USD/CHF remains under pressure as the Swiss franc benefits from safe-haven inflows amid ongoing geopolitical tensions.
The pair trades near 0.7720 in Asian session dealings on Thursday, holding in negative territory after trimming earlier losses. The franc draws support from persistent strains between the United States and Iran, as well as stalled Russia-Ukraine negotiations. Investors are also looking ahead to Switzerland’s Trade Balance and Industrial Production figures due later in the day.
Additional support for the Swiss currency stems from expectations that the Swiss National Bank (SNB) will keep policy accommodative in the near term. January inflation in Switzerland came in at 0.1%, staying at the lower edge of the SNB’s 0–2% target band and matching its first-quarter forecasts, reinforcing market views.
SNB President Martin Schlegel recently noted that the central bank can tolerate brief periods of negative inflation while prioritizing medium-term price stability, adding that the threshold for a return to negative interest rates remains high.
Still, downside in USD/CHF may be limited as the US dollar stabilizes after rising more than 0.5% in the previous session, supported by hawkish Federal Reserve meeting minutes. The January FOMC minutes rekindled expectations that rates could be raised again if inflation remains persistent. While most policymakers favored keeping rates unchanged, only a small number supported cuts, and officials indicated a willingness to ease policy should inflation moderate as anticipated.
U.S. stock futures drifted near the flatline Tuesday as investors braced for a wave of economic data and corporate earnings in a holiday-shortened week.
As of 03:04 ET, Dow futures were down 26 points (0.1%), S&P 500 futures slipped 11 points (0.2%), and Nasdaq 100 futures dropped 99 points (0.4%). Wall Street’s main indexes were closed Monday for a public holiday.
Markets ended Friday mixed, with investors weighing the broader impact of new artificial intelligence models and questioning whether heavy AI infrastructure spending will generate strong returns for mega-cap tech firms. At the same time, cooler-than-expected U.S. consumer price data for January fueled expectations that the Federal Reserve could bring forward its next interest rate cut after pausing its easing cycle last month. The tech-heavy Nasdaq Composite edged down 0.2%, while the S&P 500 and Dow Jones Industrial Average posted gains.
Crude prices steady ahead of U.S.-Iran negotiations
In commodities, Brent crude ticked lower ahead of planned talks between the U.S. and Iran in Geneva over Tehran’s nuclear enrichment program. A firmer dollar, ahead of key economic releases and signals from the Fed, also weighed on oil prices. Brent for April delivery fell 0.7% to $68.13 a barrel, while West Texas Intermediate futures rose 0.6% to $63.11, with the move partly influenced by Monday’s U.S. market holiday.
U.S. and Iranian officials are scheduled to meet in Switzerland on Tuesday amid elevated tensions in the Middle East, as Washington increases its regional military presence. President Donald Trump has repeatedly warned of potential military action if Iran declines a U.S.-backed agreement.
Trading activity was subdued across Asia due to Lunar New Year holidays in China, Hong Kong, Taiwan, South Korea, and Singapore.
Gold declines
Gold prices moved lower Tuesday, with silver also retreating, as traders stayed cautious ahead of a slate of U.S. economic data due this week.
At 03:09 ET, spot gold fell 1.4% to $4,919.72 an ounce, while April gold futures dropped 2.2% to $4,941.74. Spot silver slid 2.0% to $75.0925 per ounce, whereas platinum edged up 0.2% to $2,024.79.
Precious metals have been volatile in recent weeks, posting sharp swings and remaining well below their late-January highs.
Investor focus is shifting to upcoming U.S. economic releases, along with minutes from the January meeting of the Federal Reserve, when policymakers kept interest rates unchanged at 3.5% to 3.75%.
U.S. industrial production figures are scheduled for release on Wednesday, followed by Friday’s PCE price index report — one of the Fed’s key measures of inflation.
Palo Alto Networks earnings ahead
Attention is also turning to results from Palo Alto Networks, due after U.S. markets close Tuesday, which could offer further insight into the outlook for tech firms grappling with rising competition from newly launched AI models.
The California-based cybersecurity group raised its full-year revenue and profit guidance in November, pointing to strong demand for its digital security solutions amid growing online threats.
Palo Alto also unveiled a $3.35 billion acquisition of cloud management and monitoring firm Chronosphere, saying it plans to fold the business into its Cortex AgentiX platform. The integration is designed to allow Palo Alto’s AI agents to leverage Chronosphere’s data to identify performance bottlenecks and pinpoint root causes more effectively.
Together with a separate agreement to acquire identity security specialist CyberArk Software, the Chronosphere transaction is slated to be finalized in the second half of Palo Alto’s fiscal 2026.
Nikkei extends slide
Japan’s benchmark Nikkei 225 slipped again, adding to Monday’s losses after data showed the country’s economy grew far less than expected in the fourth quarter.
Official figures revealed that gross domestic product expanded at an annualized rate of 0.2% in the October–December period — well below forecasts of 1.6%. Still, the reading marked a rebound from the prior quarter, when the world’s fourth-largest economy contracted by 2.6%.
The weak data highlights the economic hurdles facing Prime Minister Sanae Takaichi following her sweeping election victory earlier this month. While she appears to have secured a mandate to implement stimulus measures aimed at boosting growth, her government must contend with persistent cost-of-living pressures that continue to dampen domestic demand.
Adding to the complexity is the stance of the Bank of Japan, where policymakers are working to address stubborn inflation and yen weakness. Officials have indicated they intend to continue raising interest rates after years of ultra-loose monetary policy.
EUR/USD is slipping for a fifth consecutive session, though it continues to trade above the crucial 20-day SMA. Momentum indicators remain in positive-to-neutral territory, with the RSI hovering slightly above its midpoint and flattening, while the MACD stays above zero but just below its signal line — a sign that upside momentum has eased without fully turning bearish.
The pair is stabilizing around 1.1865, extending its retreat from the 1.1900 area even as the US dollar softened on Friday following weaker inflation data that strengthened expectations of Fed rate cuts. Trading conditions are relatively quiet on Monday due to the US President’s Day holiday.
If price rebounds from the short-term ascending trendline and breaks above the 38.2% Fibonacci retracement of the January 27–February 6 decline at 1.1885, the next resistance could appear near 1.1923, which aligns with the 50% Fibonacci level and recent monthly highs. A stronger push higher may target the 1.1960–1.1974 zone, just beneath the key 1.2000 mark — the highest level since mid-2021.
On the downside, further weakness could bring the pair back toward the 20-day SMA near the 23.6% Fibonacci level at 1.1839. Below that, attention would shift to the 1.1800–1.1820 area, followed by the February 6 low of 1.1765, which sits just above the 50-day SMA.
Overall, despite the recent pullback, the near-term outlook remains constructive as long as EUR/USD holds above the 20-day SMA, with the 50-day SMA acting as stronger support in case of a deeper correction.
The US dollar initially weakened against the Canadian dollar earlier in the week, slipping toward the 1.35 level before rebounding and showing renewed strength. This recovery is shaping a potential weekly hammer pattern. A break above the 1.3750 level could pave the way for further gains toward 1.40. Overall, the pair is likely to remain range-bound, continuing to trade within the broad sideways band that has held for more than a year.
EUR/USD
The euro climbed at the start of the week but now appears to be losing momentum, struggling to hold on to its gains. Traders are likely assessing whether the broader uptrend can be sustained. With the US dollar having been oversold against several currencies, the euro often serves as a key gauge for the greenback’s next move. Even if the pair breaks higher, the measured move from the prior consolidation range indicates that the upside may be limited to around 1.23.
GBP/USD
The British pound advanced early in the week but later surrendered roughly half of those gains amid continued choppy trading. The 1.3750 level remains a key area to monitor, as a decisive break above it could clear the path toward 1.39. On the downside, a pullback would likely find support around 1.35, followed by 1.33 if selling pressure intensifies. Overall, the US dollar appears to be regaining some strength.
USD/MXN
The US dollar has weakened further against the Mexican peso, with the pair appearing to drift toward the 17.00 level. A decisive break below that mark could open the door to a move toward 16.50. On the upside, any rebound is likely to face significant resistance around 17.50. That said, the pair may ultimately settle into a consolidation phase, similar to the range observed at this level in late 2023.
Silver
Silver remains highly erratic, with the week producing a volatile yet ultimately neutral candlestick. The $80 level appears to act as a pivot point and a magnet for price action. Strong support is seen near $70, while $90 stands out as a key resistance zone. Overall, the market is likely to continue exhibiting choppy and unpredictable movements.
Gold
Gold also moved in a back-and-forth manner throughout the week, with the $5,000 level emerging as a potential price magnet. A sustained break above $5,000 could signal the start of a stronger upward move. However, recent candlestick patterns tell a mixed story: a prominent Shooting Star formed a couple of weeks ago, followed by a hammer, suggesting ongoing uncertainty and likely consolidation. Still, the longer price holds near the $5,000 mark, the more it may indicate underlying bullish strength.
USD/CHF
The US dollar has declined against the Swiss franc, though the 0.76 level appears to be providing solid support. If the pair rebounds from this area, it could move toward the 0.79 level, which stands out as significant resistance. Overall, the market remains sensitive to potential action from the Swiss National Bank, and the risk of intervention if the franc strengthens too much makes taking short positions less appealing at this stage.
USD/JPY
The US dollar dropped sharply against the Japanese yen over the week and is now testing its 50-week EMA. A rebound from this area could see the pair target ¥156, with ¥158 as the next potential objective. On the longer-term charts, the ¥160 level—where price pulled back a few weeks ago—remains a significant resistance zone dating back to 1990.
Although this week’s candlestick appears bearish, there are likely plenty of buyers waiting below. It may simply be a matter of allowing the market to stabilize before considering fresh long positions. For now, it’s a pair worth monitoring closely, but staying on the sidelines seems prudent.
Here’s what you need to know for Monday, February 16:
Major currency pairs begin the week trading within established ranges, as investors remain cautious ahead of several key events and important macroeconomic releases scheduled for later in the week. In Europe, December Industrial Production figures are due on Monday. Meanwhile, US stock and bond markets are closed for the Presidents Day holiday.
The US Dollar Index ended last week on a softer note, as below-forecast inflation data prevented the greenback from gaining momentum before the weekend. According to the US Bureau of Labor Statistics, annual Consumer Price Index (CPI) inflation slowed to 2.4% in January from 2.7% in December, undershooting expectations of 2.5%. Early Monday, the USD Index is moving sideways around the 97.00 mark during European trading hours.
Early Monday, CBS News reported—citing two sources—that US President Donald Trump told Israeli Prime Minister Benjamin Netanyahu he would back Israeli strikes targeting Iran’s ballistic missile program. So far, markets have shown little reaction, with West Texas Intermediate crude trading largely flat near $62.80 per barrel.
EUR/USD remains in consolidation mode, hovering just above 1.1850 after ending last week slightly higher. European Central Bank policymaker Joachim Nagel is expected to speak later in the day.
In Asia, Japan’s data showed that fourth-quarter Gross Domestic Product (GDP) expanded at an annualized rate of 0.2%, rebounding from a 2.6% contraction in the prior quarter but missing the 1.6% growth forecast. After dropping nearly 3% last week, USD/JPY is recovering modestly, up 0.4% on the day to trade near 153.30.
AUD/USD trades in a tight range below 0.7100 in European hours. The Reserve Bank of Australia will release minutes from its February meeting early Tuesday, when it raised the policy rate by 25 basis points to 3.85%.
Gold surged on Friday and closed the week higher, though XAU/USD is struggling to maintain upward momentum and is trading below the $5,000 level on Monday morning in Europe.
The UK’s Office for National Statistics is set to publish employment data on Tuesday. GBP/USD remains subdued, edging slightly below 1.3650.
Finally, Statistics Canada will release January CPI data on Tuesday. USD/CAD trades steadily around 1.3600 in European hours after posting modest losses last week.
The US Dollar (USD) posted notable weekly losses, briefly rebounding after stronger-than-expected US jobs data showed 130K new positions added in January and the Unemployment Rate dipping to 4.3% from 4.4%. However, softer January CPI figures pressured the currency.
The US Dollar Index (DXY) slipped to around 96.80 from 97.15 highs as weak inflation data boosted expectations of a Federal Reserve rate cut later this year. Attention now turns to Friday’s release of the December Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation measure.
EUR/USD hovers around 1.1880, erasing earlier losses after Eurozone flash Q4 GDP came in at 1.4% YoY, above the 1.3% forecast. Focus next week includes the Eurogroup Meeting and December Industrial Production on Monday, followed by the EcoFin Meeting and February Eurozone and German ZEW Surveys on Tuesday.
AUD/USD trades near 0.7080, close to a three-year peak, supported by the hawkish stance of the Reserve Bank of Australia. Upcoming data include NAB Business Confidence and the Wage Price Index on Wednesday, then Australian jobs figures and the February flash S&P Global Composite PMI on Thursday.
USD/CAD sits near 1.3600, recovering nearly half of its weekly losses after US inflation data. Markets will watch Canada’s December Retail Sales on Friday.
USD/JPY trades around 152.80 following a sharp sell-off triggered by the election victory of Sanae Takaichi, which raised fiscal policy concerns. Japan’s National CPI is due on Thursday.
GBP/USD holds near 1.3650, with UK Producer Price Index and Retail Price Index data due Wednesday, and Retail Sales scheduled for Friday.
Gold trades around $5,038, rebounding from Thursday’s drop but still below January’s record high of $5,598, as easing geopolitical tensions push investors toward riskier assets.
Looking ahead to the economic outlook: Key voices take center stage.
Saturday, February 14
Christine Lagarde (ECB President)
Sunday, February 15
Christine Lagarde (ECB President)
Monday, February 16
Michelle Bowman (Fed)
Joachim Nagel (ECB)
Tuesday, February 17
José Luis Escrivá (ECB)
Michael Barr (Fed)
Mary Daly (Fed)
Wednesday, February 18
Piero Cipollone (ECB)
Isabel Schnabel (ECB)
Michelle Bowman (Fed)
Thursday, February 19
Piero Cipollone (ECB)
Luis de Guindos (ECB)
Raphael Bostic (Fed)
Michelle Bowman (Fed)
Neel Kashkari (Fed)
Christian Hawkesby (rbnz official)
Friday, February 20
Christine Lagarde (ECB President)
Raphael Bostic (Fed)
Central bank meetings and upcoming economic data releases are set to guide the next moves in monetary policy.
Sunday, February 15
Japan flash Q4 GDP
Tuesday, February 17
Reserve Bank of Australia (RBA) Meeting Minutes
Germany January Harmonized Index of Consumer Prices (HICP)
UK January Claimant Count Change
UK December Employment Change
UK December ILO Unemployment Rate
Canada January CPI
Wednesday, February 18
Reserve Bank of New Zealand (RBNZ) Interest Rate Decision
UK January CPI
Federal Open Market Committee (FOMC) Minutes
Thursday, February 19
Australia January Employment Change
Australia Unemployment Rate
Friday, February 20
UK January Retail Sales
Germany February flash HCOB Composite PMIs
Eurozone PMIs
UK flash February S&P Global PMIs
US December Core Personal Consumption Expenditures (PCE)
MUFG Senior Currency Analyst Lloyd Chan observes that the US dollar remained resilient after stronger-than-expected nonfarm payrolls, though it struggled to build lasting upward momentum as markets question how much further interest rates can shift in a hawkish direction. He points to the January US CPI release as the next major catalyst, noting that only an upside inflation surprise is likely to spark renewed hawkish repricing and support further dollar strength.
CPI surprise seen as key for further gains
Chan explains that while solid payroll data has eased immediate concerns about a sharp slowdown in the labour market, it has not significantly altered the broader macroeconomic outlook. The dollar held steady in the aftermath of the jobs report but failed to generate sustained gains, highlighting investor skepticism over the scope for additional hawkish rate adjustments.
Attention now turns firmly to the upcoming US CPI data, expected to be the primary driver for both rates and currency markets. MUFG’s US strategist forecasts January core CPI to rise 0.25% month-on-month and 2.6% year-on-year, with base effects boosting the annual figure. In contrast, Bloomberg consensus anticipates 2.5% year-on-year for both headline and core inflation.
From a market standpoint, inflation would likely need to exceed expectations to prompt a fresh hawkish repricing of the Federal Reserve’s rate trajectory. If the data meets or falls short of forecasts, markets are likely to stick with expectations of roughly two rate cuts this year, limiting further upside for the dollar.
If you’ve been tracking currency markets, you’ve likely seen the Japanese yen advance for three straight sessions, trading near the 153 JPY/USD level. This move isn’t random—it reflects deeper shifts in forex positioning and strategic reallocations by Japanese investment funds.
Despite stronger-than-expected U.S. employment data, the yen has gained ground. The key driver appears to be a rotation in positioning: Japanese hedge funds and institutional investors have closed out prior bearish bets on the yen and are now positioning for further appreciation. This shift highlights a broader change in sentiment and confidence within the currency market.
What’s Fueling the Move?
The primary catalyst is renewed buying interest from Japanese funds. After unwinding short-yen trades, they are now building long positions, anticipating continued strength. Market perceptions of the Japanese government and the Bank of Japan’s commitment to currency stability are also contributing to this shift.
While U.S. macroeconomic indicators—such as payroll data—often dominate headlines, this episode shows that capital flows and institutional positioning can at times outweigh even strong economic releases.
Authorities Remain Vigilant
Japan’s top foreign exchange official, Junichi Mimura, has emphasized that authorities are closely monitoring currency developments and maintaining active communication with U.S. counterparts. This ongoing dialogue signals a commitment to orderly market conditions.
For traders and investors, this reinforces an important point: currency movements are shaped not only by data, but also by policy signals, market psychology, and cross-border coordination.
Sentiment and USD/JPY Positioning
Recent trends indicate softer demand for USD/JPY hedging, suggesting rising confidence in the yen’s near-term outlook. Shifts in options activity often provide insight into market expectations and potential support or resistance zones.
Whether you’re a short-term trader or a longer-term investor, staying attuned to these sentiment indicators can help refine entry points and risk management strategies.
How to Navigate Yen Volatility
Monitor official communication: Watch statements from Japanese policymakers and central bank officials.
Apply technical analysis: Pay attention to key levels around 153 JPY/USD for potential breakout or reversal signals.
Control risk exposure: Use stop-loss strategies to guard against sharp counter-moves.
Diversify allocations: Avoid overexposure to a single currency pair by balancing across assets.
Why It Matters
The yen’s recent strength reflects more than price action—it represents shifting expectations, institutional flows, and evolving policy narratives. Understanding these dynamics can sharpen your broader market perspective and improve decision-making.
In forex, staying informed is a competitive advantage. By tracking positioning trends, official commentary, and sentiment signals, you can better anticipate market turns and respond with confidence.
Most Asian currencies edged lower on Friday, while the U.S. dollar held steady as investors assessed the interest rate outlook ahead of closely watched U.S. inflation data due later in the session. Despite the day’s softness, many regional currencies were still on track for weekly gains, whereas the dollar continued to reflect broader weekly losses amid uncertainty surrounding U.S. monetary policy.
Japanese yen outperforms on intervention speculation
The Japanese yen emerged as one of the strongest Asian performers this week, supported by rising speculation of potential government intervention in currency markets, which helped investors look beyond concerns about Japan’s fiscal position. The USD/JPY pair ticked up 0.2% on Friday but remained down roughly 2.6% for the week—its strongest weekly showing since November 2024.
The yen’s rally followed a series of hawkish remarks from Japanese officials signaling readiness to intervene, easing worries over elevated fiscal spending under Prime Minister Sanae Takaichi.
Elsewhere, the Australian dollar also posted solid gains, with AUD/USD climbing 1% for the week to a three-year high after hawkish commentary from the Reserve Bank of Australia.
The South Korean won strengthened as well, with USD/KRW down 1.4% on the week, aided by renewed foreign inflows into domestic equities, particularly chipmakers tied to artificial intelligence themes.
China’s yuan saw USD/CNY edge up slightly on Friday but remain 0.4% lower for the week, supported by a series of firm daily midpoint settings from the People’s Bank of China. The currency hovered near a nearly three-year peak reached earlier in the week.
Meanwhile, the Indian rupee was little changed for the week, and the Singapore dollar gained 0.6% against the greenback.
Dollar steady before CPI, but weekly loss likely
The dollar index and its futures posted modest gains during Asian hours Friday, with attention fixed on January’s consumer price index report. Although expectations point to a slight cooling in both headline and core inflation, traders remained cautious about potential upside surprises, especially as January CPI has exceeded forecasts in each of the past four years.
The greenback drew some support earlier in the week from stronger-than-expected nonfarm payrolls data, yet it was still down about 0.7% on a weekly basis. Ongoing uncertainty over U.S. monetary policy—particularly following Kevin Warsh’s nomination as the next Federal Reserve Chair—continued to weigh on the currency.
GBP/USD is hovering around the critical 1.3508 level, where competing Elliott Wave counts are in play. The bullish scenario remains intact above 1.3508, while a sustained move below this level would strengthen the bearish case. A significant directional move is expected once one count clearly takes control.
On January 14, when GBP/USD was trading at 1.3428, we projected a modest pullback followed by a rally to kick off wave (iii). Price action has largely followed that script, although the drop from January 27 to February 6 was deeper than expected. This larger-than-anticipated decline opens the door to a possible revision in our wave interpretation.
GBP/USD Elliott Wave Analysis
We have been accurately tracking the broader GBP/USD structure, anticipating further upside. However, the sharper decline between January 27 and February 6 raises concerns that an alternative pattern may be unfolding. While no Elliott Wave rules have been violated, the structure now warrants closer scrutiny.
Bullish Scenario
The primary bullish view assumes wave (ii) завершed at 1.3339, near the upper boundary of our projected 1.3125–1.3333 reversal zone. Under this interpretation, wave ‘i’ of (iii) advanced to 1.3869 on January 27, and the subsequent decline into February 6 represents wave ‘ii’ of (iii).
The complication lies in the size of this wave ‘ii’ pullback. At 360 pips, it is considerably larger than its higher-degree counterpart wave (ii), which measured only 147 pips. While this does not breach any Elliott Wave rules, it is unusual for a lower-degree correction to significantly exceed the size of its higher-degree equivalent.
Typically, subwaves within an extended wave maintain proportions comparable to higher-degree waves. With this second wave nearly double the size, we must stay alert for an alternative count if GBP/USD continues to weaken.
For the bullish case to remain valid, Cable needs to rebound swiftly and push above 1.39. A retest of the February 6 low at 1.3508 would serve as an early warning that the bullish interpretation may be losing credibility.
Bearish Alternative Scenario
Should GBP/USD break decisively below 1.3508, the bearish alternative would gain traction.
Under this view, wave ‘2’ did not finish at the November low and remains in progress. The January 27 peak would represent wave ((b)) of 2, and the decline since then marks the early stages of wave ((c)) of 2. If this scenario unfolds, the pair could revisit the November support level near 1.3010.
Bottom Line
GBP/USD stands at a pivotal juncture, with both bullish and bearish Elliott Wave scenarios in contention. While the primary outlook favors a strong upward move, a continued slide toward 1.35 would shift focus toward the bearish alternative.
The US Dollar (USD) remains firm against major peers in the latter part of the week, supported by stronger-than-expected January labor market data. On Thursday, market participants will focus on weekly Initial Jobless Claims and January Existing Home Sales figures from the US economic calendar.
According to data released Wednesday by the US Bureau of Labor Statistics, Nonfarm Payrolls increased by 130,000 in January, following December’s upwardly revised gain of 48,000 (from 50,000) and surpassing market forecasts of 70,000. The report also showed the Unemployment Rate easing to 4.3% from 4.4%, while the Labor Force Participation Rate edged up to 62.5% from 62.4%. In response, the USD Index strengthened, climbing toward the 97.30 area. Early Thursday, the index enters a consolidation phase, moving sideways near 97. Meanwhile, US equity futures advance between 0.2% and 0.3%, reflecting an improved risk appetite.
In the UK, data released Thursday indicated that the economy expanded by 0.1% quarter-over-quarter in the three months to December 2025, matching Q3 growth. On an annual basis, GDP rose 1.0% in Q4, below the expected 1.2% and down from the prior quarter’s revised 1.2% (previously 1.3%). Additionally, December Industrial Production and Manufacturing Output declined by 0.9% and 0.5% month-over-month, respectively, both falling short of forecasts. GBP/USD showed little immediate reaction, trading flat near 1.3630.
EUR/USD trades sideways around 1.1870 after ending Wednesday in negative territory. Several European Central Bank (ECB) officials are scheduled to speak later in the day.
USD/JPY continued its weekly decline despite overall USD strength, marking its third consecutive daily loss on Wednesday. The pair extends its drop early Thursday, trading at a two-week low below 153.00.
In Australia, RBA Assistant Governor Sarah Hunter stated Thursday that she expects labor market conditions to remain tight and inflation to stay above target for an extended period. She added that capacity constraints in the economy and labor market will be closely monitored. AUD/USD surged over 0.7% on Wednesday, reaching a fresh three-year high near 0.7150. Although the pair is correcting lower on Thursday, it remains comfortably above 0.7100 in European trading.
Gold struggles to build further upside momentum but holds above the $5,000 level after posting moderate gains the previous session.
Most Asian currencies strengthened on Tuesday, following an overnight pullback in the dollar as its recent rebound lost momentum ahead of a batch of key U.S. economic data due this week. The Japanese yen edged higher, extending prior gains as fresh government warnings on possible market intervention supported the currency, offsetting concerns about heavier fiscal spending under Prime Minister Sanae Takaichi after her landslide election win. Regional FX benefited from the softer dollar, though advances were capped by investor caution ahead of upcoming U.S. data releases.
