weeks, the USD has outperformed other major currencies, propelled by the Fed's hawkish policy divergence and the resilient US economy. In the past ten days, the dollar rallied to two-year highs, supported by strong jobs data and safe-haven demand. The inauguration of President-elect Trump on January 20th is a key event for the upcoming ten days and the next six weeks. The market will be closely watching for the potential implementation of his trade and fiscal policies, which could significantly impact the USD. Key economic data releases in the upcoming ten days, such as US inflation data and retail sales figures, will also influence the Fed's policy path and, consequently, the USD's trajectory.
US stock markets saw volatility in the past ten days. Initial rallies driven by tech stocks faded as stronger-than-expected jobs data raised concerns about the Fed potentially delaying rate cuts. The S&P 500 ultimately ended the week with a 3.4% gain, reaching its highest close since November. The Nasdaq 100 also performed well, gaining 3.9%. US Treasury yields surged, with the 10-year yield hitting an eight-month high of 4.73% before closing around 4.63%. Oil prices fluctuated, influenced by weather and a stronger USD, settling at $77.89 per barrel on January 17th. The US Dollar Index (DXY) reached a 25-month high above 109. Trading Economics forecasts the DXY to trade at 109.45 by the end of Q1 2025 and 112.50 in 12 months.
Jan 20: US Inauguration Day (Event). Markets may react to policy announcements or unexpected events.
Jan 24: US Existing Home Sales (DEC). Forecast: 4.1M. Stronger data could boost housing market confidence and support the USD.
Jan 28: US Durable Goods Orders MoM (DEC). Forecast: 1.20%. A positive figure signals manufacturing strength, potentially supporting the USD.
Jan 29: US Fed Interest Rate Decision. A hawkish stance could strengthen the USD.
Jan 29: US Fed Press Conference. Powell's comments will be scrutinized for policy clues.
Jan 30: US GDP Growth Rate QoQ Adv (Q4). Forecast: 2.70%. Stronger growth supports the USD.
Jan 31: US Core PCE Price Index MoM (DEC). Forecast: 0.30%. A higher reading could raise inflation concerns and support the USD.
Jan 31: US Personal Income MoM (DEC). Forecast: 0.10%. Stronger income growth could boost spending and the USD.
Jan 31: US Personal Spending MoM (DEC). Forecast: 0.50%. Robust spending reinforces a strong economy, supporting the USD.
Thesis: Buy USD due to the Fed's hawkish policy, robust data, and potential fiscal stimulus.
CAD: Loonie Limps Lower as Trudeau's Exit and US Tariffs Loom
The Canadian dollar (CAD) maintains a Weak fundamental rating and a Bearish sentiment outlook. The Bank of Canada's (BoC) dovish stance, slowing economic growth, political uncertainty after Trudeau's resignation, and the potential impact of US trade policies are all contributing to the CAD's weakness.
The CAD has underperformed over the past six weeks, weighed down by the BoC's dovish tilt and concerns about the Canadian economy. Trudeau's unexpected resignation on January 6th exacerbated the decline in the past ten days, injecting significant political uncertainty. The upcoming ten days will be crucial for the CAD, with the BoC's rate decision and inflation data release taking center stage. Over the next six weeks, the political landscape following Trudeau's departure and the evolving US trade policy under the Trump administration will be key drivers of CAD sentiment.
The TSX showed mixed performance over the past ten days, influenced by the BoC's recent rate cut and fluctuating commodity prices. Canadian government bond yields were volatile, initially rising on political uncertainty before stabilizing. Oil prices, a key driver of the Canadian economy, also saw volatility, influenced by weather and a stronger USD. The USD/CAD pair hit a near five-year high of 1.45, reflecting the CAD's weakness. Trading Economics forecasts the USD/CAD at 1.45 this quarter and 1.48 in a year.
Jan 21: CA Inflation Rate YoY (DEC). Forecast: 1.70%. Lower inflation could reinforce the BoC's dovish stance, weighing on the CAD.