Dollar steadies after overnight drop, with payrolls and CPI in focus.
The dollar index was little changed in Asian trade after sliding about 0.7% overnight, leaving the greenback hovering near a late-January, almost four-year low. BofA said the absence of fresh catalysts points to choppy, two-way dollar trading with a mild bearish bias ahead of key U.S. data. Markets are now focused on December retail sales due Tuesday, followed by January nonfarm payrolls on Wednesday and CPI inflation on Friday.
The data will be closely scrutinized for signals on interest rates, as markets remain on edge over U.S. monetary policy following President Donald Trump’s nomination of Kevin Warsh to succeed Jerome Powell as Fed chair. Warsh is seen as a less dovish choice, a perception that has already fueled a sharp dollar rebound and weighed on Asian currencies.
Asian currencies firm, with the yen holding on to post-election gains.
Asian currencies broadly strengthened on Tuesday, led by the Japanese yen, with USD/JPY down 0.3%. The yen extended gains for a second session after renewed government warnings on possible currency intervention, helping it shrug off lingering concerns over Japan’s heavy debt burden despite Prime Minister Sanae Takaichi’s landslide victory. Her ruling coalition’s supermajority gives room for expansive fiscal and budget reforms, including higher spending and tax incentives.
Elsewhere, the Chinese yuan rose, with USD/CNY down 0.2% to its strongest level in over 2½ years, supported by firm midpoint settings from Beijing ahead of upcoming CPI data. The Australian dollar slipped 0.1%, paring gains after hawkish RBA comments, while BofA warned the Aussie’s rally may be overextended. The Singapore dollar was flat despite stronger-than-expected Q4 GDP, while the South Korean won and Indian rupee edged higher, though the rupee remained above 90 per dollar.
Japan equities rally: Japanese stocks surged after Prime Minister Sanae Takaichi’s landslide election victory, boosting expectations of higher government spending on defense and AI. The Nikkei jumped as much as 4.2% to a record high, while the Topix rose up to 2.6%, led by gains in electronics and banking stocks.
Gold rebounds: Gold climbed above $5,000 an ounce, rising as much as 1.6% early on as dip buyers returned following a volatile week. The move was supported by Japan’s election outcome, which fueled expectations of looser fiscal policy and a weaker yen—both supportive for bullion. Gold remains about 11% below its Jan. 29 peak but is still up roughly 15% year to date.
Oil slips: Oil prices edged lower as easing Middle East tensions reduced near-term supply disruption risks. Talks between Iran and the U.S. in Oman on Tehran’s nuclear program were described by Iran as “a step forward.”
Asia markets higher: Asian equities opened higher, tracking Friday’s rebound on Wall Street. Stocks jumped in Japan and South Korea, with the Kospi—popular among AI-linked trades—surging 4%. U.S. futures were firmer after the S&P 500 closed about 2% higher on Friday amid dip-buying and improved consumer sentiment.
Algo-driven risks flagged: Goldman Sachs warned that trend-following algorithmic funds could accelerate U.S. equity selling this week. A renewed decline could trigger around $33 billion in automated sales immediately, with a break below 6,707 on the S&P 500 potentially unleashing up to $80 billion more over the next month. Thin liquidity and short-gamma positioning may keep volatility elevated.
AI fears spark selloff: Concerns over AI’s economic impact intensified after Anthropic unveiled new tools, triggering a broad selloff that erased $611 billion in market value across 164 software, financial services, and asset management stocks. Despite the selloff, fundamentals remain intact, with S&P 500 software and services earnings expected to grow 19% in 2026 and valuations becoming more attractive.
Wall Street rebound: U.S. equity futures ticked higher late Sunday after a strong rebound on Friday. Bitcoin jumped following steep losses, the Dow hit a fresh record above 50,000, and the S&P 500 reclaimed its 50-day moving average. The Nasdaq, however, remained below that key level and ended the week notably weaker.
U.S. Economic Data and Corporate Earnings Schedule
Investors are set to focus on the delayed January labor market data, alongside upcoming consumer inflation (CPI) and retail sales releases. The jobs and CPI reports were postponed due to a brief government shutdown last week, while December retail sales figures were also delayed following the 2025 shutdown.
The Federal Reserve continues to view inflation as “somewhat elevated,” with January’s CPI report, due Friday, expected to provide further clarity. As the central bank assesses risks to both inflation and employment as having eased, markets are pricing in no additional rate cuts before the June meeting. By then, Kevin Warsh—President Trump’s nominee for Fed chair—could be in office.
Despite the Fed’s year-end rate cut, futures markets still anticipate roughly two additional 25-basis-point cuts by December, a pricing stance that has remained largely unchanged since Warsh’s nomination last month.
Economic calendar:
Monday, Feb 9 Remarks from Fed officials including Governors Stephen Miran and Christopher Waller, along with Atlanta Fed President Raphael Bostic.
Tuesday, Feb 10 Key U.S. data releases include December retail sales, NFIB Small Business Optimism, the Q4 Employment Cost Index, December import prices, and November business inventories. Cleveland Fed President Beth Hammack is also scheduled to speak.
Wednesday, Feb 11 The January U.S. employment report is due, alongside remarks from Vice Chair for Supervision Michelle Bowman. The monthly U.S. federal budget for January will also be released.
Thursday, Feb 12 Data highlights include January existing-home sales and weekly initial jobless claims for the week ending Feb 7. Governor Stephen Miran is scheduled to speak.
Friday, Feb 13 The January Consumer Price Index (CPI) will be released.
Earnings Calendar:
Monday, Feb. 9 Earnings are due from Apollo Global Management, Onsemi, Loews, and Principal Financial.
Tuesday, Feb. 10 A heavy earnings slate includes Coca-Cola, AstraZeneca, Gilead Sciences, BP, CVS Health, Spotify, Duke Energy, Marriott, Ferrari, Ecolab, Robinhood, Cloudflare, Ford, Honda Motor, and Barclays.
Wednesday, Feb. 11 Reports are expected from Cisco, McDonald’s, T-Mobile, AppLovin, and Shopify.
Thursday, Feb. 12 Applied Materials, Arista Networks, Unilever, Vertex Pharmaceuticals, Brookfield, Airbnb, and Coinbase Global are scheduled to report.
Friday, Feb. 13 Enbridge and Moderna round out the week.
Cisco is set to report fiscal Q2 results after Wednesday’s close. Consensus estimates call for adjusted EPS of $1.02, up 9% year over year, on revenue of $15.1 billion, an 8% increase. Product orders are expected to soften slightly following 13% growth last quarter, while AI-related orders may cool after reaching $1.3 billion in Q1. Investors will be watching for upside tied to Cisco’s AI-networking partnership with Nvidia and signs of a recovery in its security segment following a weak prior quarter despite the Splunk acquisition.
AstraZeneca reports Q4 results early Tuesday, with analysts forecasting flat adjusted EPS and roughly 4% sales growth. The company’s recent move from Nasdaq to the NYSE has helped propel shares sharply higher, up around 108% in February.
Robinhood is expected to post a roughly 38% decline in EPS to $0.63, even as revenue is seen rising nearly 34% to $1.36 billion on stronger options, equities, and transaction activity. Crypto revenue is projected to fall about 28% to $259 million. The company has recently faced regulatory scrutiny related to prediction markets, including halting sports-related contracts in Nevada, contributing to a sharp pullback in the stock last week.
Elsewhere, McDonald’s earnings are expected to show about 8% EPS growth—its strongest quarter since late 2023—while Coca-Cola is forecast to report modest slowing growth, despite shares gaining around 8% since breaking out in January.
By the end of the week, more than 80% of Dow Jones Industrial Average constituents will have reported earnings.
Technical Analysis:
DJIA Index The index confirmed a breakout from a bullish rectangular consolidation on Friday. As long as support at 49,970 holds, the upside target remains at 51,000. DJIA daily candlestick chart.
Nasdaq 100 Index The NDX broke below the 25,200 support level last Wednesday, in line with the view that a sustained move under 25,200 would open the door toward 24,650. The index subsequently dropped to 24,455 before reclaiming 24,650. It is now rebounding toward 25,200, with further upside toward 25,370. A decisive break above 25,370 would expose resistance near 25,850. NDX daily candlestick chart.
SPX Index The SPX successfully defended the 6,790–6,780 support zone during its second pullback of the year. The index is now consolidating within a rectangular range. As long as support at 6,780 holds, the upside target remains 7,010. SPX daily candlestick chart.
Weekly Probability Outlook for U.S. Indices
The U.S. weekly market probability map for Feb. 9–13, 2026 points to a mixed open for U.S. equity indices, followed by a stronger close and a rally developing midweek. The probability maps are based on historical seasonality trends, with sentiment readings generated through a seasonality-driven scoring model.
A major Australian pension fund has increased hedging on its international equities, arguing the Australian dollar is undervalued as the Reserve Bank of Australia tightens policy while most major central banks pause or prepare to cut rates.
Jeff Brunton, head of portfolio management at HESTA, which manages A$100 billion in assets, said the fund has raised its exposure to the Australian dollar, citing long-term valuation models that point to persistent undervaluation. By increasing currency hedging, HESTA aims to protect portfolio returns if a stronger Aussie dollar erodes the local-currency value of overseas investments.
The move contrasts with the traditionally low level of currency hedging among Australian investors in U.S. equities, where the U.S. dollar has typically been viewed as a shock absorber. HESTA is the second large fund to adjust its strategy recently, following similar steps by Australian Retirement Trust.
Analysts note that increased Australian dollar buying by pension funds could add upward pressure to the currency, which rose 4.3% last month to a three-year high and has gained nearly another 1% in February. Support has also come from the RBA’s recent 25-basis-point rate hike to 3.85%, strong commodity-driven trade surpluses, and Australia’s yield advantage over other G10 economies.
HESTa currently holds A$23.45 billion in international equities, and Brunton said the fund remains underweight foreign currencies relative to both its long-term targets and its peers.
EUR/USD slipped below 1.1900 and tested support near 1.1780.
The pair broke above a key bearish trend line, previously acting as resistance around 1.1810 on the 4-hour chart.
EUR/USD technical analysis
On the 4-hour chart, EUR/USD tested the 61.8% Fibonacci retracement of the advance from the 1.1577 swing low to the 1.2082 peak. The pair has held above both the 100-period (red) and 200-period (green) simple moving averages, signaling underlying support.
The pair is stabilizing above 1.1780 and has recently cleared the bearish trend line near 1.1810. On the upside, initial resistance is seen around 1.1850, followed by 1.1890. A sustained close above 1.1890 could pave the way for further gains toward 1.1920, with a potential extension toward the 1.2000 handle.
On the downside, immediate support remains at 1.1780. A deeper pullback could test the 1.1720 area, while the key support level lies at 1.1700. A break below this zone would likely shift momentum in favor of the bears and could expose the 1.1650 region.
The Japanese yen slid to a fresh two-week low as Sanae Takaichi’s landslide victory reignited concerns over Japan’s fiscal outlook. However, warnings of possible currency intervention sparked some intraday short covering in the yen, aided by broader U.S. dollar weakness.
Still, downside momentum in the yen was partly limited after data showed a decline in Japan’s real wages, which reduced expectations for an immediate interest rate hike by the Bank of Japan and helped cap further moves in the currency.
The Japanese yen began the new week on a softer footing after Prime Minister Sanae Takaichi’s landslide victory in Sunday’s election raised expectations of additional fiscal stimulus. That initial weakness proved short-lived, however, as Finance Minister Satsuki Katayama reiterated warnings over excessive currency moves and confirmed close coordination with the United States to counter disorderly FX fluctuations. Combined with continued U.S. dollar selling, the comments prompted an intraday reversal of nearly 150 pips in USD/JPY from the Asian session peak near 157.65.
Meanwhile, data released earlier showed Japan’s real wages fell in December for a 12th straight month, with nominal pay growth slightly lagging cooling consumer inflation. This reinforces expectations that the Bank of Japan will proceed cautiously after lifting interest rates to a three-decade high in December. In addition, a more upbeat risk environment, supported by signs of easing tensions in the Middle East, limited further safe-haven demand for the yen, allowing USD/JPY to find support and stall its pullback around the 156.20 area.
Yen bulls stay cautious as fiscal concerns and delayed BoJ hike bets offset intervention talk
Japan’s ruling Liberal Democratic Party, led by Prime Minister Sanae Takaichi, secured a decisive victory in Sunday’s election, comfortably surpassing the 233-seat threshold needed for a lower-house majority. The result clears the path for proposed tax cuts and increased defense spending, bringing renewed attention to Japan’s already stretched public finances.
Finance Minister Satsuki Katayama said on Monday that she stands ready to communicate with markets if necessary to help stabilize the yen. She reiterated that Japan remains in close coordination with U.S. Treasury Secretary Scott Bessent and emphasized Tokyo’s right to intervene if currency moves stray from economic fundamentals.
Meanwhile, data from the labor ministry showed nominal wages rose 2.4% year-on-year in December 2025, accelerating from a revised 1.7% gain previously but still missing market expectations. Adjusted for inflation, real wages fell 0.1% from a year earlier, extending their decline to a 12th consecutive month.
The figures have dampened expectations for an imminent Bank of Japan rate hike, as policymakers have stressed that further tightening hinges on sustained and broad-based wage growth. Together with a generally positive global equity backdrop, this has limited the yen’s rebound from a more than two-week low.
Risk sentiment was further supported by indirect U.S.–Iran talks on Tehran’s nuclear program, which concluded on Friday with agreement to keep diplomatic channels open. The development eased fears of a military escalation in the Middle East and encouraged demand for risk assets at the start of the week, despite new U.S. sanctions on Iran.
The U.S. dollar weakened for a second straight session amid growing bets that the Federal Reserve could cut interest rates twice more in 2026. This contrasts with expectations that the BoJ will continue its gradual policy normalization, helping to cap gains in USD/JPY and urging caution among bullish traders.
Attention now turns to key U.S. data later this week, including the closely watched nonfarm payrolls report due Wednesday and consumer inflation figures on Friday, both of which are likely to shape dollar direction and drive fresh moves in USD/JPY.
USD/JPY holds steady below 100-hour SMA as technical signals remain mixed
The USD/JPY pair is showing modest resilience around the 100-hour Simple Moving Average (SMA), with its intraday pullback stalling near the 156.20 area, which now stands out as a key pivot for short-term traders. Momentum indicators, however, paint a mixed picture. The Moving Average Convergence Divergence (MACD) has formed a bearish crossover near the zero line, signaling rising downside pressure, while the Relative Strength Index (RSI) is hovering around 46, below the neutral 50 level, pointing to subdued momentum.
At the same time, USD/JPY remains above the 100-hour SMA, currently located around the 156.55–156.50 zone, which preserves a mildly constructive near-term bias and provides dynamic support. A move by the MACD back into positive territory alongside an RSI break above 50 would strengthen the bullish case and open the door to further gains. On the other hand, a clear break and close below the 100-hour SMA would undermine the setup and increase the risk of a deeper corrective move.
Most Asian currencies traded in narrow ranges on Monday, while the yen edged higher after Japan’s finance ministry stepped up intervention warnings. However, the yen remained under pressure from concerns over heavy fiscal spending, which are expected to persist following Prime Minister Sanae Takaichi’s landslide election win. Elsewhere, Asian currencies stayed subdued after recent dollar strength, with markets now focused on key economic data due from the U.S. and China.
Yen buoyed by intervention warnings following Takaichi’s victory
The USD/JPY slipped 0.2% to 156.87 on Monday after earlier dropping as much as 0.5%, with the yen finding modest support from renewed intervention warnings by Japanese officials. While the currency remained broadly weak against the dollar, comments from Finance Minister Satsuki Katayama about close coordination with U.S. Treasury officials lent temporary relief.
However, the yen continues to face pressure following Prime Minister Sanae Takaichi’s decisive election victory, which gives her coalition a supermajority in the lower house and a clearer path to expansionary fiscal plans. Concerns over stretched government spending have weighed heavily on the yen and previously triggered a sharp sell-off in Japanese government bonds. Analysts at OCBC noted that while a looser fiscal stance could further pressure the yen, the risk of official pushback is likely to rise as USD/JPY nears the 160 level.
Dollar rebound eases as Asian FX trades quietly
The dollar eased slightly in Asian trade, extending its pullback from last week’s near-98 highs, as traders stayed cautious ahead of key U.S. data, including nonfarm payrolls on Wednesday and CPI inflation on Friday. The releases are expected to shape expectations for U.S. interest rates under potential Fed leadership changes.
Asian currencies were mostly rangebound. The Chinese yuan edged up, with USD/CNY down 0.1% and hovering near mid-2023 lows, supported by firm PBOC fixings ahead of Friday’s CPI data and the Lunar New Year. The Australian dollar rose 0.2% above $0.70 on bets of further RBA rate hikes after a hawkish move last week.
Elsewhere, the Singapore dollar was flat, the Korean won weakened slightly, and the Indian rupee stayed above 90 per dollar following the RBI’s steady policy stance and upgraded forecasts.
The S&P 500 remains highly volatile, with last week seeing the index test the 7,000 mark and briefly dip below 6,800 before rebounding. Overall, the price action suggests the market is still trying to determine its next direction, which is understandable given that earnings season is underway.
For now, the index continues to favor a buy-the-dip dynamic, with rebounds likely fueling further FOMO. A decisive move above 7,000 would likely open the door to further upside, although short-term choppiness is still to be expected.
EUR/USD
The euro traded in a choppy manner throughout the week as it tested the 1.18 level, an area that had previously acted as resistance. Last week’s price action formed a particularly ugly shooting star, leaving uncertainty about whether the euro has enough momentum to sustain an upside breakout.
A move below the low of last week’s candle could open the door for a pullback toward the 1.16 level, effectively returning the pair to its prior consolidation range. While short-term price action is likely to remain noisy, the broader outlook is clouded by ongoing uncertainty around ECB policy and whether the Federal Reserve will move quickly enough on rate cuts to satisfy market expectations. Overall, I remain neutral on this pair.
USD/CAD
The US dollar strengthened against the Canadian dollar but once again ran into resistance near the 1.37 level. Price is hovering around the 200-week EMA, and last week’s hammer candle suggests buyers may attempt to drive the pair higher, though confirmation is still needed.
From a technical perspective, this zone appears attractive for potential long positions, with the interest rate differential continuing to favor the US dollar. That said, this setup is better suited for short-term traders, as large or sustained moves are unlikely in the near term given the pair’s typically range-bound behavior.
USD/CHF
The US dollar has edged higher against the Swiss franc, pushing above the 0.78 level, a key psychological round number that many traders are closely monitoring. This pair is especially noteworthy given last week’s hammer formation and ongoing comments from the Swiss National Bank expressing discomfort with a strong franc.
Should the SNB maintain this stance, intervention remains a possibility, which would likely weaken the franc and lift USD/CHF along with other CHF-denominated pairs. While the positive swap favors long positions, the move higher is likely to be uneven and challenging, so traders should be mindful of potential volatility.
USD/MXN
The US dollar has been highly volatile against the Mexican peso, with the 17.50 level continuing to act as resistance. For now, the 17.00 area below appears to be the most likely short-term target.
From a longer-term perspective, there is substantial support beneath current levels, making a deeper breakdown uncertain. At the same time, the pair still offers an attractive carry trade, particularly for short-term participants. Given recent price action, this week is likely to remain as choppy as the last two, and significant moves seem unlikely.
DAX
The German DAX has maintained a bullish tone for most of the week but continues to face resistance near the 25,000 level. A decisive break above 25,000—ideally confirmed by a daily, if not weekly, close—would likely clear the way for further upside in the index.
A Global Search for Support
Over time, I expect that breakout to occur. This is not a market that lends itself well to short positions, as it is likely to receive ongoing support from the German government, which continues to inject significant spending into the economy. As a result, buying pullbacks in the DAX remains an attractive strategy.
USD/JPY
The US dollar has held up well against the Japanese yen this week, even in the wake of recent intervention efforts. The 158 level remains a major reference point on long-term charts, an area of significance that dates back to May 1990 and deserves close attention.
Looking further ahead, a sustained break above the 163 level—where the monthly chart shows a substantial resistance zone—could eventually open the door to much higher levels, potentially even toward 250 yen over the longer term. While such a move is not expected in the near future, it reflects the broader outlook for the yen unless there is a meaningful shift in underlying conditions.
GBP/USD
The British pound was highly volatile throughout the week, with the 1.3750 level once again acting as notable resistance. A break below 1.35 would be a strongly bearish signal for GBP/USD and could potentially open the door for a move toward the 1.30 area.
While it remains unclear whether the US dollar has definitively bottomed, it is beginning to show signs of attempting a base. If that proves to be the case, it could leave many traders positioned on the wrong side of the market.
Concerns that the U.S. dollar is heading into a phase of rapid debasement look exaggerated, despite ongoing longer-term headwinds. Although the currency has been volatile recently and briefly hit multi-year lows—reviving “Sell America” narratives—Bank of America says market evidence does not yet point to a structural shift away from U.S. assets.
While BofA remains bearish on the dollar over the long run, it expects any depreciation to play out gradually through 2026 and 2027 rather than through an abrupt decline. Investor positioning and capital flow data show little sign of a coordinated move out of U.S. assets. Dollar risk premia have risen only modestly, and options markets indicate that short-dollar positioning is not meaningfully larger than it was three months ago.
Cross-asset flows reinforce this view, with equity and bond data showing no substantial foreign capital flight from the U.S. Notably, there has been just one session this year in which both the dollar and U.S. equities sold off sharply at the same time—an outcome inconsistent with a broad debasement scenario.
Instead, BofA suggests that increased currency hedging is the more likely adjustment. European investors may hedge their U.S. exposure more actively, which could place steady, incremental pressure on the dollar without triggering a disorderly selloff.
Macro indicators also fail to signal rising debasement risks. Inflation expectations remain well anchored, and although fiscal concerns are widely discussed, they have not produced market stress indicative of eroding confidence in the dollar. Part of the expected dollar weakness may simply reflect improving conditions elsewhere, particularly in Europe, where stronger growth prospects, German fiscal stimulus, potential spillovers from Chinese stimulus, and longer-term structural factors such as higher defense spending and trade agreements could support the euro and other non-U.S. assets.
The Bank of England held its policy rate at 3.75%, but the decision revealed a notably divided committee, with four of the nine members voting in favor of another cut. This close split has reinforced expectations for a rate reduction as soon as March, particularly as inflation continues to ease and wage growth shows signs of cooling.
The BoE now estimates that wage growth consistent with its 2% inflation target is roughly 3.25%, only slightly below current private-sector pay growth of about 3.6%. With inflation projected to fall toward 1.8% by April, the central bank appears increasingly comfortable with the prospect of further policy easing.
Governor Andrew Bailey remains a pivotal swing vote, and if upcoming data confirms a softer labor market and moderating pay growth, he is widely expected to back a rate cut at the next meeting. Markets are already pricing in additional easing through the summer months.
GBP/USD Technical Perspective
GBP/USD has been trending lower, reflecting expectations of Bank of England rate cuts and a broadly dovish policy outlook.
On the four-hour chart, the pair continues to trade within a well-defined descending channel, currently hovering around 1.3536. This structure indicates that sellers remain in control for the time being.
That said, a notable support zone sits near 1.34, aligning with a previous accumulation area. A break lower within the channel could see price gravitate toward that level.
Conversely, a move above the upper boundary of the channel would signal a shift in momentum and could open the door to a rebound toward the 1.37–1.38 area in the near term.
Summary:
Trend: Bearish, within a descending channel
Support: 1.34
Resistance: 1.37–1.38
Key Catalyst: March Bank of England policy meeting
ECB Remains Comfortably on Hold
The European Central Bank left interest rates unchanged, signaling confidence that the eurozone economy remains in a solid position. Inflation is tracking close to the 2% target, growth is stable, and there is little immediate need to either tighten or ease policy.
That said, past experience suggests the ECB is willing to resume rate cuts after extended pauses if conditions evolve. A meaningful appreciation in the euro or a dip in inflation below target could prompt policymakers to consider a modest “insurance cut” later in the year to guard against undershooting inflation.
For now, however, the ECB appears comfortable remaining on hold, a stance that has translated into relatively calm market conditions.
EUR/USD Technical Perspective
EUR/USD continues to consolidate in a narrow range between 1.1780 and 1.1840, reflecting the ECB’s steady policy stance and a broader lack of directional conviction. Volatility remains subdued, underscoring ongoing market indecision.
A renewed move lower could develop if expectations build around further ECB easing, or if euro strength becomes a concern for policymakers. Until a clear catalyst emerges, price action is likely to remain range-bound, with consolidation dominating near-term trading.
Summary:
Trend: Sideways / range-bound
Range: 1.1780–1.1840
Downside risk: A decisive break below 1.1780 would expose a move toward 1.1700
Catalyst: Shift in ECB tone or renewed concerns over excessive euro strength
In short:
The BoE’s dovish stance is pressuring the pound, leaving GBP/USD biased lower.
The ECB’s steady, wait-and-see approach is keeping the euro supported, though excessive euro strength could revive rate-cut speculation.
With both central banks leaning dovish, the next meaningful FX moves are likely to be driven by shifts in rate expectations, not policy surprises.
EUR/USD remains technically constructive, consolidating after a strong push toward recent highs. While short-term momentum has eased, the price action continues to reflect a pause within a broader uptrend rather than a trend reversal.
Attention now turns to whether the pair can hold key support levels and reassert upside momentum in the sessions ahead.
From a medium-term standpoint, EUR/USD continues to exhibit a well-defined bullish structure, marked by a sequence of higher highs and higher lows. The recent pullback comes after a sharp rally and appears corrective, suggesting profit-taking rather than a meaningful change in the underlying trend.
Notably, downside momentum has been contained, supporting the view that buyers are still stepping in on dips.
Moving Averages Continue to Act as Dynamic Support
Price is currently holding near and above the 15-day and 20-day moving averages, both of which continue to slope higher.
Key technical takeaways:
Moving averages are still functioning as dynamic support
Pullbacks have been modest relative to the preceding advance
No decisive break has occurred to signal deterioration in the trend
As long as EUR/USD remains above these moving averages, the broader technical outlook stays constructive.
Momentum: RSI Cools Without Undermining the Trend
The 14-day RSI has pulled back toward the low-50s after previously reaching elevated readings.
This momentum behavior suggests:
A healthy reset following strong upside momentum
Reduced risk of near-term overextension
Conditions more consistent with consolidation than exhaustion
Importantly, there is no clear bearish divergence, reinforcing the view that the broader trend remains intact.
Key Technical Zone: 1.1780–1.1820 in Focus
The 1.1780–1.1820 area has become a key technical reference zone:
It previously served as resistance prior to the recent breakout
It is now acting as near-term support
A sustained hold above this range would strengthen the case for bullish continuation
A failure to hold this zone could allow for a deeper pullback toward the moving averages, though such a move would still be considered corrective unless support is decisively broken.
Broader Market Backdrop
EUR/USD continues to be closely influenced by:
Broader trends in the U.S. dollar
Changes in global risk sentiment
Evolving expectations around relative monetary policy trajectories
For now, the technical backdrop suggests that euro resilience remains intact, as long as external conditions stay broadly supportive.
Outlook
EUR/USD appears to be shifting from trend extension into a consolidation phase:
Holding above key support: The upside bias remains intact
Sideways consolidation: Would help reinforce the durability of the trend
Break below moving averages: Needed to meaningfully weaken the outlook
Until such confirmation occurs, the balance of technical evidence continues to favor the bullish scenario.
Overall, EUR/USD is consolidating following a strong advance, but the broader technical structure remains supportive. Momentum has eased in a constructive manner, key support levels are holding, and price action continues to point toward stabilization rather than reversal.
As long as EUR/USD remains above established support zones, the uptrend stays intact, with scope for renewed upside once the consolidation phase resolves.
Japanese yen bears trimmed positions ahead of Japan’s snap election on Sunday, allowing the currency to recover modestly. Growing speculation of an imminent Bank of Japan rate hike, combined with a broader risk-off mood, has also supported the safe-haven yen. Meanwhile, the U.S. dollar paused its recent rebound from a four-year low, adding further downside pressure on USD/JPY.
The Japanese yen attracted modest buying during Asian trading on Friday, appearing to snap a five-day losing streak against the U.S. dollar after touching a two-week low in the previous session. Traders remain alert to the possibility of coordinated Japan–U.S. intervention to curb further yen weakness, while a shift in global risk sentiment and elevated market volatility have boosted demand for the currency’s safe-haven appeal. Expectations for a more hawkish Bank of Japan have also provided underlying support to the yen.
Data released earlier showed Japan’s household spending fell sharply in December, highlighting the impact of higher prices on consumer activity and reinforcing expectations that the BoJ could move toward a rate hike sooner rather than later. That said, concerns about Japan’s fiscal position and ongoing political uncertainty may limit aggressive bullish positioning in the yen. In addition, the U.S. dollar’s recent recovery from a four-year low could help cap further declines in USD/JPY as markets look ahead to Japan’s snap lower house election on February 8.
Yen finds support from hawkish BoJ outlook and improving risk sentiment
Data released earlier on Friday showed that Japan’s Household Spending fell 2.6% YoY in December 2025, reversing a 2.9% increase in the previous month. The sharp contraction highlights the drag from elevated living costs on consumption and reinforces the Bank of Japan’s resolve to tackle inflation, strengthening the case for an earlier interest rate hike.
This view is supported by the Summary of Opinions from the BoJ’s January meeting, which revealed that policymakers discussed rising price pressures stemming from a weak Japanese Yen and agreed that further rate hikes would be appropriate over time. These factors helped the JPY attract modest buying during the Asian session.
The Yen also benefited from a risk-off impulse, as Asian equities extended losses for a second straight day following a deepening selloff in global tech stocks. Meanwhile, the US Dollar paused its recent advance to a two-week high, prompting traders to trim USD/JPY long positions ahead of Japan’s snap lower house election on Sunday, February 8.
Japan’s Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) is widely expected to secure a decisive victory, which would strengthen her control over parliament and provide greater scope to pursue aggressive pro-stimulus policies. However, markets remain concerned that expansionary fiscal plans could further strain Japan’s already fragile public finances, limiting the Yen’s upside.
From the US, data released Thursday showed that Initial Jobless Claims rose to 231K for the week ending January 31, up from 209K and above expectations of 212K, adding to weak private-sector employment data released earlier in the week. Further evidence of labor market softening came from the JOLTS report, which showed job openings falling to 6.542 million in December from a downwardly revised 6.928 million previously.
The softer labor backdrop has reinforced expectations for additional Federal Reserve easing, with markets currently pricing in two more rate cuts in 2026. This has capped the US Dollar’s rebound from a four-year low and contributed to USD/JPY pulling back modestly from the two-week high above the 157.00 level touched on Thursday.
Traders now await the preliminary Michigan Consumer Sentiment Index and inflation expectations, along with remarks from key FOMC members, for fresh directional cues later in the North American session. However, market reactions are likely to remain subdued ahead of Japan’s closely watched political event.
USD/JPY buyers remain in control after breaking above the 200-period SMA resistance on the H4 chart.
The overnight move above the 156.50 barrier, which aligns with the 200-period SMA on the 4-hour chart, marked an important catalyst for USD/JPY bulls. The gently rising SMA reflects a stable underlying uptrend, and prices remaining above it preserve a bullish tone. However, the MACD has dipped below its Signal line around the zero level, with the histogram turning negative and widening, pointing to a loss of upside momentum. Meanwhile, the RSI has retreated to 63 from overbought territory, highlighting a more tempered momentum backdrop.
As long as USD/JPY holds above the rising 200-period SMA, upside risks remain favored. A sustained break below this level would shift the focus toward a corrective pullback. From a momentum perspective, continued expansion of the negative MACD histogram would strengthen downside risks, while a swift move back above zero would negate the bearish crossover. The RSI staying above 50 continues to support the bullish case, whereas a slide toward that level would signal weakening buying interest.
USD/CAD edged lower as the commodity-linked Canadian dollar found support from a rebound in oil prices. Gains in WTI crude may be limited, however, after the U.S. and Iran agreed to hold talks in Oman on Friday, easing supply-related concerns. Meanwhile, the U.S. Dollar Index remained near two-week highs as markets continued to price in a slower pace of potential Federal Reserve rate cuts.
USD/CAD traded largely flat around the 1.3700 level during Asian hours on Friday after paring earlier gains, as the Canadian dollar drew support from a rebound in oil prices. West Texas Intermediate (WTI) crude recovered to around $63.50 at the time of writing, although further upside appeared limited after the United States and Iran agreed to hold talks in Oman later in the day.
Iran is expected to center discussions on its long-standing nuclear dispute with Western powers, while Washington is pushing to broaden the agenda to include Tehran’s ballistic missile program, its regional proxy activities, and human rights concerns.
The USD/CAD pair could regain upward momentum as the U.S. Dollar Index (DXY) remains close to two-week highs, underpinned by expectations for a slower pace of Federal Reserve rate cuts. Fed Governor Lisa Cook said she would not support additional easing without clearer evidence of cooling inflation, emphasizing greater concern over stalled disinflation than labor market softness.
Markets also assessed the implications of Kevin Warsh’s nomination as the next Fed chair, noting his preference for a smaller balance sheet and a more restrained approach to rate reductions—factors that have also helped ease concerns about the Fed’s independence.
Meanwhile, a series of U.S. labor market reports released this week pointed to cooling employment conditions, reinforcing dovish expectations for the Fed. Investors are now pricing in two rate cuts this year, beginning in June, with another potentially in September.
EUR/USD inched higher toward the 1.1770 area, finding modest support as the U.S. dollar struggled to extend its recent rally. Rising expectations of a more dovish Federal Reserve stance have capped further gains in the greenback. Meanwhile, the European Central Bank left interest rates unchanged at its policy meeting on Thursday, as widely expected.
The EUR/USD pair edged higher toward the 1.1770 area during Asian trading on Friday, as the U.S. dollar eased amid growing speculation that the Federal Reserve could cut interest rates at its March policy meeting. The pair attracted modest buying interest as expectations for Fed easing gained traction.
At the time of writing, the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was down 0.1% at around 97.85, although it remained close to Thursday’s weekly high of 97.98.
According to the CME FedWatch tool, the probability of a 25-basis-point rate cut—taking the fed funds rate to a 3.25%–3.50% range—at the March meeting has risen to 22.7%, from just 9.4% on Wednesday. Dovish Fed expectations have strengthened following a string of labor market indicators pointing to softer demand. December JOLTS data showed job openings fell to 6.542 million, well below estimates of 7.2 million and the prior 6.928 million. Meanwhile, ADP data released on Wednesday showed private sector payrolls rose by only 22,000 in January, down from 37,000 in December.
On the other hand, the euro remained broadly pressured despite the European Central Bank’s policy decision on Thursday. The ECB left interest rates unchanged, as expected, and played down the recent dip in eurozone inflation, reaffirming that inflation is likely to stabilize around its 2% target over the medium term. The central bank also cautioned about an uncertain geopolitical backdrop.
The U.S. Dollar Index edged lower as recent labor market data pointed to cooling employment conditions, reinforcing expectations of a more dovish Federal Reserve. CME FedWatch data showed markets pricing in a 77.3% probability that the Fed will keep rates unchanged at its March meeting, with the first rate cut now expected in June. Despite the dip, the DXY remained near two-week highs as investors continued to factor in a slower pace of potential rate cuts.
The U.S. Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, edged lower on Friday after posting gains over the previous two sessions, hovering around 97.90 during Asian trading hours. Market participants are awaiting the preliminary February Michigan Consumer Sentiment Index, due later in the North American session, for fresh direction.
The dollar softened as recent U.S. labor market data signaled cooling employment conditions, reinforcing expectations of a more dovish Federal Reserve stance. Markets are now pricing in two rate cuts this year, beginning in June and potentially followed by another in September. CME FedWatch data indicate a roughly 77.3% probability that the Fed will keep rates unchanged at its March meeting, with expectations centered on a first cut in June.
Labor Department figures showed initial jobless claims climbed to 231,000 in the week ended January 31, exceeding forecasts of 212,000 and the prior reading of 209,000. Meanwhile, ADP data revealed private payroll growth slowed sharply to 22,000 in January, well below expectations of 48,000 and the previous month’s revised 37,000.
Despite the pullback, the DXY remained near two-week highs, supported by expectations for a slower pace of Fed easing. Fed Governor Lisa Cook said she would not support further rate cuts without clearer evidence of easing inflation, highlighting greater concern over stalled disinflation than labor market softness.
Traders also assessed the implications of Kevin Warsh’s nomination as the next Fed chair, with markets noting his preference for a smaller balance sheet and a more restrained approach to rate cuts, while also easing concerns over the central bank’s independence.
The U.S. dollar inched higher on Thursday, clawing back some strength amid ongoing volatility in equity markets, while attention turned to the euro and sterling following key central bank rate decisions. By 13:43 ET (18:43 GMT), the Dollar Index—which measures the greenback against a basket of six major currencies—was up 0.2% at 97.77, hovering near a two-week high and extending its rebound from levels close to four-year lows.
Stock market volatility lends support to the dollar
Heightened volatility across global equity markets—driven largely by concerns over stretched artificial intelligence spending—has prompted traders to rotate back into the U.S. dollar as a safe haven.
Analysts at ING noted that a more challenging equity backdrop typically triggers a move away from risk and pro-cyclical currencies toward the dollar, a dynamic they said has likely provided the greenback with some support this week. They added that while it remains unclear whether the current correction in U.S. technology stocks has further to run, a fully invested buy side appears increasingly vulnerable to negative surprises.
The dollar also found support late last week following the nomination of Kevin Warsh as the next Federal Reserve chair, with markets viewing him as less dovish than previously anticipated. Meanwhile, private payrolls data pointed to a cooling U.S. labor market, although the recent brief government shutdown has delayed the release of key employment figures scheduled for Friday.
Even so, several weak labor market signals emerged on Thursday. January job cuts rose to their highest level for that month since 2009, initial jobless claims exceeded expectations, and December job openings data fell short of forecasts.
Euro and pound move into focus
In Europe, the euro edged lower, with EUR/USD down 0.1% at 1.1799 after the European Central Bank left interest rates unchanged, in line with expectations. The ECB’s Governing Council said inflation is likely to stabilize around its 2% target over the medium term, while noting that the eurozone economy remains resilient despite a challenging global backdrop. Data released earlier in the week showed euro area CPI inflation eased to 1.7% year-on-year in January, from 1.9% in December.
Commenting on the decision, Mark Wall, chief European economist at Deutsche Bank, said the ECB was striking a necessary balance between downside risks and underlying strengths, adding that holding rates steady appeared appropriate given external vulnerabilities alongside domestic resilience, partly supported by increased defence and infrastructure spending in Germany.
Sterling also weakened, with GBP/USD falling 0.9% to 1.3544 after the Bank of England kept its benchmark rate unchanged. The Monetary Policy Committee said it expects inflation to return to its 2% target by the spring. Sanjay Raja, chief UK economist at Deutsche Bank, noted that while a rate cut was closer than anticipated, the meeting was more about positioning within the MPC, as rising economic trade-offs continue to fuel uncertainty over how restrictive current policy remains.
Yen in focus ahead of weekend elections
In Asian trading, USD/JPY edged 0.1% higher to 156.84, as the Japanese yen remained under pressure ahead of this weekend’s lower house elections. Prime Minister Sanae Takaichi’s party is widely expected to secure a larger majority, raising expectations of increased fiscal spending from Tokyo. Ongoing concerns about Japan’s stretched public finances have weighed heavily on the yen in recent weeks, with losses compounded by Takaichi’s remarks downplaying currency weakness.
Elsewhere, USD/CNY dipped slightly to 6.9378, with the Chinese yuan hovering near its strongest level in almost three years. The currency has been supported by a series of firm midpoint fixings from the People’s Bank of China, keeping the pair comfortably below the psychologically important 7.00 level.
The Australian dollar weakened, with AUD/USD sliding 0.4% to 0.6960, slipping back below 0.70 after two sessions of solid gains following a hawkish Reserve Bank of Australia meeting on Tuesday. The RBA raised interest rates by 25 basis points and upgraded its growth and inflation forecasts for the year.
USD/JPY paused its advance near the 157.00 mark during Thursday’s Asian session, as a renewed bout of risk aversion revived safe-haven demand for the Japanese yen.
That said, the yen remains on fragile footing amid ongoing concerns over Japan’s fiscal position under Prime Minister Sanae Takaichi’s expansionary spending agenda, helping to limit downside pressure on the pair.
Looking ahead, the U.S. JOLTS Job Openings report could provide fresh impetus for near-term trading.
USD/JPY Technical Analysis
The Japanese yen emerged as the weakest-performing G8 currency on Wednesday. Its sharp underperformance has lifted USD/JPY above the 156.80 level at the time of writing, putting the pair on course for a roughly 3% rebound from last week’s lows.
Fundamental Analysis
Investors are offloading the yen broadly ahead of this weekend’s snap election. Rising support for Prime Minister Takaichi has fuelled concerns that a stronger electoral mandate would allow her to extend tax cuts and expand stimulus spending, heightening fears of fiscal strain.
Markets Brush Aside Intervention Concerns
Tokyo authorities have warned of possible intervention to curb excessive yen volatility, but those concerns have been largely brushed aside. Comments from Prime Minister Takaichi highlighting the benefits of a weaker yen, along with the U.S. Treasury Secretary’s denial of any coordinated effort to stabilise the currency, have instead driven the yen sharply lower across the board.
The U.S. dollar, however, is not especially strong on Wednesday. While markets continue to react positively to the nomination of Kevin Warsh as the next Federal Reserve Chair and to the end of the brief partial government shutdown, the recent rally in the U.S. Dollar Index appears to be losing momentum.
Attention now turns to upcoming U.S. data, including the Services PMI and the ADP Employment Change report. The latter could be particularly influential, as the government shutdown has delayed Friday’s official nonfarm payrolls release, leaving private-sector jobs data as a key guide for markets.
The Chinese yuan has recently attracted strong demand, and Bank of America Securities believes this momentum could become a key driver of foreign exchange markets in both the near and longer term. On Tuesday, the People’s Bank of China set the yuan’s daily midpoint at 6.9533 per U.S. dollar—75 pips stronger than the prior fix—marking its firmest level in nearly 33 months and breaking below the 6.96 threshold. BofA analysts cited solid export performance and firmer policy guidance as reasons for upgrading their USD/CNY forecasts to 6.7 for the end of Q3 and Q4, from 6.8.
According to the bank, the yuan’s strength may have broader implications for global FX markets, as signs emerge that appreciation is spreading across trade-weighted measures, including the CFETS basket, and increasingly influencing emerging-market currencies. While correlation does not prove causation, BofA noted that the alignment between bilateral and trade-weighted CNY gains is becoming difficult to ignore. A softer U.S. dollar is further reinforcing EM currency strength alongside the yuan.
High U.S. tariffs have encouraged China to redirect exports from the U.S. toward Europe, a shift reflected in the European Union’s expanding trade deficit with China, now nearing levels last seen during the Covid period. Although part of this imbalance stems from a weaker yuan versus the euro, unlike during the pandemic, the widening deficit has not led to euro weakness. Instead, EUR/CNY has climbed to a ten-year high, intensifying pressure on European exporters and renewing calls for yuan appreciation. BofA expects Chinese export momentum into Europe to continue in the short term, though heightened EU scrutiny and anti-dumping measures could pose challenges over the medium term, potentially placing downward pressure on EUR/CNY.
The case for yuan appreciation is gaining traction, reinforced most recently by comments from President Xi emphasizing the goal of building a “powerful currency” that is widely used in global trade, investment, and foreign exchange markets, and that ultimately achieves reserve-currency status. This builds on Xi’s 2020 remarks outlining China’s ambition to reach high-income status by 2025 and significantly expand economic output by 2035. However, BofA cautioned that aggressive currency appreciation could lead to overvaluation and pose risks to financial stability.
In this context, the outcome of U.S.–China competition in artificial intelligence will be critical for productivity growth and the long-term sustainability of relative currency valuations. Given the continued dominance of the U.S. dollar and the U.S.-centered global financial system, BofA expects USD leadership to persist over the next decade. While full internationalization of the renminbi appears unlikely, a more realistic approach may involve expanding CNY usage across the Global South and Asia, potentially reducing the need for a sharply stronger yuan.
The U.S. dollar held steady on Wednesday after a sharp rebound from near four-year lows, while the euro weakened following the release of key regional inflation data.
By 11:54 ET (16:54 GMT), the Dollar Index was up 0.3% at 97.69 and has gained more than 1% since Kevin Warsh was nominated as the next Federal Reserve chair.
The dollar remained resilient despite softer labor market data.
The dollar got a lift late last week after Kevin Warsh was nominated to succeed Federal Reserve Chair Jerome Powell, with markets viewing him as more hawkish and supportive of shrinking the Fed’s balance sheet.
Attention has now turned to Warsh’s Senate confirmation and the potential implications of his appointment for U.S. interest rates when he is set to take over from Powell in May.
A brief government shutdown had little impact on the greenback, as lawmakers approved additional funding this week, though it did delay the release of key employment data originally due on Friday.
Traders also shrugged off a soft ADP payrolls report for January released on Wednesday.
Eurozone consumer prices fall.
In Europe, the euro slipped slightly, with EUR/USD down 0.1% at 1.1802, despite the release of weaker-than-expected preliminary eurozone inflation data. Consumer prices eased to an annual rate of 1.7% last month, below the ECB’s 2% target and down from 2% in December.
The data did little to alter expectations that the European Central Bank will keep interest rates unchanged at 2% for a fifth consecutive meeting. Policymakers have recently expressed concern about the euro’s rapid rise against the dollar and its dampening effect on inflation. The euro touched a 4½-year high of 1.2084 last week.
According to Macquarie strategist Thierry Wizman, the euro is being pulled by opposing forces. Falling inflation could pave the way for policy easing in 2026, potentially weighing on the currency as euro area rates lag those elsewhere. However, this is being offset by improving growth prospects, supported by stronger survey data and a more favorable political backdrop, including eased budget tensions in France and renewed reform momentum in Germany. Wizman said stronger growth could ultimately provide greater support for the euro than lower rates would undermine it.
GBP/USD fell 0.3% to 1.3657, as the Bank of England was also expected to leave interest rates unchanged at its policy meeting on Thursday.
The yen remained under pressure.
In Asia, USD/JPY rose 0.5% to 156.55, leaving the pair near a two-week high.
The yen faced renewed pressure this week after comments from Prime Minister Sanae Takaichi cast doubt on whether Tokyo would step in to support the currency. Attention has shifted to a snap lower house election on February 8, with Takaichi’s party expected to secure a strong victory and strengthen her grip on parliament.
Elsewhere, USD/CNY edged up to 6.9415, hovering near its lowest level since mid-2023. AUD/USD slipped 0.4% to 0.6988 after rallying earlier in the week on a hawkish Reserve Bank of Australia meeting. The RBA raised interest rates by 25 basis points and lifted its growth and inflation forecasts for the year.
The Japanese yen stays under pressure as fiscal worries and political uncertainty outweigh stronger-than-expected data.
Concerns over possible intervention and the BoJ’s increasingly hawkish stance may deter traders from adding new bearish yen positions.
Rising expectations of further Fed easing weigh on the U.S. dollar and could limit upside in USD/JPY.
The Japanese yen (JPY) continues its downward trajectory against the U.S. dollar for a fourth consecutive session on Wednesday, sliding to a near two-week low during Asian trading. Persistent concerns over Japan’s fiscal position—linked to Prime Minister Sanae Takaichi’s expansionary spending agenda—remain a key drag on the currency. In addition, heightened political uncertainty ahead of the February 8 snap election further weakens sentiment toward the yen, driving USD/JPY above the 156.00 level.
At the same time, markets remain cautious amid the risk of coordinated Japan–U.S. intervention aimed at curbing excessive yen weakness. Expectations of gradual policy normalization by the Bank of Japan may also discourage traders from adding aggressive bearish positions. Meanwhile, expectations that the Federal Reserve will deliver two additional rate cuts limit U.S. dollar demand, potentially capping further upside in USD/JPY ahead of later U.S. economic data releases.
Yen sellers stay in charge as fiscal strains and political uncertainty persist.
Japan’s services sector gathered momentum at the start of 2026, with business activity expanding for a tenth straight month and at the fastest pace in nearly a year. The Jibun Bank Services PMI rose to 53.7 from 51.6 in December, coming in slightly above market expectations of 53.4. The figures point to a more sustained recovery in the services industry, which represents about 70% of Japan’s GDP.
Despite the encouraging data, market reaction was subdued as concerns over Japan’s fiscal outlook continued to weigh on sentiment. Investor unease has been amplified by Prime Minister Sanae Takaichi’s expansionary fiscal agenda, including aggressive spending plans and proposed tax cuts. As part of her campaign ahead of the February 8 snap lower house election, Takaichi has pledged to suspend the 8% consumption tax on food for two years, bringing renewed focus to Japan’s already stretched public finances and keeping the yen under pressure on Wednesday.
Meanwhile, a recent and unusual rate check by the New York Federal Reserve was interpreted as the clearest indication so far of coordination between Japanese and U.S. authorities to curb excessive yen weakness. This lowers the bar for potential intervention and could help limit further JPY losses, particularly alongside expectations of a more hawkish Bank of Japan.
The Summary of Opinions from the BoJ’s January meeting, released Monday, revealed that policymakers discussed rising inflationary pressures stemming from a weaker yen. Board members also agreed that additional rate hikes would be appropriate over time, a stance that could provide underlying support for the JPY.
On the other side, the U.S. dollar has struggled to extend last week’s rebound from a four-year low, despite support from the nomination of Kevin Warsh as the next Federal Reserve chair. Even the approval of a government funding package to end a partial shutdown failed to generate meaningful upside for the greenback.
Looking ahead, traders are awaiting the U.S. ADP employment report and the ISM Services PMI. In addition, remarks from influential FOMC members could shape near-term USD demand amid expectations for two more Fed rate cuts in 2026, with implications for the USD/JPY pair.
USD/JPY must clear the 156.50 confluence zone to reinforce bullish momentum.
Wednesday’s push above the 156.00 handle builds on the overnight breakout through the 50% retracement of the 159.13–152.06 decline, tilting the near-term bias in favor of USD/JPY bulls. The 14-period Relative Strength Index stands at 66.9, remaining below overbought territory and pointing to a solid, albeit increasingly mature, upswing.
That said, the MACD histogram, while still in positive territory, is narrowing—an early sign of waning bullish momentum. The MACD line remains above the Signal line, with both oscillating close to the zero level, underscoring a more cautious and transitional setup.
As a result, further upside is likely to face notable resistance around the 156.51 confluence, which combines the 100-period Simple Moving Average on the 4-hour chart and the 61.8% Fibonacci retracement. A sustained move above this zone would be required to reassert a constructive short-term outlook.
A decisive break could pave the way toward the 78.6% retracement at 157.62. Conversely, an inability to clear this hurdle would leave the rebound exposed to renewed downside pressure. Moreover, USD/JPY continues to trade below a downward-sloping 100-period SMA, suggesting that upside attempts may remain constrained for now.