Jan 29: CA BoC Monetary Policy Report. This report will offer insights into the BoC's economic and inflation outlook.
Jan 29: CA BoC Interest Rate Decision. The market anticipates a potential rate cut, a move that would likely weaken the CAD.
Thesis: Sell CAD due to the BoC's dovish stance, weak data, political uncertainty, and potential further rate cuts.
GBP: Sterling Struggles Amid BoE Caution and Brexit Uncertainty
The British Pound (GBP) maintains a Weak fundamental rating and a Bearish sentiment outlook. The Bank of England's (BoE) cautious approach, sluggish economic growth, persistent inflation, and the uncertain impact of the new Labour government's policies are all contributing to the GBP's weakness.
Over the past six weeks, the GBP has underperformed, driven by the BoE's cautious stance and concerns about the UK economy. The past ten days saw the GBP's decline accelerate, influenced by weak domestic data, including a contraction in October GDP and disappointing retail sales figures, and a broadly stronger US dollar. The upcoming ten days will be crucial for the GBP, with the release of key economic data, including the Gfk consumer confidence survey and flash PMI figures for January. Over the next six weeks, the BoE's policy path and the evolving political and economic landscape in the UK will be key drivers of GBP sentiment.
The FTSE 100 saw modest gains over the past ten days, closing at 8,150 on January 17th, a 0.8% increase for the week. UK government bond (gilt) yields surged, with the 10-year yield reaching 4.84%, its highest level since 2008. This reflects growing concerns about the UK's fiscal outlook and persistent inflation. The GBP/USD fell to its lowest level since late 2023, closing at $1.2165 on January 17th. Trading Economics forecasts the GBP to trade at 1.24 by the end of Q1 2025 and weaken further to 1.20 in 12 months.
Jan 21: GB Unemployment Rate NOV
Jan 24: GB Gfk Consumer Confidence (JAN). Forecast: -18. Weaker consumer confidence could further weigh on the GBP.
Jan 24: GB S&P Global/CIPS UK Manufacturing PMI Flash (JAN). Forecast: 47.1. A reading below 50 suggests continued contraction in manufacturing.
Jan 24: GB S&P Global/CIPS UK Services PMI Flash (JAN). Forecast: 50.6. A reading above 50 would indicate continued expansion in the service sector, but a weaker reading could raise concerns.
Thesis: Sell GBP due to the BoE's cautious stance, weak economic data, persistent inflation, and Brexit uncertainty.
EUR: Euro Under Pressure as ECB Eases and Political Risks Rise
The Euro (EUR) maintains a Weak fundamental rating and a Bearish sentiment outlook. The European Central Bank's (ECB) dovish monetary policy stance, characterized by a key interest rate of 3.15% and the possibility of further easing, is a primary driver of the EUR's weakness. The Eurozone economy is sending mixed signals, with projected growth of just 0.7% for 2024 and persistent weakness in the manufacturing sector, although the services sector shows some signs of recovery. Political uncertainty in key member states like France and Germany, following the collapse of the French government and the German Chancellor's loss of a confidence vote, adds another layer of complexity. This raises concerns about the region's ability to implement cohesive economic policies. The ongoing war in Ukraine and its impact on energy security, as well as the potential for renewed trade tensions with the US under the incoming Trump administration, further contribute to the uncertain outlook.
Over the past six weeks, the EUR has underperformed, driven by the ECB's dovish stance and concerns about the Eurozone's economic and political landscape. The past ten days saw the EUR initially strengthen on hopes of a softer US tariff approach, but these gains were short-lived. The currency faced renewed pressure, falling back towards the $1.03 mark, influenced by the ECB's dovish stance, weak German economic data, and persistent political uncertainty. In the upcoming ten days, the market will focus on the ECB's policy meeting and the release of Q4 GDP data. Over the next six weeks, the political landscape in Germany and France, particularly the upcoming snap elections in Germany, and the evolving US trade policy will be key drivers of EUR sentiment.