The Australian dollar strengthened after the Composite PMI surged to 55.7 in January, marking the fastest pace of expansion in nearly four years.
The Aussie also benefited as markets priced in an 80% probability of an interest rate hike in May, along with around 40 basis points of additional policy tightening.
Meanwhile, the U.S. dollar remained subdued for a second straight session.
The Australian dollar strengthened against the U.S. dollar on Wednesday, extending gains of more than 1% from the previous session. The AUD/USD pair held firm after China’s Services Purchasing Managers’ Index (PMI) rose to 52.3 in January from 52.0 in December, beating market expectations of 51.8. As China is Australia’s largest trading partner, improvements in Chinese economic activity tend to support the Aussie.
The AUD also drew support from upbeat domestic PMI data. Seasonally adjusted figures from S&P Global showed Australia’s Composite PMI climbed to 55.7 in January from 51.0 in December, marking the strongest expansion in 45 months. The Services PMI jumped to 56.3 from 51.1, its highest reading since February 2022, exceeding the flash estimate of 56.0 and remaining well above the 50.0 threshold. This extended the run of expansion in services activity to two years.
The Reserve Bank of Australia raised its Official Cash Rate by 25 basis points to 3.85% on Tuesday, pointing to stronger-than-expected economic growth and persistently elevated inflation. As the tightening cycle gathers momentum, markets have increased the odds of another rate hike in May to around 80% and are now pricing in roughly 40 basis points of additional tightening through the rest of the year.
Speaking at the post-meeting press conference, RBA Governor Michele Bullock said inflationary pressures remain uncomfortably high, warning that a return to the target range will take longer than previously expected and is no longer acceptable. She emphasized that the board will remain data-dependent and avoid providing forward guidance.
U.S. dollar little changed after recent losses
The U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, remained subdued for a second straight session, trading near 97.40 at the time of writing.
Data released on Monday showed an unexpected rebound in U.S. manufacturing activity, underscoring economic resilience. The ISM Manufacturing PMI rose to 52.6 in January from 47.9 in December, comfortably beating expectations of 48.5.
Markets have also been assessing President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair, a move widely interpreted as signaling a more disciplined and cautious approach to monetary easing. The dollar found some support earlier as risk sentiment improved after the U.S. Senate reached an agreement to advance a government funding package, averting a shutdown, according to Politico.
Producer-side inflation in the U.S. remained firm, reinforcing the Fed’s policy stance. Headline PPI held steady at 3.0% year-over-year in December, unchanged from November and above expectations for a slowdown to 2.7%. Core PPI, which excludes food and energy, accelerated to 3.3% from 3.0%, defying forecasts for a decline to 2.9% and highlighting persistent upstream price pressures.
Fed officials struck a cautious tone. St. Louis Fed President Alberto Musalem said additional rate cuts are not warranted at this stage, describing the current 3.50%–3.75% policy rate range as broadly neutral. Atlanta Fed President Raphael Bostic echoed this view, urging patience and arguing that policy should remain modestly restrictive.
In Australia, inflation data showed mixed signals. The RBA’s trimmed mean inflation rose 0.2% month-over-month and 3.3% year-over-year, while the monthly CPI jumped 1.0% in December, exceeding forecasts of 0.7%. Export prices climbed 3.2% quarter-on-quarter in Q4 2025—the first increase in three quarters and the strongest gain in a year—while import prices rose 0.9%, beating expectations for a decline.
China’s RatingDog Manufacturing PMI edged up to 50.3 in January from 50.1 in December, in line with expectations and marking the fastest pace of factory expansion since October.
Additional Australian indicators pointed to easing inflation momentum and improving labor demand. The TD-MI Inflation Gauge rose 3.6% year-over-year in January, while monthly inflation increased just 0.2%, the weakest pace since August. Meanwhile, ANZ Job Advertisements surged 4.4% month-over-month in December, posting the strongest increase since February 2022 and signaling renewed momentum in hiring toward year-end.
Australian dollar rebounds toward three-year highs near 0.7100
The AUD/USD pair was trading near 0.7030 on Wednesday. Analysis of the daily chart shows the pair remains within an ascending channel, pointing to a sustained bullish bias. The 14-day Relative Strength Index (RSI) stands at 73.30, signaling strong upward momentum, though conditions appear increasingly stretched.
AUD/USD recently rebounded toward 0.7094, its highest level since February 2023, reached on January 29. A decisive break above this resistance could open the way for a move toward the upper boundary of the ascending channel around 0.7210. On the downside, initial support is seen at the nine-day Exponential Moving Average (EMA) near 0.6964, which coincides with the channel’s lower boundary. A deeper pullback could bring the 50-day EMA at 0.6759 into focus.
The U.S. dollar weakened broadly in January, defying its usual seasonal strength — what lies ahead in February?
Key Takeaways From February Forex Seasonality
The U.S. dollar weakened broadly in January, defying its typical seasonal strength. While USD/JPY has historically underperformed in February, the relevance of seasonal averages may be diminished amid anticipated political developments on both sides of the Pacific. Meanwhile, tonight’s RBA meeting could be pivotal in determining whether AUD/USD retreats from three-year highs and aligns with its traditionally weak February seasonality.
The start of a new month provides an opportunity to revisit the seasonal patterns that have shaped the forex market over more than five decades, following the dismantling of the Bretton Woods system in 1971 and the emergence of the modern foreign exchange regime.
As always, these seasonal tendencies reflect historical averages, and individual months or years can deviate from long-term norms. As such, seasonality should be used alongside other forms of analysis when building a robust, long-term trading strategy, as past performance is not necessarily indicative of future results.
Euro Forex Seasonality – EUR/USD Chart
Historically, February has tended to be mildly bullish for EUR/USD, with the world’s most heavily traded currency pair posting an average gain of around 0.3% over the past 50-plus years. In January, EUR/USD defied its typical seasonal pattern, pushing higher to briefly touch a 4.5-year high near 1.21 before retreating to finish the month lower. For a U.S. dollar that has historically underperformed against the euro, the prospect of another government shutdown—potentially delaying key economic releases such as the NFP report—offers an encouraging backdrop.
British Pound Forex Seasonality – GBP/USD Chart
As shown in the chart above, GBP/USD has historically tended to decline in February, posting average returns of roughly -0.3% since 1971. Similar to the euro, sterling has advanced for three consecutive months and briefly surged to multi-year highs in January before retreating to finish back within last year’s trading range. While no changes to interest rates are anticipated, this week’s BOE and ECB meetings remain key event risks for European currencies.
Japanese Yen Forex Seasonality – USD/JPY Chart
February has historically been a mildly bearish month for USD/JPY, with the pair posting average declines of around 0.2% since the Bretton Woods era. The year began with a volatile but ultimately weaker January for USD/JPY, running counter to its usual seasonal pattern amid broad-based U.S. dollar softness. With idiosyncratic political factors exerting an outsized influence on markets on both sides of the Pacific, traders may want to be cautious about placing too much weight on USD/JPY’s seasonal history at present.
Australian Dollar Forex Seasonality – AUD/USD Chart
Shifting focus to Australia, AUD/USD has historically posted modest declines in February, averaging losses of around 0.2% since 1971. In January, the Australian dollar rallied sharply, breaking out of a three-year range on the back of strong domestic employment and inflation data. While the RBA is widely expected to deliver a rate hike shortly after publication, the central bank’s forward guidance for the remainder of the year may prove more influential for the currency than the rate decision itself.
Canadian Dollar Forex Seasonality – USD/CAD Chart
Finally, February has historically been a mildly supportive month for USD/CAD, delivering an average gain of around 0.2%. At the time of writing, the pair is holding above support near its 15-month low in the mid-1.3500s after briefly dipping below that level last month. However, USD/CAD remains below its key medium- and long-term moving averages clustered around the 1.3800 area, marking that zone as a critical hurdle if bulls are to regain control after a difficult three-week stretch.
As always, we close by emphasizing that seasonal patterns are not definitive—even when they appear to be tracking well. This analysis should be paired with a thorough review of current fundamental and technical conditions across the major currency pairs.
NZD/USD sees renewed buying interest on Tuesday as multiple factors weigh on the US Dollar.
Expectations for two additional Fed rate cuts in 2026, along with a positive risk environment, undermine demand for the greenback.
The Reserve Bank of New Zealand’s relatively hawkish stance supports the NZD and adds to the pair’s upside.
The NZD/USD pair shows notable resilience below the 0.6000 psychological level and gathers strong upside momentum during Tuesday’s Asian session. Spot prices advance to the 0.6040–0.6045 zone in the past hour, snapping a two-day losing streak amid a modest pullback in the US Dollar.
As markets digest Kevin Warsh’s nomination as the next Federal Reserve Chair, expectations that the Fed will deliver two additional rate cuts this year continue to cap the US Dollar’s rebound from a four-year low reached last week. At the same time, an upbeat risk environment weighs on the Greenback’s safe-haven appeal and supports demand for the risk-sensitive New Zealand Dollar.
Investor sentiment was further buoyed after US President Donald Trump announced on Monday that the United States and India have finalized a trade agreement and will immediately move to reduce tariffs on each other’s goods. In addition, signs of easing tensions between the US and Iran over Tehran’s nuclear program have reduced fears of military escalation, reinforcing the positive market mood.
Further support for the Kiwi comes from the Reserve Bank of New Zealand’s relatively hawkish outlook on the policy path. The RBNZ has signaled a potential end to its easing cycle after cutting rates to 2.25% in November, and now projects the cash rate at 2.20% in the first quarter of 2026 and 2.65% by the fourth quarter of 2027.
Meanwhile, the release of the December 2025 Job Openings and Labor Turnover Survey (JOLTS) and the US Nonfarm Payrolls (NFP) report has been delayed due to a partial US government shutdown. As a result, commentary from key FOMC officials will be closely watched for cues on USD direction and could provide fresh impetus to NZD/USD, which appears poised to extend its two-week uptrend.
Gold sees modest buying interest on Tuesday as the USD takes a breather from its rebound off a four-year low.
Kevin Warsh’s nomination as the next Fed Chair may help limit USD downside and restrain gains in the precious metal.
Easing geopolitical and trade tensions could continue to cap further upside in XAU/USD.
Gold (XAU/USD) extends Monday’s rebound from the $4,400 area — its lowest level since January 6 — and picks up modest follow-through during the Asian session on Tuesday. However, the metal struggles to sustain the upside momentum, paring part of its intraday gains and easing back toward the $4,856 zone amid a confluence of bearish factors.
US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair has removed a major source of uncertainty. In addition, a stronger-than-expected US ISM Manufacturing PMI released on Monday has helped the US Dollar hold onto its recent recovery from a four-year low, creating headwinds for gold prices.
Further weighing on the precious metal are signs of easing US–Iran tensions over Iran’s nuclear program, the US–India trade agreement, and CME Group’s decision to increase margin requirements for precious metals futures. These factors, combined with a generally positive risk tone in global equity markets, call for caution among XAU/USD bulls.
As a result, it may be prudent to wait for sustained follow-through buying before concluding that the recent sharp corrective decline from the $5,600 region — the record high reached last week — has fully played out. Looking ahead, the US JOLTS Job Openings data could provide fresh direction later in the North American session.
Daily Digest Market Movers: Gold supported by a weaker USD; upside remains limited amid upbeat risk sentiment
US President Donald Trump on Friday nominated Kevin Warsh to replace Jerome Powell as Federal Reserve Chair in May, subject to Senate confirmation. Given Warsh’s hawkish credentials, he is expected to remain alert to any rise in inflation expectations.
Separately, CME Group announced over the weekend that margin requirements for precious metals futures will be raised from Monday’s market close. This triggered a second consecutive day of liquidation, pushing gold to a four-week low on Monday.
On the data front, the Institute for Supply Management reported that US manufacturing activity expanded for the first time in a year. The Manufacturing PMI jumped to 52.6 in January from 47.9 previously, signaling a sharp rebound.
Meanwhile, Trump said on Monday that the US and India have finalized a trade agreement and will immediately begin lowering tariffs on each other’s goods. In addition, expectations that the US and Iran will resume nuclear talks on Friday further lifted investor confidence.
The US Dollar eases on Tuesday, retreating from an over one-week high reached the previous session, offering some support to gold during Asian trading. However, the aforementioned headwinds may continue to cap upside in the precious metal.
Market participants will look ahead to the US JOLTS Job Openings report on Tuesday, followed by Wednesday’s US ADP private employment data and ISM Services PMI. These releases, along with Fed commentary, are likely to influence the USD and XAU/USD.
Gold’s mixed technical picture calls for caution before aggressive directional positioning
The commodity displayed resilience below its 50-day Simple Moving Average (SMA) and rebounded from the 50% Fibonacci retracement of the July 2025–January 2026 rally on Monday. The rising slope of the SMA indicates that downside moves may continue to attract buying interest. In addition, XAU/USD remains above the 38.2% retracement level, located around the $4,645–4,650 region, which should provide immediate support. The Relative Strength Index (RSI) is currently at 51.91 and trending higher, signaling stabilizing momentum.
That said, the Moving Average Convergence Divergence (MACD) remains below both the signal line and the zero line, maintaining a bearish bias. The expanding negative histogram suggests that downside momentum is gaining traction. On the upside, any further recovery could shift focus toward the 23.6% retracement at $4,995.94. Conversely, a failure to defend the initial support zone may leave the rebound exposed to deeper consolidation.
The Reserve Bank of Australia’s board voted on Tuesday to raise the Official Cash Rate by 25 basis points to 3.85% from 3.60% at the conclusion of its February policy meeting, in a move widely anticipated by markets.
Overview of the RBA’s Monetary Policy Statement
The Reserve Bank Board’s policy decision was unanimous. The Board reaffirmed that it will continue to closely monitor incoming data and evolving risks when determining future policy settings.
Although inflation has fallen significantly from its 2022 peak, it rose materially in the second half of 2025. Recent data confirm a renewed strengthening in inflationary pressures, partly reflecting tighter capacity constraints and stronger-than-expected private demand. The Board judged that inflation is likely to remain above the target range for some time and therefore considered an increase in the cash rate target appropriate.
While some of the inflation pickup is expected to be temporary, demand has been growing faster than anticipated and capacity pressures are greater than previously assessed. Labour market conditions remain slightly tight, though they have stabilised in recent months. The Board reiterated its commitment to achieving price stability and full employment and stated it would take whatever action it deems necessary to meet its mandate.
There remains considerable uncertainty around the outlook for domestic activity, inflation, and the degree of monetary policy restrictiveness. The forecasts assume the cash rate rises to 3.9% by June and 4.2% by December, with higher inflation projections extending through to the end of 2027. The assumed policy tightening is expected to help restore balance between demand and supply, although the economy is currently judged to be operating above potential.
Private demand growth was much stronger than expected in late 2025, financial conditions may now be somewhat accommodative, and credit growth has accelerated, with the cash rate sitting below some estimates of neutral. The RBA significantly lifted its forecasts for business investment—partly driven by data centre expansion—as well as government spending and dwelling investment, while noting that some sector-specific demand may not persist.
GDP growth is projected at 2.3% in Q4 2025, slowing to 1.8% in Q4 2026 and 1.6% in Q4 2027. CPI inflation is forecast at 4.2% in Q2 2026, easing to 3.6% by Q4 and returning to around 2.6–2.7% by 2027–28. Trimmed mean inflation follows a similar path. The unemployment rate is expected to gradually rise to 4.3% by Q4 2026 and 4.6% by mid-2028.
Globally, economic growth in 2025 has been stronger than anticipated, with downside risks diminishing.
AUD/USD response to the RBA’s interest rate decision
The Australian Dollar attracts renewed buying interest immediately after the RBA’s decision, pushing AUD/USD back above 0.7000. At the time of writing, the pair is up 0.75% on the day.
The following section was published on February 2 at 21:45 GMT as a preview of the Reserve Bank of Australia’s (RBA) policy announcement.
The Reserve Bank of Australia is expected to raise interest rates by 25 basis points to 3.85% in February. Comments from RBA Governor Michele Bullock and updated economic forecasts may provide guidance on the future path of rate hikes. The Australian Dollar is likely to experience heightened volatility around the RBA policy announcement.
The Reserve Bank of Australia is widely anticipated to lift the Official Cash Rate (OCR) from 3.6% to 3.85% following the conclusion of its first monetary policy meeting of 2026.
The decision is scheduled for release at 03:30 GMT on Tuesday, alongside the Monetary Policy Statement (MPS) and quarterly economic forecasts. This will be followed by a press conference with RBA Governor Michele Bullock at 04:30 GMT.
The Australian Dollar is expected to see sharp moves as markets digest the RBA’s policy decision and revised economic outlook.
RBA is set to break the global easing trend
The Reserve Bank of Australia is widely expected to deliver its first interest rate increase in more than two years at its February policy meeting on Tuesday, breaking from the global easing trend as it seeks to rein in mounting inflationary pressures.
Speaking at the press conference following the December policy decision, RBA Governor Michele Bullock stressed the central bank’s commitment to controlling inflation, stating that “the Board will do what it needs to do to get inflation down.” She added that if incoming data showed inflation was not easing, it would be taken into account at the February meeting.
Data released by the Australian Bureau of Statistics (ABS) last Wednesday showed inflation accelerating, with the monthly Consumer Price Index (CPI) rising to 3.8% in December from 3.4% in November, exceeding market expectations of a 3.6% increase.
Core inflation also surprised to the upside, as the trimmed mean CPI — the RBA’s preferred underlying inflation gauge — climbed 0.9% quarter-on-quarter in the fourth quarter, above forecasts of a 0.8% rise.
In response to the stronger inflation data, money markets lifted the implied probability of a February rate hike to 73%, up from 60% previously, according to Reuters.
Australia’s four major banks — ANZ, Westpac, Commonwealth Bank of Australia and National Australia Bank (NAB) — have also revised their outlooks, now expecting a 25-basis-point rate increase from the RBA in February.
Further support for a policy tightening came from the labour market. ABS data released on January 22 showed the unemployment rate unexpectedly falling to 4.1% in December from 4.3%, marking its lowest level since May. Net employment rose sharply by 65.2K after declining by 28.7K in November.
How will the RBA’s decision affect AUD/USD?
The Australian Dollar faces two-way risks against the US Dollar in the run-up to the RBA policy decision.
AUD/USD could end its recent correction and regain upside momentum if Governor Michele Bullock’s remarks and updated economic forecasts indicate that further rate increases remain likely in the months ahead.
On the other hand, the pair may extend its pullback should Governor Bullock temper expectations for additional tightening, particularly if inflation projections appear stable.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, outlines the key technical levels to watch following the policy announcement.
“AUD/USD is trading below the 0.7000 mark ahead of the RBA rate decision, consolidating after a pullback from a three-year high of 0.7094 reached on Thursday. The 14-day Relative Strength Index (RSI) has retreated from overbought conditions and is now testing the 60 level, indicating that the broader bullish bias remains intact.”
Mehta adds, “The pair could reverse higher and embark on a fresh uptrend toward the 0.7050 psychological level if the RBA delivers a hawkish rate hike. Further resistance is located at the 2026 high of 0.7094, followed by the February 2023 peak at 0.7158. Conversely, a dovish outcome could see AUD/USD probe the 0.6900 region. A decisive break below this area may open the door to further losses toward the 0.6850 psychological level, with the 0.6800 round figure acting as the final support for buyers.”
The Reserve Bank of Australia raised its policy rate by 25 basis points on Tuesday, in line with expectations, and cautioned that inflation is likely to stay above target in the months ahead.
The unanimous decision lifted the cash rate target to 3.85% from 3.65%, following a renewed uptick in inflation late last year that pushed underlying price pressures back above the RBA’s 2%–3% target range.
The central bank said private demand remained resilient and domestic capacity constraints persisted, factors it expects will keep inflation elevated for some time. While some of the recent rise in inflation reflects temporary influences, the RBA noted that demand has been expanding faster than anticipated, capacity pressures are stronger than previously assessed, and labour market conditions remain tight.
The RBA stopped short of signalling further rate increases, instead reaffirming its commitment to maintaining price stability and full employment, and said it would take whatever action it deems necessary to achieve those objectives.
The U.S. dollar has extended its modest recovery as gold and silver have sold off sharply, and conditions now appear stable enough for incoming data to drive FX markets this week. The U.S. economic calendar is set to culminate in solid payrolls and unemployment figures, potentially leaving room for further upside in the dollar.
Elsewhere, the European Central Bank may avoid focusing heavily on the euro in its messaging, while the Reserve Bank of Australia could deliver a rate hike as soon as tonight.
USD: Some Health Restored
The dollar is showing renewed strength. The de-basement trade that appeared to drive last week’s sharp decline in the USD has begun to unwind following Kevin Warsh’s nomination by President Donald Trump as the next Federal Reserve chair. The steep correction in previously overbought precious metals has likely provided additional support for the dollar, although we have consistently argued that the earlier USD selloff had become overly disconnected from underlying macro fundamentals.
With the dollar now partially recovered, we expect price action to realign more closely with incoming data and short-term rate dynamics this week. The U.S. economic calendar is busy, featuring ISM surveys (with manufacturing due today), JOLTS and ADP reports ahead of Friday’s payrolls release. Our expectation is for around 80,000 jobs added and an unchanged unemployment rate of 4.4%, which could help underpin further stabilization or recovery in the dollar.
In the meantime, we are watching closely for signs of dip-buying interest in EUR/USD. We see the key support zone around 1.1880–1.1900, and the recent break below this area suggests some renewed confidence in the dollar. A renewed rally in the euro without clear data or event-driven justification would imply that damage to the dollar may be more persistent. For now, however, we maintain a short-term bullish outlook for the USD.
EUR: Concerns over euro strength may be overstated
This week’s key question is how concerned the European Central Bank truly is about the euro’s recent appreciation. With EUR/USD no longer hovering near the much-feared 1.20 level, the likelihood of an explicit reaction from ECB officials has diminished—any comments were always more likely to emerge after the meeting or in the minutes rather than in the main policy statement.
At Thursday’s meeting, there may be little to prompt a change in President Christine Lagarde’s long-standing reluctance to comment on exchange rate levels. At the same time, markets do not appear to be pricing in significant risk of verbal pushback against euro strength, suggesting that the threshold for a negative euro response is relatively low.
Eurozone core inflation data due on Wednesday are expected to ease slightly to 2.2%. Our economists see a marginally higher print of 2.3%, but either outcome is unlikely to have much impact on the currency. For now, EUR/USD should continue to be driven largely by dollar sentiment, and if confidence in the USD continues to recover as expected, we see the pair moving toward our short-term fair value estimate of 1.1770 in the near term.
AUD: RBA rate hike hangs in the balance
The Australian dollar has been among the hardest hit by the abrupt unwinding of long positions in gold and silver. More broadly, AUD/USD appeared to be pricing in an excessive amount of optimism in January, particularly given unchanged interest rate differentials. Unlike EUR/USD—where rate expectations have shifted little on the euro side—AUD/USD has seen notable moves at the front end of the curve on both sides.
Markets are now pricing in around 19 basis points of tightening from the Reserve Bank of Australia at tonight’s meeting, and we align with consensus in expecting a 25 bp rate hike to 3.85%. That said, the decision looks finely balanced. While the upside surprise in December CPI, coupled with a strong housing market, supports a hike, the RBA is unlikely to signal the start of a new tightening cycle. With markets already pricing at least one additional hike by year-end, any indication that this move is “one and done” would limit the support a hike could provide to the Australian dollar.
In our view, the impact of RBA tightening on AUD/USD is more likely to become apparent beyond the near term, once the overwhelming volatility in the U.S. dollar subsides. Consistent with our USD outlook, and given that market pricing is already skewed toward a hawkish outcome, we expect AUD/USD to trade lower in the coming weeks before eventually settling into a more sustainable recovery path beyond the 0.70 level.
As January 2026 draws to a close, FX markets find themselves at a pivotal juncture, shaped by diverging central bank policies and evolving technical signals. After delivering a cumulative 175 basis points of rate cuts since September 2024, the Federal Reserve now faces a critical inflection point. Meanwhile, the European Central Bank has wrapped up its easing cycle, and the Bank of Japan appears poised to begin its first substantive tightening phase in decades.
Together, these dynamics have fueled sustained U.S. dollar weakness—a trend that looks set to continue as U.S. economic growth moderates and investor confidence deteriorates.
From a technical standpoint, the dollar is underperforming against its major counterparts and is trading near multi-month lows. In this outlook, we examine the greenback’s performance versus USD/JPY, EUR/USD, and GBP/USD, incorporating both fundamental drivers and technical considerations.
USD/JPY – Weekly Timeframe
USD/JPY is currently trading in the mid-150s after failing to sustain gains near the 160 region, where price action appears to have formed a double-top structure. While the pair continues to find support along a rising trend line in place since January 2021, bearish RSI divergence has intensified, signaling potential downside risk for the U.S. dollar in the months ahead.
Key resistance remains near 160, while a support base is evident in the 148–150 zone. A decisive weekly close below this area would strengthen the bearish outlook, potentially opening the door toward the 138 level and aligning with the broader theme of ongoing dollar selling.
EUR/USD – Weekly Timeframe
EUR/USD is currently trading near a key resistance zone around 1.19. This area carries both psychological significance and technical importance, representing a measured move based on Fibonacci projections. With no evident bearish divergence at present, the possibility of a sustained break above 1.20 cannot be dismissed. Such a move would likely open the path toward the 1.30 level over the coming months, in line with the broader outlook of continued U.S. dollar weakness.
GBP/USD – Daily Timeframe
Sterling’s advance against the U.S. dollar appears to be driven more by dollar weakness than by underlying pound strength. JP Morgan strategist Nelligan cautions that any meaningful outperformance in sterling is more likely to materialize in the first half of the year, with fiscal concerns potentially resurfacing in the second half.
GBP/USD projections align with the broader bearish-dollar theme outlined in this report, with the Sigmacast ensemble from Sigmanomics’ classical models pointing to higher levels over the medium term. From a technical perspective, the pair has recently pulled back after closing above a key descending trend line that had capped upside since early 2025.
EUR/USD began a renewed downturn after failing to hold above 1.2080.
The pair slipped below a crucial bullish trend line, with prior support located around 1.1880 on the 4-hour chart.
EUR/USD Technical Outlook
On the 4-hour timeframe, EUR/USD broke beneath an important ascending trend line at 1.1880, triggering the latest leg lower. Price action also moved below the 38.2% Fibonacci retracement of the rally from the 1.1577 swing low to the 1.2083 peak.
Near-term support is seen around 1.1820, aligning with the 50% Fibonacci retracement of the same upward move. A stronger support zone for buyers could emerge near the 1.1800 level.
The key support level is positioned at 1.1770. A break below this zone could expose EUR/USD to a test of the 200-period simple moving average (green, 4-hour), followed by the 100-period simple moving average (red, 4-hour).
On the upside, any renewed advance is likely to encounter resistance near 1.1910. The first major obstacle for buyers stands around 1.1940, with an additional barrier near 1.1960. A decisive close above 1.1960 would strengthen the bullish case and potentially pave the way for a move back toward the 1.2080 area.
Long EUR/USD after a daily close above 1.1866, resulting in a 0.24% loss.
Long Silver, which ended with a loss of 18.62%.
Long Gold after a daily close above $5,000, producing a 2.26% loss.
Taken together, these positions generated a total loss of 21.12%, or 7.04% per asset. While this was a sizable drawdown, the broader performance of my weekly forecasts over recent weeks remains positive, as earlier gains were exceptionally strong and more than offset this setback.
Key market data from last week:
U.S. Federal Reserve policy meeting: No surprises, with interest rates left unchanged.
U.S. Producer Price Index (PPI): The standout data release of the week. Inflation came in far hotter than expected, with headline PPI rising 0.5% month-on-month and core PPI increasing 0.7%, versus forecasts of just 0.2% for both. This reinforced a more hawkish Fed outlook, lifted the U.S. dollar, and accelerated the sharp reversal in Silver (and Gold). As a result, expectations for a second U.S. rate cut in 2026 were pushed back to October.
Bank of Canada policy meeting: No change to interest rates, as anticipated.
Australian CPI: Inflation exceeded expectations, with an annual rate of 3.8% versus 3.5% forecast, strengthening the case for possible RBA rate hikes and supporting the Australian dollar early in the week.
Canadian GDP: Slightly weaker than expected, showing zero month-on-month growth.
U.S. unemployment claims: In line with forecasts.
While PPI and Australian inflation influenced market moves, two broader developments likely had an even greater impact:
Federal Reserve leadership: President Trump announced his nominee for the next Fed Chair, Kevin Warsh. Although regarded as a hawk, Warsh is now thought to favor lower interest rates. The nomination contributed to the collapse of the Silver rally and provided additional support to the U.S. dollar.
Geopolitical tensions: The U.S. continued its military buildup near Iran, raising the risk of a wider regional conflict. Polymarket currently assigns a high probability to a U.S. strike on Iran in March, despite President Trump still referencing the possibility of a diplomatic agreement. These tensions appear to be supporting crude oil prices, with WTI crude reaching a new four-month high last week.
Meanwhile, the S&P 500 briefly pushed to a fresh record above 7,000. Although the index remains resilient, upside momentum is limited. In my view, a clearer resolution to U.S.–Iran tensions is needed before a more decisive directional move can develop.
The Week Ahead: 2nd – 6th February
The most significant data releases for the coming week, ranked by expected market impact, include:
U.S. Average Hourly Earnings and Non-Farm Payrolls
Preliminary University of Michigan Inflation Expectations
European Central Bank main refinancing rate decision and monetary policy statement
Bank of England official bank rate decision, voting breakdown, and monetary policy report
Reserve Bank of Australia cash rate decision, rate statement, and monetary policy statement
U.S. JOLTS job openings
Preliminary University of Michigan consumer sentiment
U.S. ISM services PMI
U.S. ISM manufacturing PMI
U.S. unemployment rate
New Zealand unemployment rate
Canadian unemployment rate
U.S. weekly unemployment claims
This will be a particularly busy and potentially market-moving week, with three major central banks delivering policy decisions. Please note that Friday is a public holiday in New Zealand, which may reduce liquidity in related markets.
Monthly Forecast February 2025
For the month of January 2026, I forecasted that the USD/JPY currency pair would rise in value. Unfortunately, this was a losing trade.
For the month of February, I forecast that the EUR/USD currency pair will rise in value.
Weekly Forecast 2nd February 2026
Last week, three currency crosses experienced unusually high volatility, prompting the following weekly trade forecasts:
Short NZD/JPY, which resulted in a 0.57% loss.
Short AUD/JPY, ending with a 0.32% loss.
Short NZD/CAD, producing a 0.39% loss.
Overall, the Swiss franc and the New Zealand dollar emerged as the strongest major currencies of the week, while the U.S. dollar was the weakest. Market conditions were relatively subdued, with directional volatility dropping sharply—only 11% of major currency pairs and crosses moved by more than 1% over the week.
Technical Analysis
Key Support/Resistance Levels for Popular Pairs
US Dollar Index
Last week, the U.S. Dollar Index formed a notably large bullish pin bar, rejecting a fresh four-year low. On its own, this price action is bullish. However, the broader technical structure remains bearish, with the index still trading below its levels from 13 and 26 weeks ago. As a result, the technical outlook for the U.S. dollar is mixed.
The nomination of Kevin Warsh as Federal Reserve Chair provided some support to the dollar during the week. Nevertheless, the forward outlook remains uncertain, and I believe the most attractive trading opportunities in the near term are likely to be independent of U.S. dollar direction.
EUR/USD
The EUR/USD pair recently staged a strong long-term bullish breakout as the U.S. dollar accelerated lower and printed a new 3.5-year low. However, the move quickly failed, with price retreating sharply and finding minimal follow-through support.
This price action suggests the breakout may have been a temporary spike, although the potential for a sustained bullish trend should not be dismissed, as EUR/USD has historically shown a tendency to trend cleanly once momentum is established.
That said, the appointment of a new Fed Chair and the renewed strength in the U.S. dollar late in the week—driven by hotter inflation data—argue for a more cautious stance.
Accordingly, I would only consider a long position following a daily (New York close) above 1.2039.
WTI Crude Oil
WTI crude oil has surged strongly in recent sessions as the risk of a regional conflict centered on Iran has intensified. Prediction markets are currently assigning a high probability to a U.S. strike on Iran in March, a scenario that could significantly disrupt global crude supply. Against this backdrop, prices pushed to a new four-month high by the end of last week, with a daily close above $66.25 marking a potential six-month high.
However, two important cautions should be noted:
While a daily close above $66.25 would typically attract trend-following buying, the current moving average structure does not confirm a bullish setup. Even in the event of military conflict, the move could prove to be a short-lived spike, especially if a rapid U.S. victory follows, potentially resulting in a failed breakout.
Unlike recent Democratic administrations, the Trump administration is likely to take aggressive steps to suppress crude oil prices, which could cap or reverse upside momentum.
Bitcoin
BTC/USD has finally completed a decisive bearish breakdown below the long-term support zone just above $81,000. Price is now firmly established beneath this level and has pushed to a new nine-month low, a development that is technically significant and clearly bearish.
While equities and precious metals have rallied strongly in recent months, Bitcoin peaked at a record high several months ago and has since trended steadily lower. This divergence highlights a broader downturn across the crypto sector, with Bitcoin now showing clear signs of structural weakness.
Despite early expectations that Bitcoin would fundamentally reshape global finance, real-world adoption remains limited outside parts of Africa. Practical usability is still constrained, and its underlying value proposition remains uncertain.
Although I generally avoid short-selling, Bitcoin appears entrenched in a long-term bearish trend. I would not consider buying at current levels. Short positions may be worth considering, but only with strict risk management, as shorting is best suited to experienced traders.
XAG/USD
Silver experienced an exceptionally volatile week, surging more than 15% to hit a new all-time high and the long-discussed $120 options target, before suffering a dramatic reversal. The sell-off unfolded sharply on Thursday and Friday—particularly Friday—when prices plunged 28% in a single session.
I had previously cautioned that the move was highly vulnerable to a sharp correction, and that while a long position was justified, it should be taken with a reduced position size.
The sheer magnitude of the collapse, even with some bullish undertones and modest resilience in the bounce from the weekly lows, strongly suggests that another record high is unlikely in the near term. This extraordinary rally appears to be finished, and the most probable next phase is a period of erratic consolidation, marked by large swings and gradually diminishing volatility.
XAU/USD
Much of the analysis above regarding Silver also applies to Gold. That said, gold’s volatility was noticeably lower, and its price action showed greater resilience at the lows.
While gold is also likely to enter a period of sideways consolidation, the underlying structure suggests it may recover to the upside more quickly than silver.
Bottom Line
My preferred trade for the coming week is:
Long EUR/USD, contingent on a daily (New York) close above 1.2039.
USD/JPY traded steadily after the Bank of Japan signaled that the risk of falling behind the curve has not increased meaningfully. Japanese Prime Minister Sanae Takaichi noted that a weaker Yen supports exports and helps offset the impact of US tariffs on the auto sector. Meanwhile, the US Dollar gained support following Kevin Warsh’s nomination as Federal Reserve Chair.
USD/JPY is holding steady after three consecutive days of gains, trading near 155.20 during Asian hours on Monday. Upside momentum may be capped as the Japanese Yen remains relatively calm following the Bank of Japan’s January Summary of Opinions.
The BoJ’s Summary of Opinions indicated that the risk of falling behind the policy curve has not increased materially, though members emphasized that timely policy action is becoming more important. With real interest rates still deeply negative, policymakers agreed that additional rate hikes would be appropriate if the outlook for growth and inflation remains intact, while continuing to favor a gradual tightening path. Over the weekend, Japanese Prime Minister Sanae Takaichi said a weaker Yen could benefit export-driven industries and help shield the auto sector from the impact of US tariffs.
The pair may still find support as the US Dollar strengthens following President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair. Markets view Warsh’s appointment as signaling a more disciplined and cautious approach to monetary easing.
US producer inflation data also underpinned the Dollar, reinforcing the Federal Reserve’s restrictive policy stance. Headline PPI remained unchanged at 3.0% year over year in December, above expectations for a slowdown to 2.7%, while core PPI accelerated to 3.3% from 3.0%, defying forecasts for a decline to 2.9% and highlighting persistent upstream price pressures.
Echoing this view, St. Louis Fed President Alberto Musalem said further rate cuts are not justified at this stage, describing the current 3.50%–3.75% policy rate range as broadly neutral. Atlanta Fed President Raphael Bostic also urged patience, arguing that monetary policy should remain modestly restrictive.
NZD/USD edged higher to around 0.6025 during early Asian trading on Monday. China’s RatingDog Manufacturing PMI increased to 50.3 in January 2026, in line with expectations. Meanwhile, US producer prices rose strongly in December, with PPI climbing 0.5% month over month.
The NZD/USD pair is trading on a positive note around 0.6025 during early Asian hours on Monday. The New Zealand Dollar remains supported against the US Dollar following the release of China’s Manufacturing PMI data, while traders await further direction from the US ISM Manufacturing PMI report due later in the day.
Data published by RatingDog showed that China’s Manufacturing Purchasing Managers’ Index rose to 50.3 in January from 50.1 in December, marking the highest reading since October 2025 and coming in line with market expectations. The data may offer modest support to the China-sensitive Kiwi, given China’s status as New Zealand’s largest trading partner.
US President Donald Trump’s selection of Kevin Warsh as the next Federal Reserve (Fed) Chair could boost the US dollar. Markets expect Warsh may lean toward a smaller Fed balance sheet and likely favor lower interest rates but would stop well short of the more aggressive easing associated with some of the other potential candidates.
Additionally, hotter-than-expected US producer price inflation could lift the Greenback and create a headwind for the pair. The Bureau of Labor Statistics revealed on Friday that US Producer Price Index (PPI) rose to 3.0% year-over-year (YoY) in December, beating estimates of 2.7%. Meanwhile, the PPI rose to 0.5% month-over-month (MoM) in December, above the market consensus and the previous reading of 0.2%. This report could further strengthen the case for the Fed to hold rates steady while policymakers monitor how inflation trends.
The Australian Dollar softened even as China’s RatingDog Manufacturing PMI edged up to 50.3 in January from 50.1. Meanwhile, Australia’s TD-MI Inflation climbed 3.6% year over year, though the monthly increase eased to 0.2%, its slowest pace since August. The US Dollar could gain further support after Donald Trump nominated Kevin Warsh as Fed Chair, a move seen as signaling a more cautious stance on monetary easing.
The Australian Dollar weakened against the US Dollar on Monday, extending losses after falling more than 1% in the prior session. The AUD/USD pair stayed under pressure despite China’s RatingDog Manufacturing PMI ticking up to 50.3 in January from 50.1 in December, in line with market expectations. While the reading signaled a modest expansion in factory activity, it marked the strongest growth since October.
Meanwhile, Australia’s TD-MI Inflation Gauge rose to 3.6% year over year in January from 3.5% previously. On a monthly basis, inflation increased by 0.2%, easing sharply from December’s two-year high of 1% and registering its slowest pace since August.
ANZ Job Advertisements surged 4.4% month over month in December 2025, rebounding from a revised 0.8% decline and marking the first increase since July. The rise was also the strongest monthly gain since February 2022, pointing to renewed hiring momentum toward the end of the year.
The data come ahead of the Reserve Bank of Australia’s policy meeting on Tuesday, following the central bank’s decision to keep the cash rate unchanged at 3.6% for a third consecutive meeting in December. Policymakers are widely expected to maintain a cautious stance, as underlying inflation remains above target and labor market conditions stay relatively tight, supporting a restrictive and data-dependent policy approach.
Meanwhile, Australia’s Consumer Price Index increased 3.8% year over year in December, up from 3.4% previously. With headline inflation still exceeding the RBA’s 2–3% target range, recent PMI and employment indicators strengthen the argument for a tighter monetary policy bias.
US Dollar edges lower ahead of ISM Manufacturing PMI
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is edging lower after posting gains of more than 1% in the previous session, trading near 97.10 at the time of writing. Market attention is turning to the release of the US ISM Manufacturing PMI for January later in the day.
Despite the modest pullback, the US Dollar had recently drawn support following President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair, a move markets viewed as signaling a more disciplined and cautious approach to monetary easing. The Greenback also benefited from improved risk sentiment after the US Senate reached an agreement to advance a government funding package, averting a potential shutdown, according to Politico.
US producer-side inflation data further underpinned the Dollar, reinforcing the Federal Reserve’s restrictive policy stance. Headline PPI remained unchanged at 3.0% year over year in December, exceeding expectations for a slowdown to 2.7%. Core PPI, which excludes food and energy, accelerated to 3.3% YoY from 3.0%, defying forecasts for a decline to 2.9% and highlighting persistent upstream price pressures.
Federal Reserve officials echoed a cautious tone on easing. St. Louis Fed President Alberto Musalem said additional rate cuts are not justified at present, describing the current 3.50%–3.75% policy rate range as broadly neutral. Atlanta Fed President Raphael Bostic also urged patience, arguing that monetary policy should remain modestly restrictive.
In Australia, inflation and trade data pointed to continued price pressures. The RBA’s Trimmed Mean inflation rose 0.2% month over month and 3.3% year over year, while the monthly CPI jumped 1.0% in December from zero previously, exceeding forecasts of 0.7%. Export prices increased 3.2% quarter over quarter in Q4 2025, rebounding from a 0.9% decline in Q3 and marking the strongest gain in a year, while import prices climbed 0.9%, beating expectations for a fall and reversing a prior decline.
Following the data, markets now price in more than a 70% probability of a 25-basis-point rate hike by the Reserve Bank of Australia from the current 3.6% cash rate, up from around 60% previously. Rates are fully priced at 3.85% by May and near 4.10% by September.
Australian Dollar slides toward key confluence support near 0.6900
The AUD/USD pair is trading near 0.6940 on Monday. Analysis of the daily chart shows the pair continuing to move higher within an ascending channel, pointing to a sustained bullish bias. The 14-day Relative Strength Index has eased from the 70 level to around 67, suggesting a cooling in bullish momentum rather than a trend reversal.
On the upside, AUD/USD could recover toward 0.7093, its highest level since February 2023, reached on January 29. A sustained break above this level would open the door for a test of the channel’s upper boundary near 0.7190. On the downside, initial support is seen at a confluence zone around the nine-day Exponential Moving Average at 0.6927, which aligns closely with the lower boundary of the ascending channel near 0.6920.
Most Asian currencies traded in narrow ranges on Monday, while the dollar strengthened as investors assessed U.S. President Donald Trump’s nomination for the next Federal Reserve chair.
The Japanese yen weakened in volatile trading after remarks from Prime Minister Sanae Takaichi suggested a reduced likelihood of currency market intervention by Japanese authorities.
Broader moves across Asian currencies were subdued as investors awaited further economic signals this week, including a policy meeting by the Reserve Bank of Australia and the release of key U.S. jobs data.
Dollar gains after Trump taps Warsh as Fed chair nominee
The dollar index and its futures each rose around 0.1% in Asian trading, extending last week’s gains after the greenback staged a sharp rebound from a near four-year low.
The dollar’s advance was driven largely by U.S. President Donald Trump’s nomination of former Federal Reserve governor Kevin Warsh to succeed Jerome Powell as Fed chair.
Warsh is broadly seen as aligned with Trump’s push for significantly lower interest rates, but is also viewed as a critic of the Fed’s asset-purchase programs—suggesting that longer-term monetary policy under his leadership may prove less dovish than markets initially expected.
“We expect a Warsh-led Fed to favour a smaller balance sheet, limiting support for large-scale fiscal expansion,” ANZ analysts said in a note.
The analysts added that Warsh may view labour market weakness as the greater threat to the Fed’s dual mandate of maximum employment and price stability, and would likely back additional rate cuts if confirmed in the months ahead.
Powell’s term is set to expire in May. The current Fed chair said last week that his successor should remain independent of political pressures.
Yen weakens after Takaichi remarks
The Japanese yen underperformed its Asian peers on Monday, with USD/JPY climbing as much as 0.5% to trade above the 155 level.
The currency weakened after comments from Sanae Takaichi highlighted the benefits of a softer yen during a recent campaign speech—remarks that contrasted with earlier warnings from her administration against sustained currency weakness. Takaichi later appeared to moderate her stance, noting that a weaker yen supports exporters.
Previously, a series of comments from Japanese officials, including Takaichi, cautioning against excessive yen moves had fueled speculation of possible government intervention. That speculation helped the yen strengthen sharply in January, though it remains near levels that have triggered intervention in the past. Recent media reports have suggested Japan and the United States may be considering coordinated measures to support the currency.
Elsewhere in Asia, currencies traded in a narrow to softer range amid a lack of near-term catalysts. The Australian dollar slipped about 0.2% against the U.S. dollar, with attention focused on Tuesday’s Reserve Bank of Australia meeting, where a 25-basis-point rate hike is widely expected.
Expectations of a rate hike by the Reserve Bank of Australia were driven mainly by data pointing to a rebound in Australian inflation during the second half of 2025.
The South Korean won weakened, with USD/KRW climbing about 0.5%, as heavy outflows from domestic equity markets weighed on the currency amid selloffs in major technology stocks.
The Chinese yuan was largely unchanged, with USD/CNY flat as markets showed little response to mixed January purchasing managers’ index readings.
The Singapore dollar edged higher, with USD/SGD slipping 0.1%, while the Taiwan dollar was steady against the greenback.
The Indian rupee also weakened, with USD/INR rising roughly 0.2% and hovering near record levels, after investors reacted cautiously to the government’s fiscal 2027 budget, which signaled increased spending to bolster the manufacturing sector.
The $66 level in WTI crude oil has proven to be a notable resistance zone, and prices are now retreating from that area. There is considerable uncertainty in the market over whether potential strikes against Iran could occur over the weekend, adding a layer of geopolitical risk.
Even so, underlying supply-and-demand dynamics remain a significant constraint on price action. As a result, large, sustained moves appear unlikely, and the prevailing strategy may continue to favor selling into rallies rather than chasing upside momentum.
British Pound
The British pound pushed above the 1.3750 level, but buying momentum now appears to be fading as selling pressure shows signs of exhaustion. Notably, the weekly candlestick resembles a shooting star, a pattern that often signals difficulty in sustaining further gains.
From here, a pullback could see GBP/USD slide toward the 1.35 area, a major round number with strong psychological significance. Part of this shift in sentiment may be tied to Kevin Warsh’s nomination as the next Federal Reserve Chair, as his comparatively hawkish stance has strengthened expectations for tighter U.S. monetary policy, weighing on the pound.
EUR/USD
The euro staged a strong rally earlier in the week but then reversed sharply after the initial upside move. This price action suggests the market may be entering a period of consolidation, raising the possibility that the recent breakout was a false move.
Much will depend on how traders respond to the nomination of the new Federal Reserve Chair. For now, the euro appears to be losing momentum. On the downside, the 1.16 level could come into play. However, if buyers step back in quickly over the coming week, the pair could regain strength and push higher, potentially revisiting the 1.20 area, with a further extension toward 1.23 if bullish momentum builds.
DAX
The German DAX has spent most of the week in negative territory but continues to hold above the 24,500 level, an area that has become important support after previously acting as resistance. This ability to stabilize at a former breakout zone suggests underlying buying interest remains intact.
Overall, the index appears to be in the process of bottoming and potentially turning higher, with scope for a renewed push to the upside. Looking further ahead, the outlook remains constructive. Ongoing fiscal support and heavy government spending in Germany should provide a tailwind for equities, leading to expectations that the DAX could be among the stronger-performing indices this year. As a result, the broader bias remains bullish.
Silver
Silver has become the focal point of market discussion after an extraordinary week of price action. After surging to around $122, the metal suffered a dramatic reversal, ending Friday in what can only be described as a sharp selloff.
In a single session, silver plunged below the $90 level, and momentum now suggests a potential move toward $80. After such an extreme rally, a correction was inevitable, and the market now appears to be experiencing that long-overdue pullback.
The selloff was likely exacerbated by the nomination of a more hawkish-than-expected Federal Reserve Chair, adding pressure to precious metals. Even in normal conditions, silver is known for its volatility, and the current environment has only amplified those swings. For now, price action has become exceptionally unstable, making silver largely untradeable for many participants.
Gold
Gold has been hit hard as well, but unlike silver, it benefits from strong central bank support, which should help it recover more quickly. Silver had moved so far beyond its fundamental norms that it began to resemble the kind of speculative excess often seen in smaller cryptocurrencies.
Gold, by contrast, continues to attract substantial institutional and central bank demand. That said, it is possible the market has already set a peak, although it may be too soon to say so definitively. Given the way trading unfolded on Friday, it is difficult to ignore the risk of continued downside follow-through.
Still, considering that gold was trading near $1,700 just two years ago, some form of correction was inevitable. When markets become stretched and overheated, this kind of reset is ultimately unavoidable.
USD/JPY
The U.S. dollar initially sank sharply against the Japanese yen over the week, but that move has since reversed decisively. The rebound suggests markets may be reassessing what now appears to have been an overly aggressive bet against the dollar.
Given the significant interest rate differential between the two currencies, this type of recovery is broadly in line with how the pair might be expected to trade. Technically, USD/JPY found support at the 50-week EMA, and if prices can reclaim the 155 level, the next upside target could be a move toward 158 yen.
USD/CHF
The U.S. dollar declined sharply against the Swiss franc, briefly testing the 0.76 level. While that price point may not be especially significant on its own, it does raise the possibility of Swiss National Bank intervention if franc strength becomes excessive—a risk that remains in the background.
Technically, the pair appears to be forming a hammer pattern following the breakdown, and more importantly, the U.S. dollar has begun to strengthen more broadly across global markets. Taken together, these factors suggest USD/CHF could be setting up for a rebound in the near term.
The euro’s recent surge has brought renewed attention to the European Central Bank, though economists argue it is unlikely to prompt any near-term policy action.
Last week, the single currency climbed to $1.20 against the U.S. dollar for the first time since mid-2021, marking an unusually swift move by historical standards. According to Capital Economics, the euro has strengthened by a similar scale over a 10-day period only a few times in the past decade, while its trade-weighted exchange rate has reached a record high.
Even so, analysts expect the inflationary impact across the euro zone to remain modest. Capital Economics cited ECB sensitivity analysis showing that if the euro stabilizes at current levels, headline inflation next year would be roughly 0.1 percentage points lower than projected in the ECB’s December forecasts.
While this slightly increases downside risks to inflation, the brokerage said it falls far short of the threshold that would justify foreign-exchange intervention on price-stability grounds.
The ECB is likely to address the euro’s strength at its meeting next week, but concrete action appears improbable. Although the central bank has the authority to intervene in currency markets to prevent disorderly moves that could threaten price stability, Capital Economics noted that the euro would need to rise much further before such measures were considered. Even then, intervention through dollar purchases is viewed as highly unlikely.
Historically, the ECB has stepped into currency markets only twice—once in late 2000 and again in March 2011—both times to support, rather than weaken, the euro. Those interventions were coordinated with other major central banks. Capital Economics added that a coordinated effort to push the euro lower now looks extremely unlikely, particularly given the U.S. administration’s preference for a weaker dollar.