European stock markets showed mixed performance over the past ten days, with initial rallies in the tech and auto sectors fading later in the week. Eurozone bond yields rose, reflecting growing concerns about persistent inflation and the possibility of a slower pace of rate cuts by the ECB. The German 10-year Bund yield hit a six-month high of 2.6% on January 10th. The EUR/USD fell to a four-week low, closing at $1.0272 on January 17th. Trading Economics forecasts the EUR/USD to trade at 1.03 by the end of Q1 2025 and 1.00 in 12 months.
Jan 30: EA GDP Growth Rate QoQ Flash (Q4). Forecast: 0.30%. Weaker-than-expected GDP growth would reinforce the bearish outlook for the EUR.
Jan 30: EA Unemployment Rate (DEC). Forecast: 6.50%. A rising unemployment rate would add to concerns about the Eurozone economy.
Jan 30: EA Deposit Facility Rate. Any change to the rate could signal a policy shift.
Jan 30: EA ECB Interest Rate Decision. Forecast: 2.90%. A rate cut would likely weaken the EUR.
Jan 30: EA ECB Press Conference. Lagarde's comments will be closely watched for policy clues.
Thesis: Sell EUR due to the ECB's dovish stance, weak data, political uncertainty, and monetary policy divergence with the Fed.
CHF: Franc Finds Footing as Safe Haven Amid Global Uncertainty
The Swiss Franc (CHF) presents a mixed picture, with a Moderately Strong fundamental rating but a Moderately Bearish sentiment outlook. The currency's safe-haven appeal, driven by global uncertainties such as the political turmoil in South Korea and France, and US-China trade tensions, provides underlying support. However, the Swiss National Bank's (SNB) dovish monetary policy stance, marked by the surprise 50 basis point rate cut to 0.5% in December, limits the CHF's upside potential. The SNB's substantial foreign exchange reserves and its willingness to intervene in the forex market to curb excessive CHF appreciation add another layer of complexity.
Over the past six weeks, the CHF has seen periods of both strength and weakness, influenced by safe-haven flows and the SNB's aggressive rate cut. In the past ten days, the CHF has been relatively stable, supported by its safe-haven status amid renewed global market volatility. Looking ahead, the interplay between safe-haven demand, SNB policy, and global economic developments will be key drivers of CHF sentiment. In the upcoming ten days, the market will be closely watching for any signals from the SNB regarding future policy moves, as well as any shifts in the geopolitical landscape. Over the next six weeks, the focus will remain on the SNB's policy path and the evolution of global risk sentiment.
The Swiss stock market (SMI) demonstrated relative stability over the past ten days, reflecting the CHF's safe-haven appeal. Swiss bond yields declined, further supporting the Franc as investors sought safety. The Commitment of Traders (COT) report as of January 14, 2025, showed a mixed positioning in CHF futures. Leveraged funds increased their net short positions, indicating a bearish outlook, while dealer intermediaries slightly increased their long positions, and asset managers reduced their short positions. This suggests some divergence in views among different trader categories regarding the CHF's near-term trajectory. Trading Economics forecasts the USD/CHF to trade at 0.89 by the end of Q1 2025 and 0.90 in 12 months.
Jan 30: CH Balance of Trade (DEC). Forecast: CHF 1.7B. A wider surplus could support the CHF.
Jan 30: CH KOF Leading Indicators (JAN). This indicator offers insights into the Swiss economy's future direction.
Jan 31: CH Retail Sales YoY (DEC). Forecast: 3%. Stronger retail sales could signal improving consumer demand and potentially support the CHF.
Thesis: Hold CHF. Safe-haven demand and SNB easing create a balanced risk/reward scenario.
JPY: Yen Eyes BOJ Policy Shift as Inflation Persists
The Japanese Yen (JPY) maintains a Strong fundamental rating and a Bullish sentiment outlook. Expectations of a Bank of Japan (BOJ) policy shift towards normalization, fueled by persistent inflation above the BOJ's 2% target and a moderately recovering economy, are the primary drivers of the Yen's strength. The market is pricing in a potential rate hike at the BOJ's upcoming meeting on January 23-24, which would likely lead to further JPY appreciation.