ECB officials have so far played down the recent appreciation. Vice President Luis de Guindos has previously described levels above $1.20 as “complicated,” while also calling the level itself “perfectly acceptable.” Meanwhile, Austria’s central bank governor has characterized the latest rise as “modest.”
Capital Economics expects ECB President Christine Lagarde to reiterate that policymakers are closely monitoring exchange-rate developments, but not to actively try to talk the currency down.
Although intervention is unlikely in the near term, prolonged euro strength could influence policy over time. Capital Economics said ECB analysis suggests that if the euro were to appreciate gradually to between $1.25 and $1.30 over the next three years, headline inflation in 2028 would be about 0.3 percentage points lower.
Under such conditions, policymakers would be more inclined to respond through stronger verbal guidance and lower interest rates rather than direct currency market intervention.
For now, economists say the euro’s rise largely reflects U.S. dollar weakness rather than stronger euro zone fundamentals, reducing the need for an immediate response. As a result, the ECB is expected to remain on the sidelines unless the appreciation becomes substantially larger and more persistent, according to Capital Economics.
Japanese Prime Minister Sanae Takaichi highlighted the advantages of a weaker yen during a campaign speech, striking a note that contrasted with her finance ministry’s stance, which has kept all measures on the table to address excessive currency volatility.
She later walked back her remarks, clarifying that she holds no particular preference regarding the yen’s direction.
“Many people argue that the weak yen is a negative at the moment, but for exporters it represents a significant opportunity,” Takaichi said on Saturday, ahead of the snap election scheduled for February 8.
“Whether in food exports or automobile sales, even with U.S. tariffs in place, the weaker yen has acted as a cushion. That support has been extremely valuable,” she added.
Takaichi also said she aims to strengthen Japan’s economy against currency swings by encouraging greater domestic investment.
FILE PHOTO: Japan’s Internal Affairs Minister Sanae Takaichi attends a news conference at Prime Minister Shinzo Abe’s official residence in Tokyo, Japan September 11, 2019. REUTERS/Issei Kato/File Photo
The yen has been trading near 18-month lows against the U.S. dollar, fuelling inflation and raising expectations of potential interest-rate increases by the central bank. Finance Minister Satsuki Katayama has repeatedly stated that authorities are prepared to step in to stabilise the currency if needed — comments widely interpreted by markets as a signal of possible intervention.
In a post on X on Sunday, Takaichi reiterated that she does not support either a strong or weak yen.
“I did not state that one is better or worse,” she wrote, adding that the government is closely watching financial markets and that, as prime minister, she will avoid making specific remarks on exchange-rate levels.
“My intention was simply to say that we want to build an economic framework capable of withstanding exchange-rate volatility, not — as some reports have implied — to promote the advantages of a weak yen.”
Former prime minister and finance minister Yoshihiko Noda, who co-leads the largest and newly formed opposition group, the Centrist Reform Alliance, said a weak yen is hurting households, according to Nikkei on Sunday.
“Amid an excessive depreciation of the yen, no one feels comfortable when they look at their household finances,” Noda was quoted as saying. “The viewpoint of ordinary citizens is absent, which once again raises serious concerns for me.”
The yen jumped after reports that the New York Federal Reserve had joined Japanese authorities in contacting banks to inquire about exchange rates for potential yen purchases — a move traders often view as a signal that intervention could be imminent.
The currency’s prolonged slide, alongside a recent surge in Japanese government bond yields to record levels, underscores investor unease over the country’s stretched fiscal position.
Takaichi is seeking voter approval for her push to revive inflation and reflate the economy.
EUR/USD drops 0.75% as Kevin Warsh’s Fed nomination lifts US yields and fuels Dollar demand.
Hot US producer inflation reinforces expectations for a steady Fed, pushing Treasury yields above 4.25%.
Solid German and Eurozone GDP figures fail to counter Dollar strength driven by policy repricing.
EUR/USD slid 0.75% in the North American session as broad US Dollar strength followed Trump’s mildly hawkish Fed nominee and an inflation report supporting a steady-rate stance. The pair was trading at 1.1882 at the time of writing, down from a session high of 1.1974.
Euro sinks below 1.19 as hawkish Fed leadership signals and sticky inflation crush rate-cut hopes
Kevin Warsh has been named by President Trump as the next Chair of the Federal Reserve, confirming rumors that surfaced late Thursday. Financial markets reacted swiftly, sending precious metals sharply lower while the US Dollar climbed nearly 1%, as measured by the US Dollar Index (DXY), which tracks the greenback against six major peers. The DXY is on course to close above the 97.00 mark.
US Treasury yields also advanced, with the 10-year yield rising toward 4.25%. Meanwhile, US producer-side inflation edged higher, moving further away from the Federal Reserve’s 2% target and reinforcing the case for keeping interest rates unchanged. In addition to the December Producer Price Index (PPI) release, comments from Federal Reserve officials remained in focus.
Separately, breaking news reported that the US Senate reached an agreement to pass a government funding package later tonight, averting a potential shutdown, according to Politico.
Rising Treasury yields suggest investors see reduced odds that Warsh would pursue aggressive rate cuts to appease the White House. At the time of writing, the US 10-year Treasury yield was up around 1.5 basis points at 4.247%.
In Europe, Germany’s economy expanded by 0.4% year-on-year, beating expectations. However, stronger-than-forecast GDP readings for Germany and the Eurozone, along with an uptick in German inflation, failed to offer meaningful support to EUR/USD.
Looking ahead, the US economic calendar will feature a batch of labor market data, speeches from Fed officials, and January ISM Manufacturing and Services PMIs. In Europe, HCOB flash PMIs for the Eurozone, Germany, and France, alongside the European Central Bank’s monetary policy meeting, could inject volatility into EUR/USD.
Daily market movers: Dollar comeback sends Euro tumbling
St. Louis Fed President Alberto Musalem said there is no need for further rate cuts at present, noting that the current 3.50%–3.75% policy range is broadly neutral. He added that easing would only be warranted if the labor market weakens significantly or inflation falls materially.
Fed Governor Stephen Miran backed Kevin Warsh as a strong candidate for Fed Chair, attributing the recent rise in producer prices largely to housing costs and portfolio management fees. Meanwhile, Fed Governor Christopher Waller said the labor market remains soft despite steady growth, arguing inflation would be closer to 2% without tariffs, which he said are keeping price growth near 3%. Waller added that policy should be closer to neutral, around 3%.
Atlanta Fed President Raphael Bostic called for patience, stressing that interest rates should remain somewhat restrictive. He warned that the full inflationary impact of tariffs has yet to be felt and expects price pressures to persist.
US producer inflation data reinforced the cautious tone. The Producer Price Index (PPI) held steady at 3.0% YoY in December, missing expectations for a slowdown to 2.7%. Core PPI accelerated to 3.3% YoY from 3.0%, defying forecasts for a decline and highlighting ongoing upstream price pressures.
In Europe, EU GDP grew 1.4% YoY in Q4, unchanged from Q3 but above expectations. Germany’s economy expanded 0.4% YoY, beating forecasts and improving from the prior quarter. German inflation, measured by the HICP, edged up to 2.1% in January from 2.0%, remaining within the ECB’s target range.
Technical outlook: EUR/USD uptrend under threat after break below 1.1850
The EUR/USD technical outlook suggests the uptrend is under threat after the pair failed to sustain gains above the 2025 high at 1.1918, accelerating the decline below 1.1850. The Relative Strength Index (RSI) has turned mildly bearish, indicating a shift in momentum that could open the door to further downside.
On the downside, initial support is seen at 1.1800. A decisive break below this level could expose the 20-day simple moving average (SMA) at 1.1743.
On the upside, immediate resistance stands at 1.1900. A move back above this level would bring 1.1950 into focus, followed by the yearly high at 1.2082.
The US Federal Reserve experienced an eventful week. On Monday, it contacted New York–based banks to assess their USD/JPY exposure, sparking speculation that Washington could be coordinating with Japan to address the Japanese Yen’s weakness. This development prompted a sharp sell-off in the US Dollar early in the week.
The Fed’s midweek policy meeting resulted in no change to the federal funds rate, which was kept within the 3.50%–3.75% range, in line with expectations. During his press conference, Chair Jerome Powell avoided questions related to politics, his tenure, and the subpoena. However, he pointed to improving economic momentum and reduced risks to both inflation and the labor market.
The US Dollar Index (DXY) has since rebounded toward the 96.90 level, recovering most of its weekly losses after President Donald Trump nominated former Fed Governor Kevin Warsh as the next Fed Chair on Friday. The nomination now awaits Senate approval. Looking ahead, the US is set to release several key data points next week, including the ISM Manufacturing PMI for January, MBA mortgage applications, Challenger job cuts, and weekly initial jobless claims.
EUR/USD is hovering around the 1.1880 area after the US Dollar rebounded and recovered nearly all of its weekly losses. In the coming week, Hamburg Commercial Bank (HCOB) will release Manufacturing, Services, and Composite PMIs for both Germany and the Eurozone. Additional Eurozone data include the ECB Bank Lending Survey and December Producer Price Index (PPI), while Germany will publish December Factory Orders and Industrial Production figures.
GBP/USD is trading near 1.3600 ahead of the Bank of England’s monetary policy announcement on Thursday. Governor Andrew Bailey’s subsequent press conference is expected to shed further light on the central bank’s outlook for interest rates. UK data releases include the final January S&P Global PMIs and the Halifax House Price Index.
USD/JPY is holding close to the 154.50 level, paring earlier gains after Tokyo CPI data indicated easing inflation in January. Headline inflation slowed to 1.5% year-over-year from 2% in December, while core measures eased to 2%, undershooting forecasts. The softer inflation profile reduces pressure on the Bank of Japan to tighten policy.
USD/CAD is trading around 1.3580, with the Canadian Dollar maintaining a slight edge against the greenback despite data showing economic stagnation in November. Monthly GDP was flat following a 0.3% contraction in the prior month and fell short of expectations for modest growth. Upcoming Canadian releases include January S&P Global PMIs and the Ivey PMI.
Gold is trading near the $4,880 area after surrendering all weekly gains. Prices retreated from a record high of $5,598 as profit-taking emerged and the US Dollar strengthened sharply.
Looking ahead: Emerging views on the economic outlook
Scheduled central bank speakers for the week:
Monday, February 2: – Bank of England’s Breeden – Federal Reserve’s Bostic
Tuesday, February 3: – Federal Reserve’s Barkin
Wednesday, February 4: – Federal Reserve’s Cook
Thursday, February 5: – Bank of England Governor Andrew Bailey – Federal Reserve’s Bostic – Bank of Canada Governor Tiff Macklem
Friday, February 6: – European Central Bank’s Cipollone – European Central Bank’s Kocher – Bank of England’s Pill – Federal Reserve’s Jefferson
Central bank meetings and upcoming data set to influence monetary policy decisions
Key economic data and policy events for the week:
Monday, February 2: – Germany’s December Retail Sales – US ISM Manufacturing PMI
Tuesday, February 3: – Reserve Bank of Australia monetary policy decision – US December JOLTS job openings
Wednesday, February 4: – Eurozone January Harmonized Index of Consumer Prices (HICP) – US January ADP employment report
Thursday, February 5: – Australia’s December trade balance – Eurozone December retail sales – Bank of England monetary policy decision – European Central Bank monetary policy decision
Friday, February 6: – Canada’s January employment change – US January nonfarm payrolls – US February Michigan consumer sentiment
Here is what you need to know on Friday, January 30:
Markets were driven early Friday by the latest political and geopolitical developments linked to US President Donald Trump, as investors focused on the announcement of his pick for Federal Reserve Chair. Bloomberg reported that the Trump administration is preparing to nominate former Fed Governor Kevin Warsh for the role as early as Friday morning in the US.
At the same time, the Wall Street Journal noted that President Trump and Senate Democrats have reached an agreement to avoid a government shutdown.
Together with profit-taking and the Federal Reserve’s recent decision to keep interest rates unchanged, these developments helped revive demand for the US Dollar (USD), pushing it up from four-year lows against its major counterparts.
Despite the rebound, the US Dollar remains on course for a second consecutive weekly decline, weighed down by concerns over President Trump’s unpredictable foreign policy stance and repeated challenges to the Federal Reserve’s independence.
On Thursday, Trump threatened to levy a 50% tariff on all aircraft exported from Canada to the United States, accusing Ottawa of unfairly restricting the certification of Gulfstream business jets.
Reuters also reported that Trump plans to hold talks with Iran, even as the Pentagon readies for potential military action and the US steps up its naval presence in the Middle East.
In addition, the White House confirmed that Trump signed an executive order authorizing tariffs on countries that supply oil to Cuba.
Looking ahead, market attention remains firmly on Trump’s nomination of the next Fed Chair, along with the upcoming US Producer Price Index (PPI) release, which could shape the Dollar’s next move.
Before that, preliminary fourth-quarter 2025 GDP data from Germany and the Eurozone are expected to draw investor interest.
In G10 currencies, AUD/USD remains under heavy pressure below the 0.7000 mark amid profit-taking ahead of a likely Reserve Bank of Australia (RBA) rate hike next week. USD/JPY hovers near 154.00, with the Japanese Yen staying weak after softer Tokyo CPI data reduced expectations for an early Bank of Japan (BoJ) rate increase.
EUR/USD pares losses to reclaim the 1.1900 level, though downside risks persist ahead of key German and Eurozone GDP releases. GBP/USD continues to consolidate around 1.3750, weighed down by the ongoing recovery in the US Dollar.
In commodities, Gold slides nearly 4% to trade around $5,200 in early European hours after briefly testing the $5,100 level during the Asian session. Meanwhile, WTI crude oil extends its retreat from five-month highs near $66.25, trading close to $64 as Trump signals openness to talks with Iran.
Germany’s Federal Statistics Office will publish preliminary fourth-quarter GDP figures at 09:00 GMT on Friday, followed by Eurostat’s release of flash Eurozone GDP data at 10:00 GMT for the same period.
Germany’s economy is expected to expand by 0.2% quarter-over-quarter in Q4, rebounding from stagnation in the previous quarter, while annual growth is forecast to remain unchanged at 0.3%. At the Eurozone level, seasonally adjusted GDP is projected to grow by 0.2% QoQ in the fourth quarter, down from 0.3% previously, with year-over-year growth seen moderating to 1.2% from 1.4%.
How might Germany and the Eurozone’s Q4 GDP data influence the EUR/USD exchange rate?
The EUR/USD pair may face downside pressure if Germany and Eurozone GDP figures come in line with forecasts. Investors will also closely monitor December unemployment data from both regions, as well as Germany’s Consumer Price Index (CPI for January).
ECB policymaker Martin Kocher cautioned that additional strength in the Euro could lead the central bank to restart interest-rate cuts. After his remarks, market expectations for a summer rate reduction edged higher, with the implied probability of a July cut increasing to roughly 25% from around 15%. The ECB is set to meet next week and is broadly expected to leave interest rates unchanged.
Meanwhile, EUR/USD is under strain as the US Dollar gains traction amid speculation that US President Donald Trump may nominate former Federal Reserve Governor Kevin Warsh as the next Fed Chair. Trump indicated late Thursday that he would reveal his decision on Friday morning, with markets leaning toward Warsh, who is perceived as relatively hawkish.
From a technical perspective, EUR/USD is hovering near 1.1920 at the time of writing. Daily chart analysis continues to point to a bullish bias, with the pair holding within an ascending channel. A move toward the upper channel boundary near 1.2050 is possible, followed by 1.2082, the highest level since June 2021. On the downside, initial support is seen at the nine-day Exponential Moving Average (EMA) around 1.1870, with further support near the lower boundary of the channel at approximately 1.1840.
Markets absorbed last night’s FOMC decision without much surface reaction, but the takeaway was straightforward: the Fed is content to keep financial conditions accommodative. That stance weighed on the U.S. dollar and pushed yields lower, while gold and equities edged higher on solid earnings. In essence, the Fed did nothing to challenge the prevailing market narrative. Attention now shifts back to the charts, which are beginning to tell a compelling story.
Is It Possible? DXY Slips Back to Its 2008 Trendline
The DXY has drifted back into a long-term monthly trendline zone that has previously served as a key structural floor. For now, this move represents a test rather than a confirmed breakdown.
What matters next:
A decisive weekly close below this support area would confirm a genuine structural breakdown. Conversely, if the DXY stabilizes and rebounds, it would be an early signal that the crowded “short USD” trade may be vulnerable to a squeeze.
This is precisely the kind of setup where long-term sentiment can be right, yet short-term positioning gets punished.
EUR/USD Points to a Near-Term Pause as the Dollar Regains Some Strength
EUR/USD is pushing into a dense resistance cluster, including the 1.20 psychological level, a multi-year trendline, channel alignment, and a bearish divergence on the weekly RSI.
That combination typically leads to at least a pause or pullback, even if the longer-term bias remains bullish for EUR/USD (and bearish for the dollar). If EUR/USD does roll over, it would offer the cleanest “risk-on USD bounce” setup without having to guess.
Key takeaway: A stall in EUR/USD here gives the DXY room to breathe.
USD/CHF Is Also Trading at Extreme Levels
USD/CHF is one of the clearest expressions of U.S. dollar pessimism. When it reaches extreme levels, two patterns typically emerge: downside momentum begins to fade as the trade becomes crowded, and volatility increases as even minor catalysts trigger repositioning.
Even if dollar weakness persists, this is a zone where smooth continuation should no longer be assumed.
USD/JPY: A Key Pressure Zone for a Potential Dollar Reversal
USD/JPY is where macro theory collides with market reality. If a meaningful USD squeeze is going to materialize, this pair is almost certain to play a role.
On the weekly chart, USD/JPY is interacting with a major structural pivot, pulling back into a former resistance area that is now attempting to act as support around 151–153. For now, price has printed a wick at this support zone, suggesting USD/JPY may pause here before any further downside acceleration.
If this support holds, a rotation higher becomes increasingly plausible, with upside targets back toward the prior supply zones at 157.7–158.7, followed by 160.7–161.8.
That wouldn’t imply the start of a new USD bull market, but rather a crowded-trade unwind, especially with the current consensus loudly focused on a yen carry unwind and broad USD bearishness.
Bank of Japan Policy Decision
The next Bank of Japan policy meeting is scheduled for 18–19 March 2026, with market expectations largely aligned:
No rate hike is expected in March
Attention will center on guidance, messaging, and any indications of follow-through later in 2026
A continued bias toward verbal intervention and tactical signaling, rather than immediate or aggressive FX action
In short, the BOJ meeting is unlikely to be the catalyst itself. More often, it serves as the narrative justification after price has already picked a direction.
That’s why USD/JPY should be viewed as a leading indicator rather than a reactive trade. Focus on the key levels, and let positioning and price action do the talking.
The Japanese yen edged lower after softer-than-expected Tokyo CPI data dampened expectations for an imminent Bank of Japan rate hike.
Persistent fiscal challenges and political uncertainty continued to pressure the currency, although fears of official intervention helped limit losses.
Meanwhile, concerns over the Federal Reserve’s independence could restrain any rebound in the U.S. dollar and cap gains in the USD/JPY pair.
The Japanese yen (JPY) came under renewed selling pressure during Asian trading on Friday after data showed consumer inflation in Tokyo, Japan’s capital, slid sharply to a near four-year low in January. The weaker inflation reading reduces urgency for the Bank of Japan (BoJ) to move toward near-term rate hikes. In addition, concerns over Japan’s fiscal outlook, linked to Prime Minister Sanae Takaichi’s reflationary agenda, along with political uncertainty ahead of the February 8 snap election, continue to weigh on the currency. Coupled with modest U.S. dollar (USD) strength, these factors pushed USD/JPY toward the 154.00 level and the key 100-day Simple Moving Average (SMA) resistance.
That said, expectations of coordinated intervention by U.S. and Japanese authorities to support the yen may discourage aggressive bearish positioning. At the same time, lingering trade uncertainty stemming from President Donald Trump’s tariff threats and broader geopolitical risks is tempering risk appetite, as reflected in the cautious tone across equity markets, which could help limit downside in the safe-haven JPY. Meanwhile, the USD may struggle to gain sustained traction amid expectations of further Federal Reserve rate cuts and ongoing concerns over the central bank’s independence, potentially capping further upside in USD/JPY.
Japanese yen comes under pressure from soft Tokyo CPI, fiscal concerns and political uncertainty
A government report released earlier on Friday showed that Tokyo’s headline Consumer Price Index (CPI) fell to 1.5% in January from 2.0% previously, marking its lowest level since February 2022. Core inflation, which strips out fresh food prices, also softened to 2.0% from 2.3% in December, while a broader measure excluding both food and energy eased to 2.4% from 2.6% the month before.
The data signals easing demand-driven inflation pressures and diminishes the urgency for further monetary tightening by the Bank of Japan, following its December rate hike that lifted the policy rate to 0.75%, the highest level in three decades.
Meanwhile, concerns over Japan’s fiscal outlook persist as Prime Minister Sanae Takaichi has anchored her snap election campaign on expanded stimulus measures and pledged to suspend the consumption tax on food, raising questions about fiscal sustainability.
Adding another layer of complexity, reports of an unusual rate check by the New York Federal Reserve last Friday, following a similar move by Japan’s Ministry of Finance, have fueled speculation about potential coordinated U.S.-Japan intervention to curb yen weakness.
On the geopolitical front, U.S. President Donald Trump announced plans on Thursday to decertify all Canada-made aircraft and threatened to impose 50% tariffs unless U.S.-built Gulfstream jets receive certification in Canada. The move marks a fresh escalation in U.S.-Canada trade tensions.
These developments, alongside rising U.S.-Iran frictions and the prolonged Russia-Ukraine conflict, could help limit downside pressure on the safe-haven yen. The United States continues to deploy warships and fighter jets across the Middle East, while Secretary of War Pete Hegseth stated that Washington stands ready to act decisively under President Trump’s directives.
Russia has also reiterated its invitation for Ukrainian President Volodymyr Zelensky to travel to Moscow for peace talks, although prospects for a deal remain slim amid deep divisions between the two sides.
Meanwhile, the U.S. dollar received a modest boost amid speculation that Kevin Warsh may be appointed as the next Federal Reserve chair, lending additional support to the USD/JPY pair. President Trump is expected to announce his choice for Fed chair on Friday morning.
Looking ahead, traders will take further cues from the release of the U.S. Producer Price Index (PPI), which, alongside comments from Federal Reserve officials, is likely to influence dollar demand and provide direction for USD/JPY into the weekend.
USD/JPY bulls look for a sustained break above the 100-day SMA before adding new positions
The 100-day Simple Moving Average (SMA) continues to trend higher and is currently located near 153.98, with USD/JPY trading just below this level. This keeps near-term sentiment on the heavy side, despite the broader uptrend suggested by the rising trend filter. A sustained move back above this dynamic resistance would help steady the short-term outlook.
Momentum indicators show tentative signs of stabilization. The Moving Average Convergence Divergence (MACD) remains in negative territory, although its recent narrowing points to fading downside pressure. Meanwhile, the Relative Strength Index (RSI) stands at 37.81, below the neutral 50 mark but rebounding from oversold levels, indicating that bearish momentum is beginning to ease.
On the upside, the 38.2% Fibonacci retracement of the 159.13–152.07 decline, located at 154.77, is likely to act as initial resistance. A daily close above this level would enhance the recovery setup and open the door to further gains as momentum improves. Conversely, failure to break above this barrier would keep rebounds limited and reinforce a cautious near-term bias.
The U.S. dollar showed a limited reaction to the latest Federal Reserve meeting, with EUR/USD pushing toward the 1.20000 level. While the Fed’s messaging pointed to a low likelihood of a key rate cut in March—given that economic growth is now characterized as “solid”—market attention during the press conference shifted toward political issues.
This focus, according to Commerzbank analysts Volkmar Baur and Michael Pfister, suggests a growing change in how investors perceive the Federal Reserve’s independence.
Fed meeting weighs on US dollar
Overall, the market appeared to place greater emphasis on the Fed’s slightly hawkish tone and policy tweaks. Expectations for additional rate cuts were trimmed marginally, but the adjustment was too small to have a meaningful impact on the currency.
“The perception that political considerations are gradually influencing the Fed—or at least that markets believe this to be the case—was also reflected in Christopher Waller’s vote in favor of another cut to the key policy rate.
Ultimately, even if the Fed remains capable of conducting an independent monetary policy, this perception alone could become problematic. If markets lose confidence in that independence, the U.S. dollar is likely to come under pressure.”
EUR/USD extended Monday’s positive momentum, pushing closer to the key 1.2000 level and reaching highs not seen since June 2021. The latest advance reflects continued selling pressure on the U.S. dollar, supported by a constructive risk backdrop and renewed investor focus on potential tariff-related risks stemming from the White House.
Macro & Fundamental Overview
EUR/USD’s bullish momentum remains firmly intact, closely mirroring persistent selling pressure on the U.S. dollar, which continues to be weighed down by concerns over trade policy, questions surrounding the Federal Reserve’s independence, and renewed shutdown risks.
The pair extended its advance for a fourth straight session on Tuesday, edging closer to the pivotal 1.2000 level for the first time since June 2021.
The latest leg higher reflects a further deterioration in the dollar’s outlook amid revived trade tensions and geopolitical uncertainty, all ahead of the Federal Reserve’s interest rate decision due on Wednesday.
Meanwhile, sentiment surrounding U.S.–European Union trade relations has improved after President Donald Trump softened his rhetoric last week regarding potential tariffs tied to the Greenland dispute. Markets have interpreted this shift positively, boosting risk appetite and lending support to the euro alongside other risk-sensitive currencies.