Over the past six weeks, the JPY has appreciated significantly, driven by the anticipation of a BOJ policy shift. The past ten days saw the JPY fluctuate, influenced by speculation surrounding the BOJ's policy intentions and broader global market dynamics. The upcoming ten days will be crucial for the JPY, with the BOJ's policy meeting, outlook report, and Summary of Opinions taking center stage. Over the next six weeks, the BOJ's policy path and the performance of the Japanese economy will be key drivers of JPY sentiment.
Japanese stocks (Nikkei 225 and Topix Index) fell for a third consecutive week, closing at 38,451 and 2,679, respectively, on January 10th. This decline was influenced by losses on Wall Street and speculation about a potential BOJ rate hike. The 40-year JGB yield rose to its highest level since its introduction in 2007, driven by a global debt selloff and anticipation of potential future BOJ rate hikes. The 10-year JGB yield also increased, reaching 1.21% on January 17th. China's short-term interbank lending rates fell after the PBOC injected liquidity into the banking system. China's top securities regulator announced plans to stabilize the market. Trading Economics forecasts the Japanese Yen to trade at 159.99 by the end of this quarter. The USD/JPY closed at 156.3080 on Friday, January 17th.
Jan 23: JP Balance of Trade (DEC). Forecast: ¥100B. Narrower deficit to support the JPY.
Jan 24: JP Inflation Rate YoY (DEC). Forecast: 3.00%. Higher inflation could reinforce the BOJ's hawkish tilt.
Jan 24: JP BoJ Interest Rate Decision. Forecast: 0.50%. A rate hike would likely strengthen the JPY.
Jan 24: JP BoJ Press Conference. Ueda's comments will be scrutinized for policy clues.
Jan 24: JP BOJ Summary of Opinions. To provide insights into the BOJ's policy direction.
Jan 29: JP Consumer Confidence (JAN). Stronger confidence could support the JPY.
Thesis: Buy JPY based on the increasing likelihood of a BOJ policy shift, persistent inflation, and a moderately recovering economy. Be mindful of "buy the rumor, sell the fact."
AUD: Aussie Awaits RBA Signals as China Concerns Linger
The Australian Dollar (AUD) maintains a Weak fundamental rating and a Bearish sentiment outlook. A cautious Reserve Bank of Australia (RBA), weak domestic data, concerns about the Chinese economy (a key trading partner), and a stronger US dollar all contribute to this bearish outlook.
The AUD has been under pressure for the past six weeks, driven by the RBA's dovish tilt and concerns about the global economic outlook. Weaker-than-expected Q3 GDP growth and dovish commentary from RBA officials fueled the decline. Over the past ten days, the AUD weakened towards one-year lows, influenced by the release of the dovish RBA meeting minutes and a resurgent USD. In the upcoming ten days, the market will focus on the release of the NAB business confidence survey and Q4 inflation data. Over the next six weeks, the RBA's policy path and the performance of the Chinese economy will be key drivers of AUD sentiment.
The ASX 200 experienced volatility over the past ten days, reaching a near four-week low before rebounding slightly. The Australian 10-year bond yield initially fell to a seven-week low before recovering somewhat on the prospect of stronger jobs data. Iron ore prices fluctuated, while coal prices declined amid weaker demand from China. The AUD/USD pair closed at 0.6191 on January 17th. Trading Economics forecasts the AUD/USD to trade at 0.61 by the end of this quarter and 0.59 by the end of the year.
Jan 28: AU NAB Business Confidence (DEC). Weaker business confidence could weigh on the AUD.
Jan 29: AU Inflation Rate YoY (Q4). Forecast: 2.20%. Lower-than-expected inflation could reinforce the RBA's dovish stance.
Thesis: Sell AUD due to the RBA's cautious stance, weak domestic data, China concerns, and commodity price uncertainty.