By contrast, the U.S. dollar continues to underperform. The Dollar Index (DXY) remains under heavy pressure, extending its decline toward the 96.00 area — levels last seen in late February 2022.
The FED: Rates on hold, politics in focus
The Federal Reserve delivered its widely anticipated December rate cut, but the key signal came from its messaging rather than the policy action itself. A divided vote and Chair Jerome Powell’s measured language suggested that additional easing is far from assured.
The Fed begins its two-day policy meeting today, with markets largely expecting rates to remain unchanged when the decision is released on Wednesday.
However, monetary policy may not be the primary focus this time. Market attention has increasingly turned to questions surrounding the Fed’s independence after reports earlier this month of a Justice Department investigation involving Chair Powell.
Compounding the uncertainty, President Trump has indicated that an announcement on his nominee for the next Fed Chair could be imminent, keeping scrutiny on the central bank well beyond the outcome of this week’s meeting.
ECB urges patience, not complacency
The European Central Bank left interest rates unchanged at its December 18 meeting, adopting a more measured and patient tone that has pushed expectations for near-term rate cuts further into the future. Modest upward revisions to growth and inflation projections helped underpin this approach.
Minutes from the meeting, released last week, showed policymakers saw little immediate need to adjust policy. With inflation hovering near target, the ECB has room to remain patient, while still retaining flexibility should risks materialize.
Governing Council members emphasized that patience does not equate to complacency. Monetary policy is viewed as appropriately calibrated for now, but not on autopilot. Markets appear to have absorbed this message, currently pricing in just over 4 basis points of easing over the coming year.
Positioning remains constructive, but confidence has softened
Speculative positioning remains tilted toward the euro, although bullish conviction appears to be easing.
CFTC data for the week ended January 20 show non-commercial net long positions declining to a seven-week low of around 111.7K contracts. At the same time, institutional participants also reduced short positions, which now stand near 155.6K contracts.
Meanwhile, open interest slipped to approximately 881K contracts, breaking a three-week streak of increases and suggesting that market participation may be thinning alongside fading confidence.
Key Events Ahead
Near term: The FOMC meeting is set to keep attention firmly on the U.S. dollar, while flash inflation data from Germany and preliminary GDP readings for the euro area will dominate the regional data calendar later in the week.
Risk: A more hawkish-than-expected outcome from the Fed could quickly tilt momentum back in favor of the dollar. In addition, a clear break below the 200-day simple moving average would increase the risk of a deeper medium-term correction.
EUR/USD Technical Outlook
EUR/USD continues to exhibit a firm bullish bias, trading at levels last seen in mid-2021 while gradually shifting focus toward the key 1.2000 psychological handle.
On the downside, initial support is located at the 2026 low of 1.1576 (January 19), reinforced by the closely watched 200-day simple moving average. A more pronounced correction could open the door to the November 2025 trough at 1.1468, followed by the August base at 1.1391.
Momentum indicators remain broadly supportive of further gains, although elevated conditions may challenge the immediate upside. The Relative Strength Index is hovering near 75, pointing to overbought territory, while an Average Directional Index reading above 26 confirms the presence of a well-established trend.
Bottom Line
For the time being, EUR/USD continues to be influenced primarily by U.S.-centric developments rather than euro area dynamics.
Absent clearer signals from the Federal Reserve on the extent of potential policy easing, or a more compelling cyclical recovery in the eurozone, any additional upside is likely to unfold in a steady, incremental manner rather than marking the beginning of a decisive breakout.
The Japanese yen finds it hard to build on recent strong gains as worries over Japan’s fiscal position persist. However, a relatively hawkish Bank of Japan stance and concerns about potential currency intervention could continue to support the yen. Meanwhile, the US dollar remains near a four-month low on expectations of Fed rate cuts, helping to limit upside in USD/JPY.
The Japanese yen comes under modest selling pressure during Tuesday’s Asian session, pulling back further from its strongest level against the US dollar since November 2025, reached a day earlier. Sentiment toward the yen remains fragile as investors worry about Japan’s fiscal outlook, driven by Prime Minister Sanae Takaichi’s expansive spending proposals and tax cut plans. A broadly upbeat mood in equity markets, along with domestic political uncertainty ahead of the snap election scheduled for February 8, is also weighing on the safe-haven currency.
However, downside pressure on the yen may be limited by expectations that Japanese authorities could intervene to prevent excessive weakness, especially given the Bank of Japan’s relatively hawkish stance. Meanwhile, the US dollar stays near a four-month low as markets price in two additional Federal Reserve rate cuts this year. The ongoing “Sell America” theme further dampens demand for the greenback, which should help restrain USD/JPY movements as investors turn their attention to the key two-day FOMC meeting beginning later today.
Japanese yen bears remain cautious as intervention speculation offsets political uncertainty.
Japan’s already stretched public finances have come under sharper scrutiny following Prime Minister Sanae Takaichi’s campaign pledge to suspend the sales tax on food items ahead of the snap lower house election on February 8. Concerns over the country’s fiscal outlook have been a major driver behind the recent jump in long-dated Japanese government bond yields, which raises debt servicing costs and, in turn, limits the Japanese yen’s upside.
Data released earlier on Tuesday showed a slowdown in wholesale inflation, with the Producer Price Index rising 2.4% year-on-year in December, down from 2.7% in November. Additional figures indicated that the Corporate Service Price Index increased 2.6% YoY, slightly lower than the previous reading. Overall, the data offered little to challenge the Bank of Japan’s tightening trajectory and had a limited impact on the yen.
The BoJ recently raised its economic and inflation forecasts while keeping short-term rates unchanged at the conclusion of its two-day meeting last Friday, signaling its readiness to continue gradually lifting still-low borrowing costs. This stance contrasts sharply with expectations for a more dovish US Federal Reserve, leaving the US dollar under pressure near a four-month low and lending support to the yen amid fears of possible official intervention.
Reinforcing this view, Prime Minister Takaichi said on Sunday that authorities are prepared to take action against speculative and highly abnormal market moves, following rate checks by Japan’s Ministry of Finance and the New York Fed on Friday. Still, traders appear reluctant to take aggressive positions ahead of the two-day FOMC meeting beginning today, which is expected to be a key driver for the US dollar and the USD/JPY pair in the near term.
USD/JPY needs to establish a sustained break below the 100-day SMA to strengthen the case for further downside.
The USD/JPY pair showed signs of resilience below its 100-day Simple Moving Average (SMA) on Monday, although it continues to trade beneath the 154.75–154.80 horizontal support zone. The MACD histogram has moved further into negative territory, with the MACD line below the signal line, reflecting bearish momentum that remains below zero. Meanwhile, the RSI stands near 32, close to oversold territory, suggesting that the downside move may be becoming stretched.
A daily close below the 100-day SMA at 153.81, which currently provides near-term support, would give bears greater control. In contrast, sustained trading above this level would keep the broader bias supported by the rising SMA. Signs of stabilization would include a flattening MACD histogram and a move back toward the zero line, while an RSI rebound toward 50 would improve the overall tone. On the other hand, a dip below 30 on the RSI would increase the risk of deeper losses.
AUD/USD hovers near its 16-month high of 0.6940, supported by rising Australian three-year bond yields at 4.27%, while a weaker US Dollar amid political uncertainty and shutdown risks adds to the upside.
AUD/USD is holding near its 16-month high of 0.6940 set in the prior session, trading around 0.6920 during Tuesday’s Asian hours, as markets await Australia’s December CPI data on Wednesday for fresh cues on the RBA’s policy outlook.
The Australian Dollar is underpinned by higher government bond yields, with the policy-sensitive three-year yield climbing to 4.27%, its highest since November 2023, supported by confidence in Australia’s strong credit rating and the RBA’s relatively hawkish stance.
Australia’s strong PMI and employment data have strengthened expectations of tighter RBA policy. While inflation has eased from its 2022 peak, recent figures point to renewed upward pressure, with headline CPI slowing to 3.4% YoY in November but still above the RBA’s 2–3% target range.
AUD/USD may find further support as the US Dollar weakens on rising political uncertainty, with the risk of a partial US government shutdown ahead of the January 30 funding deadline after Senate Democratic leader Chuck Schumer vowed to oppose a key funding bill.
Market caution is also heightened by uncertainty around the Federal Reserve, after President Donald Trump said he would soon name a successor to Fed Chair Jerome Powell, raising speculation over a more dovish policy stance. Attention now turns to Wednesday’s Fed decision.
The US Dollar Index stays under pressure near 97.00 in Tuesday’s Asian session as concerns over Fed independence grow ahead of expectations that rates will remain unchanged at Wednesday’s meeting.
The US Dollar Index (DXY) weakened toward 97.00 in Asian trading on Tuesday, with investors awaiting the US ADP Employment Change and Consumer Confidence data later in the day.
Concerns over the Federal Reserve’s independence have pushed the DXY to its lowest level since September 18, 2025, after President Donald Trump said he would soon name a successor to Fed Chair Jerome when his term ends in May. According to Reuters, betting markets see BlackRock executive Rick Rieder as the leading candidate.
Tim Duy, chief US economist at SGH Macro Advisors, noted that the actions of the next Fed chair cannot be separated from broader economic conditions or their influence on other FOMC members.
Adding to the USD’s downside risks are fears of a US government shutdown, with Senate Democratic leader Chuck Schumer pledging to block a funding bill that includes Homeland Security appropriations. Lawmakers face a January 30 deadline to avoid a partial shutdown.
Meanwhile, the Fed is widely expected to keep rates unchanged at Wednesday’s meeting after three straight cuts late in 2025. Markets will focus on the press conference for signals on the economic outlook and future rate path, with any hawkish tone potentially limiting near-term USD losses.
Wednesday brings the FOMC meeting and Chair Powell’s press conference, and it wouldn’t be surprising if President Trump chose that moment—ideally around 2:30 p.m. ET—to announce his pick for the next Fed chair. Such timing would dominate headlines, catch financial media off guard, and inject maximum uncertainty into markets.
That said, the Fed is not expected to cut rates at this meeting, which should keep the event relatively uneventful. In the bigger picture, what the Fed does between now and May may prove less important, particularly if a new chair is appointed and moves quickly toward easing.
Markets appear to be dialing back expectations for aggressive rate cuts. Current pricing suggests the fed funds rate settles near 3.25% by December, with little additional easing beyond that. To meaningfully shift those expectations, the nominee would likely need to be notably dovish—something markets already anticipate, given the widespread assumption that Trump will select a policy-leaning accommodator.
As a result, the risk of a breakout in the 2-year Treasury yield appears increasingly credible, with initial resistance near 3.62%. Beyond that, a move back toward the 4% level cannot be ruled out. From a technical perspective, the setup supports this view: the 2-year yield has formed multiple bottoms in recent months, and the RSI has begun to turn higher, signaling building upside momentum.
The direction of the 2-year yield may ultimately be more closely linked to oil prices. With inflation still hovering near 3% and crude having fallen to around $60 from highs in the $120s, the message is clear: a rebound in oil prices could quickly reignite inflation pressures. That dynamic likely explains why the price action in oil and the 2-year yield charts has begun to look strikingly similar.
The Bank of Japan once again chose to kick the can down the road, leaving rates unchanged and, in my view, offering little in the way of a clear policy roadmap. The yen’s strength on Friday appeared to be driven solely by reports of a possible “rate check” by the New York Fed on behalf of the U.S. Treasury—widely interpreted as a warning signal that currency intervention could be imminent. Perhaps the strategy is to keep markets stable until after the snap election in February. It’s hard to say, but it should be telling to see how markets react once Japan reopens on Monday.
The Korean won also strengthened notably against the U.S. dollar on Friday. In recent weeks, there has been growing chatter that the KRW had become excessively weak, so it’s likely the currency took the developments around the yen as a warning signal and moved to reprice accordingly.
The Korean won likely matters more than many investors realize, given the sizable exposure South Korean investors have built up in U.S. equities. That dynamic is probably one of the reasons the KRW has weakened so significantly in the first place—buying U.S. stocks requires selling won for dollars.
If the KRW begins to strengthen from here, it could start to put pressure on that trade. For investors who are unhedged on the currency side, a stronger won increases the risk of FX-related losses on their U.S. equity holdings, potentially prompting position adjustments.
Of course, this week also brings major earnings reports from Microsoft, Apple, Tesla, and Meta. From what I can see, all four stocks are currently sitting in positive gamma with positive delta positioning. Implied volatility typically builds into earnings because of the event risk, which sets up a familiar dynamic: unless a company delivers truly blowout results, the reaction can easily turn into a sell-the-news move. Once earnings are released, implied volatility collapses and hedges are unwound as delta decays, potentially putting pressure on the shares.
Germany’s IFO Institute is set to release its January Business Survey on Monday at 09:00 GMT.
The headline IFO Business Climate Index is forecast to edge up to 88.1 in January, from 87.6 in December. In the previous release, the Current Assessment Index stood at 85.6, while the Expectations Index came in at 89.7.
How might the German IFO Survey influence the EUR/USD exchange rate?
EUR/USD could trade sideways if the German IFO Business Survey meets expectations, as heightened safe-haven demand continues to cap upside momentum despite the pair opening with a gap higher. Meanwhile, the Euro may hold relatively steady after Eurozone PMI figures signaled weakness in the services sector in January, reinforcing expectations that the European Central Bank (ECB) will keep interest rates unchanged. Earlier data from Germany was more constructive, with the Services PMI exceeding forecasts and remaining in expansionary territory, while the Manufacturing PMI showed improvement but stayed below the 50 threshold.
The pair comes under pressure as the US Dollar regains intraday strength, supported by rising risk aversion linked to trade and geopolitical concerns. US President Donald Trump warned of potential 100% tariffs on Canadian imports should Ottawa pursue a trade agreement with China. Canadian Prime Minister Mark Carney clarified that Canada has no intention of negotiating a free trade deal with Beijing. Trump also noted that a US aircraft carrier strike group is en route to the Middle East amid escalating tensions with Iran.
From a technical perspective, EUR/USD pulls back after opening at four-month highs and is trading near 1.1860 at the time of writing. Despite the dip, the broader bullish structure remains intact, with the 14-day Relative Strength Index (RSI) hovering around 69.00, indicating strong—though stretched—momentum. The pair could attempt a retest of the four-month peak at 1.1897, close to the key psychological resistance at 1.1900. On the downside, immediate support is seen at the nine-day Exponential Moving Average (EMA) near 1.1739.
GBP/USD is extending its strong weekly rally and is edging closer to the 1.3600 handle on Friday, marking fresh four-month highs. The pair’s upside momentum is being fueled by a deepening decline in the US Dollar, while supportive UK economic data further reinforces the bullish trend.
Fundamental Analysis Overview
The latest PMI data signaled a strong expansion in overall business activity, driven by a notable pickup in both manufacturing and services. The Composite PMI surged to 53.9 in January from 51.4 in December, comfortably surpassing market expectations of 51.7.
The Services PMI climbed to 54.3, exceeding both the forecast of 51.7 and the previous reading of 51.4, while the Manufacturing PMI also improved markedly, rising to 51.6 from 50.6.
In addition, UK Retail Sales rebounded in December after two consecutive monthly declines. Data from the Office for National Statistics (ONS) showed that Retail Sales, a key gauge of consumer spending, increased by 0.4% month-over-month, defying expectations for a 0.1% contraction.
On a year-on-year basis, consumer spending rose sharply by 2.5%, well above the consensus forecast of 1% and up from a revised 1.8% in November (previously reported at 0.6%).
The stronger-than-expected Retail Sales figures are likely to reduce market expectations for near-term interest rate cuts by the Bank of England (BoE).
Looking ahead, the UK economic calendar is relatively light next week, leaving broader market sentiment and expectations surrounding the BoE’s February policy decision as the primary drivers of Pound Sterling performance.
GBP/USD Technical Outlook
GBP/USD is trading around 1.3437 at the time of writing. The 20-day Exponential Moving Average is hovering near 1.3439, with price currently testing this dynamic resistance. A daily close above the moving average would strengthen near-term momentum. The Relative Strength Index (RSI) stands at 52, edging higher but still signaling broadly neutral momentum.
Using the move from the 1.3780 peak to the 1.3006 trough, the 50% Fibonacci retracement at 1.3393 continues to act as a hurdle on rebounds, while the 61.8% retracement at 1.3485 limits upside potential. A decisive break above the latter would suggest the broader bearish bias is losing strength and could pave the way for a deeper recovery, whereas rejection at that level would likely keep the pair confined to a range.
Bank of Japan (BoJ) Governor Kazuo Ueda is speaking at a press conference, outlining the rationale for keeping the benchmark interest rate unchanged at 0.75% at the January policy meeting.
Key takeaways from the BoJ press conference
Japan’s economy is showing a moderate recovery and is expected to continue growing at a steady pace.
The government’s economic stimulus package has improved the overall outlook.
Underlying inflation is projected to rise gradually and move closer to the 2% target.
Board members Takata and Tamura suggested revisions to the outlook report.
The BoJ will continue to raise interest rates if economic and price projections are realized.
Lending rates tied to the BoJ’s policy rate are already trending higher.
Financial conditions remain accommodative despite the December rate hike.
Foreign exchange movements are influenced by multiple factors.
The governor refrained from commenting on specific yen levels but emphasized close monitoring of FX developments.
Government bond yields are increasing at a rapid pace.
The BoJ stands ready to conduct bond-buying operations flexibly in exceptional circumstances.
Measures may be taken to support stable yield formation when necessary.
Currency movements, particularly the yen, may be having a stronger impact on prices.
Greater attention will be paid to foreign exchange trends going forward.
The rise in long-term yields is partly influenced by end-of-fiscal-year factors.
Price developments in April will be an important consideration when assessing the timing of future rate hikes.
The section below was published at 3:35 GMT on January 23 to cover the Bank of Japan’s monetary policy announcement and the initial market reaction.
The Bank of Japan (BoJ) board voted to keep the short-term policy rate unchanged at 0.75% at the conclusion of its two-day monetary policy meeting on Friday, a move that was widely expected.
As a result, borrowing costs remain at their highest level in roughly three decades.
Key takeaways from the BoJ’s policy statement
Japan’s economy is expected to continue a moderate recovery.
Consumer inflation is likely to pick up gradually.
The virtuous cycle in which wage growth and inflation reinforce each other is expected to be sustained.
The output gap is projected to improve over time and expand at a moderate pace.
Medium- to long-term inflation expectations are seen rising gradually.
No major imbalances are observed in Japan’s financial activity.
The overall financial system remains stable.
Firms’ moves to pass higher wages on to selling prices could strengthen more than previously anticipated.
The recent increase in food prices, including rice, mainly reflects temporary supply-side factors.
Significant uncertainty surrounds the global economic outlook, particularly due to trade policies that could push up import prices through supply-side channels.
Trade measures announced so far may weigh on global economic growth.
Regarding the US economy, close attention is needed on how tariffs could affect employment and income via weaker corporate profits.
High uncertainty persists around China’s economic outlook, especially the future pace of growth.
A sharp rise in import prices could further reinforce households’ cautious stance on spending.
Current trade policies could lead to a shift in the long-term trend of globalisation.
The Board raised its median real GDP growth forecast for fiscal 2025 to +0.9% from +0.7% in October.
The fiscal 2026 median growth forecast was revised up to +1.0% from +0.7%.
The fiscal 2027 median growth forecast was lowered to +0.8% from +1.0%.
BoJ’s Quarterly Outlook Report: Key Highlights
The Board kept its median core consumer price index forecast for fiscal 2025 unchanged at +2.7%, the same as in October.
The median real GDP growth forecast for fiscal 2025 was revised up to +0.9% from +0.7% in October.
Real interest rates remain at significantly low levels.
Risks to the economic outlook are assessed as roughly balanced.
The impact of foreign exchange volatility on prices has become more pronounced than in the past, as firms are more willing to raise prices and wages.
Core consumer inflation is expected to slow to below 2% during the first half of this year.
Companies’ efforts to pass higher wages on to selling prices could strengthen more than anticipated.
Japan’s economy is projected to continue a moderate recovery.
Market reaction following the BoJ policy announcements
USD/JPY climbed further toward 158.60 in an immediate reaction to the Bank of Japan’s (BoJ) decision to keep interest rates unchanged, rising 0.11% on the day.
The section below was published at 23:00 GMT on January 22 as a preview of the Bank of Japan’s interest rate decision.
The Bank of Japan is widely expected to leave interest rates unchanged at 0.75% on Friday.
The central bank is likely to wait and assess the effects of December’s rate hike before considering further tightening.
February’s general elections introduce an additional layer of uncertainty to the BoJ’s monetary policy outlook.
The Bank of Japan (BoJ) is widely expected to keep its benchmark interest rate unchanged at 0.75% following the conclusion of its two-day monetary policy meeting next Friday.
The Japanese central bank raised interest rates to their highest level in three decades in December and is now likely to keep policy unchanged on Friday to better evaluate the economic impact of earlier hikes.
BoJ Governor Kazuo Ueda is expected to reaffirm the bank’s commitment to continued policy normalisation. As a result, investors will closely scrutinise his press conference for clues on the timing and extent of the next phase of the tightening cycle.
What to anticipate from the Bank of Japan’s interest rate decision?
The Bank of Japan is broadly expected to leave interest rates unchanged in January while signaling the possibility of further tightening if economic conditions unfold as projected.
In December, the BoJ raised rates by 25 basis points to 0.75%, and the meeting minutes showed that some policymakers favor additional tightening, noting that real interest rates remain sharply negative once inflation is taken into account.
Markets, however, have ruled out consecutive rate hikes, especially following Prime Minister Sanae Takaichi’s surprise call for snap elections and her proposal to suspend food and beverage taxes for two years to ease the burden on households amid rising inflation.
While the implications of these political developments for monetary policy remain uncertain, the BoJ has emphasized a cautious, gradual normalization of policy, aiming to withdraw stimulus without undermining economic growth. As a result, the central bank is likely to wait for greater political clarity and for the effects of past rate increases to become clearer before moving again.
Meanwhile, the yen has weakened steadily amid speculation surrounding the snap election. This raises the question of whether the currency’s depreciation will push the BoJ to adopt a firmer stance on monetary tightening.
How might the Bank of Japan’s monetary policy decision influence the USD/JPY exchange rate?
Markets have fully priced in a Bank of Japan rate pause on Friday, but the central bank will need to clearly signal further monetary tightening to curb the Yen’s ongoing weakness.
Yen sellers have eased off in recent days, helped by broad US Dollar softness linked to the EU–US trade dispute following President Donald Trump’s threats over Greenland. Even so, USD/JPY is still up roughly 0.7% year to date and remains close to last week’s 18-month peak around 159.50.
Investors are also concerned that Prime Minister Takaichi could secure stronger parliamentary backing after the elections, allowing her to push ahead with expansionary fiscal policies such as higher spending and tax cuts. This has heightened worries about Japan’s already stretched public finances, driving the Yen lower and pushing long-term government bond yields to record highs amid fears of a potential fiscal crisis.
Meanwhile, recent remarks from BoJ Governor Ueda have reinforced the bank’s cautious tightening stance, suggesting Japan is transitioning toward a more sustainable inflation environment where wages and prices rise together. For the Yen’s recent, still-fragile rebound to continue, markets will need clearer evidence that interest rate hikes are on the horizon.
USD/JPY 4-Hour Chart
From a technical standpoint, FXStreet analyst Guillermo Alcalá views USD/JPY as undergoing a bearish correction, with an important support zone just above 157.40. He notes that while the pair has pulled back from recent highs, Yen buyers would need to push it below the 157.40–157.60 support area to invalidate the short-term bullish structure and open the door to a move toward the early-January lows near 156.20.
A cautious or non-committal message from the BoJ would likely disappoint markets and weaken the Yen. In that scenario, Alcalá expects USD/JPY to climb to new long-term highs. He points out that technical signals are improving, with the 4-hour RSI rebounding from the 50 level, indicating strengthening bullish momentum. At the time of writing, the pair is challenging resistance around 158.70 (the January 16 high), which stands as the final hurdle before the 18-month peak close to 159.50.
UK retail sales increased by 0.4% month-on-month in December, rebounding from a 0.1% decline in November, according to data released Friday by the Office for National Statistics.
Markets had expected retail sales to fall by 0.1% during the month. Core retail sales, which exclude auto fuel, rose 0.3% month-on-month in December, reversing a revised 0.4% decline previously reported. The reading exceeded market expectations for a 0.2% fall.
On an annual basis, UK retail sales increased 2.5% in December, up from a revised 1.8% previously and above the consensus forecast of 1.0%. Annual core retail sales also strengthened, climbing 3.1% compared with a revised 2.6% gain earlier, outperforming expectations of a 1.4% rise.
Market response to the UK Retail Sales data
The positive UK Retail Sales report has failed to lift the Pound Sterling, with GBP/USD down 0.06% on the day, trading at 1.3488 at the time of writing.
The following section was published on January 23 at 5:11 GMT as a preview of the UK Retail Sales report.
Overview of UK Retail Sales
The UK calendar features the release of the December Retail Sales figures from the Office for National Statistics (ONS) on Friday at 07:00 GMT.
Retail Sales are forecast to edge down by 0.1% month-on-month in December, following an identical 0.1% decline in November. On a yearly basis, sales are expected to increase by 1%, slightly higher than the previous 0.6% rise.
Core Retail Sales, which exclude motor fuel, are also projected to slip by 0.2% MoM, in line with the prior reading, while annual growth is anticipated to improve to 1.4% from 1.2% in November.
How might UK retail sales influence the GBP/USD exchange rate?
The GBP/USD pair could show little reaction even if UK Retail Sales for December exceed expectations, as markets largely anticipate the Bank of England to maintain a cautious, gradual easing stance despite stronger price pressures seen in December. Attention is likely to shift instead to the preliminary January S&P Global PMI readings from both the UK and the US, scheduled for release later in the day.
Sterling may find support if the US Dollar weakens amid rising risk aversion linked to geopolitical tensions. Earlier, US President Donald Trump threatened tariffs on European nations opposing his Greenland initiative, but later eased his stance after reaching a NATO framework agreement that opened the door to a potential deal.
From a technical perspective, GBP/USD is holding firm after climbing more than 0.5% in the previous session, hovering near the 1.3500 level at the time of writing. The pair could aim for the three-month peak at 1.3562 as the next resistance. On the downside, initial support is seen at the nine-day EMA around 1.3451, followed by the 50-day EMA near 1.3398.
The Australian dollar moved higher after stronger-than-expected employment data reinforced expectations of a tighter policy stance from the Reserve Bank of Australia. Seasonally adjusted employment in Australia increased by 65.2K in December, while the unemployment rate declined to 4.1%. Meanwhile, the U.S. dollar firmed after Bloomberg reported that President Trump would pause tariffs on European countries opposing his push over Greenland.
The Australian dollar strengthened against the U.S. dollar on Thursday after seasonally adjusted employment data from Australia reinforced expectations of a tighter monetary policy stance by the Reserve Bank of Australia. Data from the Australian Bureau of Statistics showed employment rose by 65.2K in December, reversing a revised loss of 28.7K jobs in November and well above the market forecast of a 30K increase. Meanwhile, the unemployment rate fell to 4.1% from 4.3%, beating expectations of 4.4%.
Sean Crick, head of labour statistics at the ABS, noted that a rise in employment among people aged 15–24 helped lift overall employment levels and contributed to the drop in the unemployment rate. Meanwhile, the International Monetary Fund has called on the RBA to proceed cautiously, pointing out that inflation has remained above the Bank’s 2%–3% target range for an extended period, despite headline CPI easing faster than expected in November.
U.S. dollar rises as Trump eases tariff threats against Europe
The U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, was steady after posting modest gains in the previous session, trading around 98.80 at the time of writing. The dollar found support after Bloomberg reported on Wednesday that President Donald Trump said he would step back from imposing tariffs on goods from European countries opposing his bid to take control of Greenland. Earlier, Trump had insisted there was “no going back” on his ambitions for Greenland and had threatened to impose new 10% tariffs on eight European Union nations.
Trump also stated that the United States and NATO had “established the framework of a future deal on Greenland,” though he provided no details, leaving the scope and substance of the proposed agreement unclear.
U.S. labor market data has pushed expectations for further Federal Reserve rate cuts back to June, with Fed officials signaling little urgency to ease policy until there is clearer evidence that inflation is moving sustainably toward the 2% target. Morgan Stanley analysts revised their 2026 outlook, now projecting one rate cut in June and another in September, compared with their earlier expectations for cuts in January and April.
In Asia, the People’s Bank of China announced on Tuesday that it would keep its Loan Prime Rates unchanged, with the one-year and five-year LPRs remaining at 3.00% and 3.50%, respectively. Developments in China remain important for the Australian dollar, given the close trade relationship between the two economies.
China’s industrial production grew 5.2% year-on-year in December, accelerating from 4.8% in November, supported by resilient export-led manufacturing. However, retail sales increased just 0.9% year-on-year, falling short of expectations of 1.2% and slowing from November’s 1.3%.
In Australia, the TD-MI Inflation Gauge rose to 3.5% year-on-year in December from 3.2%, while monthly inflation jumped 1.0%, the fastest pace since December 2023 and a sharp acceleration from 0.3% in the previous two months.
RBA policymakers acknowledged that inflation has eased significantly from its 2022 peak, but recent data points to renewed upward pressure. Headline CPI slowed to 3.4% year-on-year in November, the lowest level since August, yet remains above the RBA’s 2–3% target range. Trimmed mean CPI edged down to 3.2% from 3.3% in October.
The RBA assessed that inflation risks have modestly tilted to the upside, while downside risks—particularly from global factors—have eased. Policymakers expect only one additional rate cut this year, with underlying inflation projected to stay above 3% in the near term before easing toward around 2.6% by 2027.
Australian dollar tests the 0.6800 level near the top of its ascending channel
AUD/USD was trading near 0.6790 on Thursday. Daily chart signals show the pair continuing to climb within an ascending channel, reflecting a sustained bullish bias. The nine-day exponential moving average remains above the 50-day EMA, with prices holding above both indicators, reinforcing the positive momentum and keeping upside pressure intact. Meanwhile, the 14-day Relative Strength Index stands at 69.93, close to overbought territory, suggesting momentum is becoming stretched.
The pair is currently challenging immediate resistance at the psychological 0.6800 level, followed by the upper boundary of the ascending channel near 0.6810. A decisive break above the channel could open the door to 0.6942, marking the highest level since February 2023.
On the downside, initial support is seen at the nine-day EMA around 0.6732. A move below this short-term support would undermine bullish momentum, bringing the lower boundary of the ascending channel near 0.6680 into focus, ahead of the 50-day EMA at 0.6656.
The UK’s Office for National Statistics (ONS) is set to release December CPI data on Wednesday. Headline inflation is expected to edge up to 3.3%, while core inflation is projected to remain sticky above 3.0% year-on-year.
The UK Office for National Statistics (ONS) is scheduled to publish December Consumer Price Index (CPI) data at 07:00 GMT on Wednesday, a release closely watched by financial markets. Economists anticipate a mild pickup in inflationary pressures.
UK inflation remains a key consideration for the Bank of England (BoE) and is typically a significant driver of Sterling movements. With the Monetary Policy Committee (MPC) due to meet on February 5, markets largely expect policymakers to leave the bank rate unchanged at 3.75%, though this week’s inflation figures are likely to influence the guidance and tone of the decision.
What might the upcoming UK inflation report reveal?
Headline UK CPI is projected to tick up to 3.3% year-on-year in December, compared with 3.2% in November. On a monthly basis, inflation is expected to rebound by 0.4%, reversing the 0.2% month-on-month decline seen previously.
Meanwhile, core inflation—which excludes volatile food and energy prices and is more closely monitored by the Bank of England—is anticipated to remain steady at 3.2% annually. Month-on-month, core CPI is forecast to rise by 0.3% after falling 0.2% in November.
What impact will the UK CPI data have on GBP/USD?
In December, the Bank of England’s Monetary Policy Committee narrowly voted 5–4 to reduce the bank rate by 25 basis points to 3.75%, marking its fourth cut in 2025. Although policymakers pointed to easing inflation pressures and initial signs of a softening labour market, they emphasised that any additional policy loosening would proceed cautiously.
The December Decision Maker Panel (DMP) survey largely reinforced this outlook and failed to alter expectations around the policy path. Persistent wage pressures continue to constrain the potential for significant repricing at the short end of the yield curve.
One-year-ahead wage growth expectations rose slightly to 3.7% from 3.6%, while actual pay growth over the past year remains in the mid-4% range. Both indicators remain well above levels consistent with a sustained return of inflation to the BoE’s target.
Overall, the survey does little to shift sentiment and supports the argument against accelerating rate cuts. Markets currently price in just over 42 basis points of easing for the year, with the BoE widely expected to keep rates unchanged at its next meeting.
From a technical perspective, Pablo Piovano highlights that GBP/USD is facing resistance near its yearly lows around 1.3340, recorded on January 19. A further decline could open the door to the 55-day simple moving average at 1.3309, followed by the December low at 1.3179. Conversely, if buyers regain control, the year-to-date high at 1.3567 may act as the first upside hurdle, with little resistance beyond that until the September 2025 peak at 1.3726.
Piovano also notes that momentum indicators remain supportive, with the Relative Strength Index rebounding to around 54 and the Average Directional Index near 20, pointing to a reasonably firm underlying trend.
Most Asian currencies traded within narrow ranges on Tuesday, while the U.S. dollar weakened as President Donald Trump’s renewed demands over Greenland dampened appetite for U.S. assets.
Regional markets showed little response to China’s decision to keep a key lending rate unchanged, as expected, while the Japanese yen was steady after Prime Minister Sanae Takaichi called a snap election for early February.
A U.S. market holiday on Monday limited overnight signals, leaving Asian markets broadly risk-averse after President Trump announced tariffs on Europe over Greenland over the weekend.
Japanese yen little changed ahead of snap vote and BOJ meeting
The Japanese yen weakened slightly on Tuesday, with USD/JPY slipping 0.1%, though the pair remained near recent highs amid a lack of strong supportive signals for the currency. Prime Minister Sanae Takaichi said on Monday that she will dissolve Japan’s lower house this week and call a snap election for February 8.
With Takaichi enjoying solid approval ratings, the early election is expected to strengthen her mandate for additional fiscal stimulus. However, markets questioned the scope for further government spending, as Japanese government bonds extended their selloff, which in turn pressured the yen.
The election announcement also comes ahead of a Bank of Japan policy meeting on Friday, with investors divided over whether the central bank has sufficient momentum to raise interest rates again.
The central bank raised interest rates at its final meeting of 2025 and signaled that further hikes would be driven by sustained gains in inflation and wages. However, the BOJ may pause before tightening again until it gains clearer insight into Japan’s spring wage negotiations, scheduled for March–April.
Dollar under pressure as Trump–Greenland tensions persist
The dollar index and its futures slipped about 0.1% in Asian trading, as the greenback faced pressure from growing caution toward U.S. assets amid President Trump’s push to acquire Greenland.
European leaders largely rejected Trump’s tariff threats and reiterated that Greenland should remain part of the Kingdom of Denmark. Trump on Monday renewed his demands for the island and declined to rule out the use of military force.
The U.S. president is now set to attend the World Economic Forum in Davos, Switzerland, where he may hold discussions with European leaders on the Greenland issue. Asian currencies remained mostly subdued amid broader risk aversion linked to Trump’s Greenland stance.
The Chinese yuan saw USD/CNY edge slightly lower, showing little response to the People’s Bank of China’s decision to leave its loan prime rate unchanged. The currency, however, stayed near its strongest levels in two and a half years after a series of firm midpoint fixings by the PBOC. Elsewhere, USD/TWD rose 0.3%, while AUD/USD gained 0.3%, with the Australian dollar supported by the softer U.S. dollar.
The South Korean won weakened slightly, with USD/KRW rising 0.2%, while the Singapore dollar also softened as USD/SGD added 0.1%. The Indian rupee saw USD/INR edge up 0.1% and hover near the 91-per-dollar level, as growing concerns over the health of India’s economy weighed on the currency.
EUR/USD edges higher toward the 1.1625 area in early European trading on Monday, as the euro finds support from signs that Europe is prepared to respond to U.S. tariff measures.
The move follows President Donald Trump’s announcement of a 10% tariff on goods from several European countries, prompting pushback from European leaders.
Meanwhile, expectations that the Federal Reserve will keep interest rates unchanged at its January meeting—amid a resilient labor market and still-elevated inflation—have weighed on the U.S. dollar, providing additional support for the pair.
The EUR/USD pair advances to around 1.1625 in early European trading on Monday, snapping a four-day losing streak. The U.S. dollar comes under modest pressure against the euro after President Donald Trump threatened to escalate tariffs on eight European nations opposing his proposal for the United States to acquire Greenland.
U.S. markets are closed on Monday in observance of Martin Luther King Jr. Day.
Over the weekend, Trump announced a 10% tariff on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom, set to take effect on February 1. He added that the levy would rise to 25% in June unless an agreement is reached allowing the U.S. to purchase Greenland.
Europe is set to respond after President Donald Trump imposed additional tariffs on key allies, with European leaders expected to convene an emergency meeting in the coming days to consider potential retaliation. Renewed concerns over a trade war and the longer-term implications of Trump’s latest move have weighed on the U.S. dollar, providing support for the EUR/USD pair.
“While one could argue the tariffs are a threat to Europe, it is actually the dollar that is absorbing most of the impact, as markets appear to be pricing in a higher political risk premium for the U.S. currency,” said Khoon Goh, head of Asia research at ANZ.
That said, stronger-than-expected U.S. labor market data released last week have delayed expectations for further Federal Reserve rate cuts until June, which could help cap downside pressure on the dollar. According to the CME FedWatch tool, markets are pricing in nearly a 95% probability that the Federal Open Market Committee will leave rates unchanged at its January 27–28, 2026 meeting.
The Australian dollar advanced after the TD-MI Inflation Gauge rose to 3.5% year-on-year in December.
China’s GDP grew 1.2% quarter-on-quarter in the fourth quarter of 2025, accelerating from the previous quarter and exceeding market expectations.
Meanwhile, the U.S. dollar struggled as risk aversion intensified amid escalating uncertainty surrounding U.S.–Greenland developments.
The Australian dollar strengthened against the U.S. dollar on Monday after Australia’s TD-MI Inflation Gauge rose to 3.5% year-on-year in December, up from 3.2% previously.On a monthly basis, inflation jumped 1.0% in December 2025, marking the fastest pace since December 2023 and a sharp acceleration from the 0.3% increases seen in the prior two months.
AUD/USD also found support from China’s key economic data, with developments in the Chinese economy closely watched given Australia’s strong trade links with China.
Data from China’s National Bureau of Statistics showed industrial production grew 5.2% year-on-year in December, accelerating from 4.8% in November, supported by resilient export-led manufacturing activity.
China’s GDP expanded 1.2% quarter-on-quarter in the fourth quarter of 2025, up from 1.1% in Q3 and above the market consensus of 1.0%. On an annual basis, GDP rose 4.5% in Q4, easing from 4.8% in the previous quarter but beating expectations of 4.4%.
Meanwhile, retail sales rose 0.9% year-on-year in December, falling short of forecasts for a 1.2% increase and November’s 1.3% reading.In contrast, industrial output exceeded expectations, rising 5.2% YoY versus estimates of 5.0% and improving from 4.8% a month earlier.
U.S. Dollar softens amid escalating uncertainty over the U.S.–Greenland dispute
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is under pressure and hovering near 99.20 at the time of writing. US financial markets remain closed on Monday in observance of Martin Luther King Jr. Day, resulting in thinner liquidity.
The Dollar has come under renewed pressure amid rising risk aversion, fueled by growing uncertainty surrounding the US–Greenland dispute. Over the weekend, US President Donald Trump reiterated plans to impose tariffs on eight European nations that have opposed his proposal for the United States to acquire Greenland.
According to Bloomberg, Trump said the US would levy a 10% tariff starting February 1 on imports from EU members Denmark, Sweden, France, Germany, the Netherlands, and Finland, as well as Britain and Norway. The tariffs would remain in place until Washington is allowed to proceed with the Greenland acquisition.
Meanwhile, recent US labor market data have pushed expectations for additional Federal Reserve rate cuts further into the year. Fed officials have indicated limited urgency to ease policy until there is clearer evidence that inflation is sustainably returning to the 2% target.
Reflecting this shift, Morgan Stanley revised its 2026 outlook, now projecting two rate cuts in June and September, compared with its prior forecast that anticipated cuts in January and April.
Data from the US Department of Labor showed that Initial Jobless Claims unexpectedly declined to 198K for the week ending January 10, well below market expectations of 215K and down from the prior week’s revised 207K. The figures suggest layoffs remain subdued and the labor market continues to show resilience despite prolonged tight financial conditions.
Inflation data offered mixed signals. Core CPI, excluding food and energy, rose 0.2% month-over-month in December, below expectations, while annual core inflation held steady at 2.6%, matching a four-year low. Headline CPI increased 0.3% MoM, in line with forecasts, leaving annual inflation unchanged at 2.7%. The data reinforced signs of easing price pressures after earlier readings were distorted by shutdown-related effects.
In Australia, Reserve Bank of Australia (RBA) policymakers acknowledged that inflation has eased substantially from its 2022 peak, though recent data point to renewed upside risks. Headline CPI slowed to 3.4% YoY in November, the lowest level since August, but remains above the RBA’s 2–3% target range. Trimmed mean CPI edged down to 3.2% from 3.3% in October.
The RBA noted that inflation risks have modestly shifted to the upside, while downside risks—particularly from global developments—have diminished. Policymakers currently expect only one additional rate cut this year, with underlying inflation projected to stay above 3% in the near term before easing toward 2.6% by 2027. Reflecting these expectations, ASX 30-Day Interbank Cash Rate Futures for February 2026 were trading at 96.35 as of January 16, implying a 22% probability of a rate hike to 3.85% at the next RBA policy meeting.
The Australian Dollar approaches the 0.6700 level, facing resistance near the nine-day EMA
The AUD/USD pair trades near 0.6680 on Monday, with daily chart signals showing consolidation around the nine-day Exponential Moving Average (EMA), pointing to a near-term neutral outlook. The 14-day Relative Strength Index (RSI) stands at 52.78, remaining above the neutral level and indicating underlying upside momentum.
A sustained move below the short-term moving average could bring the 50-day EMA at 0.6642 into focus as initial support. Deeper declines may extend toward 0.6414, the lowest level recorded since June 2025.
Conversely, a decisive break above the nine-day EMA at 0.6690 would strengthen the bullish case, potentially opening the way for a move toward 0.6766, the highest level since October 2024.
EUR/JPY moved higher as the euro drew support from EU efforts to push back against potential U.S. tariffs on European allies.
President Donald Trump said tariffs would be imposed on eight European countries that have opposed his proposal involving Greenland.
Meanwhile, Japan’s industrial production dropped 2.7% month-on-month in November, marking its sharpest fall since January 2024.
EUR/JPY rebounded after three consecutive sessions of losses, trading near 183.60 during Asian hours on Monday. The cross found support as the euro was buoyed by reports that European Union ambassadors agreed on Sunday to intensify efforts to deter U.S. President Donald Trump from imposing tariffs on European allies, while also preparing retaliatory measures if the duties go ahead, according to diplomats.
On Saturday, Trump said he would impose tariffs on eight European countries opposing his proposal for the United States to acquire Greenland. He said a 10% levy would be applied from Feb. 1 on goods from Denmark, Sweden, France, Germany, the Netherlands and Finland, as well as Britain and Norway, until Washington is allowed to purchase Greenland, Bloomberg reported.
FILE – This July 31, 2012 file photo shows the euro sculpture in front of the headquarters of the European Central Bank, ECB, in Frankfurt, Germany. The eurozone economy has finally recouped all the ground lost in the recessions of the past eight years after official figures Friday April 29, 2016. showed that the 19-country single currency bloc expanded by a quarterly rate of 0.6 percent in the first three months of the year. (AP Photo/Michael Probst, File) ORG XMIT: LON101
Japan’s industrial production fell 2.7% month-on-month in November 2025, slightly worse than the preliminary estimate of a 2.6% decline, reversing October’s 1.5% rise and marking the steepest contraction since January 2024.
Gains in EUR/JPY could be limited as the yen finds support from expectations of Bank of Japan rate hikes and the prospect of increased fiscal spending under Prime Minister Sanae Takaichi.The BoJ is widely expected to keep its policy rate unchanged at 0.75% this week, although markets are watching for a potential move as early as June.
Last week, BoJ Governor Kazuo Ueda reiterated that the central bank stands ready to tighten policy if economic and inflation trends develop in line with its projections.
Meanwhile, Finance Minister Satsuki Katayama signaled the possibility of coordinated intervention with the United States, stressing on Friday that all options—including direct market action—remain on the table to address the yen’s recent weakness.
Most Asian currencies were little changed on Monday as fresh U.S. tariff threats against Europe dampened risk appetite, while markets also absorbed China’s slightly better-than-expected growth figures.
The U.S. Dollar Index slipped 0.2% from a seven-week peak during Asian trading, while Dollar Index futures were down 0.3% as of 03:58 GMT.
Yuan rises to a 32-month peak following China’s Q4 GDP release
China helped temper the broader risk-off sentiment after data showed the world’s second-largest economy expanded slightly faster than expected in the fourth quarter.
The GDP reading enabled China to achieve its official 5% growth target for 2025, providing some comfort on regional economic momentum despite ongoing worries about subdued domestic demand and stress in the property sector.The onshore yuan pair USD/CNY slipped 0.1% to its weakest level since May 2023.
Asia FX little changed as Trump renews Greenland tariff threats
Risk appetite weakened after U.S. President Donald Trump said he would impose tariffs on eight European countries that have opposed his proposal to acquire Greenland.
Trump said the duties would start at 10% from Feb. 1 and increase to 25% in June if no deal is reached, reigniting concerns about escalating transatlantic trade tensions and possible spillover effects on global markets.
Media reports indicated the European Union is considering suspending progress on an EU-U.S. trade agreement and may revive a previously proposed 93 billion euro tariff package on U.S. goods.
France has called on the bloc to consider deploying its anti-coercion instrument against the United States, a tool designed to respond to economic pressure from external partners.
Asian currencies mostly moved sideways, with traders remaining cautious and refraining from bold bets.
USD/KRW ticked up 0.1%, while USD/SGD slipped 0.2%.USD/INR was little changed.AUD/USD added 0.1%.
Japanese snap elections come into focus
The Japanese yen strengthened against the dollar, with USD/JPY slipping 0.2% to a 10-day low, supported by safe-haven demand amid global trade uncertainty.Domestic political developments also remained in focus after reports said Prime Minister Sanae Takaichi is weighing a snap election in the coming weeks to bolster her mandate.
“For now, the yen continues to face headwinds from election-related uncertainty, and greater clarity is unlikely before February,” MUFG analysts said in a note.
“Over the medium term, our global team still sees the yen as having been relatively weak, and we maintain a bias for USD/JPY to trend lower, subject to election outcomes,” they added.
Yesterday, the US CPI came in weaker than anticipated, supporting our prediction of a Fed rate cut in March. However, we expect the market to take a few more weeks before fully embracing this outlook. The US dollar could recover more than its recent losses, possibly driven by a hawkish stance following the Powell criminal investigation. In the meantime, we’ll continue to watch the Japanese yen closely today, along with developments in the Greenland discussions.
USD: We Maintain a Short-Term Optimistic Outlook
US inflation came in softer than consensus and well below our expected 0.4% month-on-month core reading. Yet, yesterday’s market reaction actually reinforced our short-term positive outlook on the dollar: despite the weak CPI data, Fed rate expectations barely shifted, and the dollar quickly regained strength.
This may partly be due to market caution in over-interpreting the CPI figures amid ongoing shutdown-related distortions. It also indicates that concerns about the Fed’s independence are diminishing, helped by expectations that the criminal probe into Chair Powell may not advance much further and opposition from some GOP lawmakers. We believe there’s a fair chance the dollar will ultimately come out stronger from this situation, as Powell might adopt a more firmly hawkish stance to assert Fed independence.
Additionally, the key message from yesterday’s CPI report is the continued softness in goods prices, highlighting how limited the tariff effects on inflation have been. Several tariff-sensitive categories remained weak, including appliances (-4.3% MoM), furniture (-0.4%), new vehicles (0.0%), and video and audio equipment (-0.4%). This clear trend suggests US retailers are still squeezing their margins. Overall, this strengthens our confidence in a Fed rate cut in March, although it may take time for markets to fully accept this outlook.
Today, focus shifts to November’s PPI, with core PPI expected to rise by 0.2% month-on-month, and retail sales, which are anticipated to remain fairly strong. A busy lineup of Fed speakers—including Paulson, Miran, Kashkari, Bostic, and Williams—will be closely watched for any subtle hawkish signals in support of Powell and the Fed’s independence.
Additionally, the Supreme Court is expected to issue a ruling on tariffs today, likely unfavorable. If that happens, significant noise from the Trump administration is expected, though markets are unlikely to be caught off guard. Our baseline expectation is for a mildly positive reaction in the dollar.
EUR: Greenland Discussions Likely to Have Limited Market Impact
A US delegation, including JD Vance and Marco Rubio, is scheduled to meet today with officials from Denmark and Greenland. So far, US threats related to Greenland have had minimal impact on markets—limited mostly to some movements in EUR/DKK forwards—meaning there’s little risk premium to be unwound even if the talks lead to a cooperative outcome. Nevertheless, any progress could help eliminate a lingering geopolitical “black swan” risk for European currencies.
There seems to be potential for an agreement, likely based on the US abandoning any claims of “ownership” over Greenland—a stance firmly rejected by both Denmark and Greenland—in exchange for enhanced economic partnerships and a greater US military presence.
Positive headlines from the talks might ease the EUR/USD’s recent decline slightly, but we still expect the pair to approach 1.1600 in the near term.
JPY: Approaching the 160 Level for a Key Test
The USD/JPY rally shows no signs of slowing. Rising speculation about snap elections is bringing back a political risk premium, giving another push to test Japan’s currency tolerance band. Meanwhile, ongoing diplomatic tensions between Japan and China are adding more momentum to the move.
On Monday, we viewed 160 as a key upside target. While intervention concerns may slow the rally near that level, it increasingly looks like 160 will eventually be tested. Recall that in July 2024, Japan allowed the pair to surpass 160 and only intervened when it neared 162. Pinpointing the exact intervention level is tricky, but since the BoJ hasn’t acted sooner, it’s reasonable to expect they’ll wait until the pair exceeds 160.
For context, the first intervention on July 11, 2024, led to a 1.8% drop in USD/JPY. Interestingly, back then, CFTC net non-commercial positions on the yen were at -52% of open interest, whereas now they are 3% net-long, despite spot price action suggesting otherwise.
The crucial question is whether FX interventions alone can sustain a USD/JPY recovery. Historically, they haven’t. In 2024, interventions curtailed short-term gains but the subsequent USD/JPY decline was driven mainly by a sharp 50bp drop in US 2-year swap rates over the next month. That scenario seems unlikely now, and with snap election risks ongoing, markets remain hesitant to price in a BoJ rate hike before summer.
THE ETERNAL SOVEREIGN 