NZD: Kiwi Crumbles as Recession Deepens and RBNZ Easing Looms
The New Zealand Dollar (NZD) maintains a Very Weak fundamental rating and a Very Bearish sentiment outlook. The confirmed technical recession, aggressive easing by the Reserve Bank of New Zealand (RBNZ), weak domestic demand, and external headwinds all contribute to this negative outlook.
The NZD has been the worst-performing major currency over the past six weeks, driven by the RBNZ's aggressive easing cycle and the deteriorating economic outlook. The NZD/USD has plummeted to two-year lows, reflecting the deep pessimism surrounding the New Zealand economy. Over the past ten days, the NZD continued its decline, pressured by the dominant narrative of a struggling economy requiring substantial monetary stimulus. While some positive signs have emerged, such as improving consumer confidence and a narrowing trade deficit, these have been overshadowed by the broader concerns about the recession and weak domestic demand. In the upcoming ten days, the market will focus on the release of Q4 inflation data. Over the next six weeks, the RBNZ's monetary policy stance, economic data releases, and global risk sentiment will be crucial in determining the NZD's trajectory.
The NZX 50 experienced volatility over the past ten days, reflecting domestic economic concerns and global risk sentiment. The NZD/USD fell to 0.5584 on January 17th, approaching its two-year low. Trading Economics forecasts the NZD/USD to trade at 0.55 by the end of this quarter and 0.53 in 12 months. The Commitment of Traders (COT) report as of January 14, 2025, indicated a bearish bias towards the NZD, with asset managers and leveraged funds holding substantial net short positions.
Jan 21: NZ Inflation Rate QoQ (Q4). Forecast: 0.50%. Lower-than-expected inflation could reinforce the RBNZ's dovish stance and weigh on the NZD.
Jan 29: NZ Balance of Trade (DEC). Forecast: NZ$ -0.34B. A wider-than-expected trade deficit could further weaken the NZD.
Jan 30: NZ ANZ Business Confidence (JAN). Weaker business confidence could add to the bearish sentiment.
Thesis: Sell NZD due to the confirmed recession, aggressive RBNZ easing, weak domestic demand, and the uncertain global economic environment.
Concluding the Report
This week's Forex landscape is defined by a confluence of influential factors. The persistent divergence in central bank policies, with the hawkish Federal Reserve standing in stark contrast to the easing biases of other major central banks, will continue to be a primary driver of currency movements. The US dollar's strength is expected to persist, while the Japanese yen's potential for appreciation hinges on the Bank of Japan's upcoming policy decisions. Geopolitical uncertainty, particularly surrounding the inauguration of President-elect Trump and the potential ramifications of his trade policies, adds another layer of complexity to the market.
What to Watch
Jan 20: US Inauguration Day (Event). Market reactions are possible based on policy pronouncements or unforeseen developments.
Jan 21: NZ Inflation Rate QoQ (Q4). Forecast: 0.50%. Weaker-than-forecast inflation could reinforce the RBNZ's dovish stance and weigh on the NZD.
Jan 21: CA Inflation Rate YoY (DEC). Forecast: 1.70%. A lower-than-expected reading could signal further BoC easing and CAD weakness.
Jan 24: GB Gfk Consumer Confidence (JAN). Forecast: -18. A decline in consumer confidence could add to the bearish sentiment surrounding the GBP.
Jan 24: JP BoJ Interest Rate Decision. Forecast: 0.50%. A rate hike could significantly strengthen the JPY, while a hold could trigger some weakness.
Sources
Bloomberg, Reuters, Trading Economics, ForexLive, Federal Reserve, ECB, BOJ, BOE, RBA, RBNZ, SNB, BOC, US Bureau of Labor Statistics, Eurostat, Statistics Canada, Australian Bureau of Statistics, Statistics New Zealand, Swiss Federal Statistical Office, Office for National Statistics, Cabinet Office Japan, Ministry of Internal Affairs and Communications, Ministry of Finance Japan.