EUR/USD: the return of protectionism and the dynamics of the dollar

US Dollar Index (DXY) trading idea on January 29, 2025During Wednesday's Asian session, the dollar index (DXY) remains around 107.70, demonstrating consolidation amid low market activity. Investors remain cautious ahead of the meeting of the US Federal Reserve System (Fed), the results of which will be announced this evening.According to the FedWatch Tool, the probability that the Fed will leave the key rate at 4.5% is estimated at 99.5%. However, the main focus will be on the press conference of the head of the regulator, Jerome Powell, who may shed light on the Fed's further steps in monetary policy.With inflation accelerating, experts do not expect a quick transition to policy easing. Data on the consumer price index (CPI) in the United States shows an increase of 2.9% in December after 2.7% in November, which may force the Fed to adhere to a wait-and-see strategy. If the regulator confirms that rates will remain high for a long period, this may strengthen the dollar's position.Trade risks remain an additional driver of the dollar's growth. On Monday, the US president announced plans to impose new import tariffs on computer chips, pharmaceuticals, steel, aluminum and copper.Donald Trump's goals are:• Relocation of production to the USA• Support for American manufacturers• Reducing dependence on foreign goodsIn addition, the White House administration confirmed tough trade measures against Canada and Mexico, which will take effect on February 1. If the policy of protectionism continues to intensify, it may put pressure on global trade and support the dollar as a defensive asset.We believe that the dollar index will continue to strengthen relative to other forex currency indices and we suggest placing a pending DXY order.• Buy Stop: 107.90• Take Profit: 109.00• Stop-Loss: 107.50In the coming days, the movement of the dollar index will depend on the Fed's rhetoric, the dynamics of inflation in the United States and the Trump administration's further steps in terms of international trade.

USD/JPY analysis on January 29, 2025During Wednesday's Asian session, USD/JPY is trading at 155.27, working out a correction against the background of the publication of the minutes of the Bank of Japan meeting, where the regulator raised the interest rate to 0.50% for the first time since 2008.According to the published report, the decision to tighten monetary policy was dictated by a steady increase in inflation - the consumer price index reached the target level of 2.0%, as well as positive wage dynamics, which confirms employers' intentions to continue indexing.Despite the rate hike, the Bank of Japan remains active in government bond purchases, having repurchased debt securities worth 4.9 trillion yen since the beginning of the year.The next act of monetary restriction may take place no earlier than June or July, and within two years, the cost of borrowing, according to the regulator's forecasts, may reach 1.50%, which will ensure the necessary control over inflationary risks.The US dollar index is trading near 107.50. Statements by the US president remain a key catalyst for currency market volatility.The day before, Donald Trump announced a new package of import tariffs on computer chips, pharmaceuticals and steel, arguing the measures needed to stimulate domestic production. These initiatives may increase trade friction, affecting the dynamics of the yen and the dollar.An additional negative factor for the USD was consumer confidence data from the Conference Board: the index dropped from 109.5 to 104.1 points, reflecting growing uncertainty in the consumer environment.USD/JPY technical analysis for todayOn the daily chart, USD/JPY continues to adjust within the ascending channel with a range of 162.00–154.00, approaching the key support zone.Technical indicators indicate a possible weakening of the uptrend.:• The moving averages of the alligator indicator are approaching the signal line, narrowing the volatility range.• The Awesome Oscillator (AO) histogram forms descending bars in the negative zone, signaling the possible development of a downward trend.Trading recommendations for USD/JPYSale• Entry: after fixing the price below 154.50• Target: 151.00• Stop-Loss: 156.00Buy• Entry: after fixing the price above 156.50• Target: 160.60• Stop-Loss: 155.00In the coming days, the dynamics of USD/JPY will depend on the comments of the Bank of Japan, macroeconomic data from the United States, as well as geopolitical factors related to the trade policy of the new White House administration.

GBP/USD analysis on January 29, 2025GBP/USD continues to trade near the 1.2450 mark, remaining under pressure due to increasing fears of a stagflationary scenario in the UK economy.The main factors of pressure on the pound remain the slowdown in the UK labor market and persistent inflation. Employment in the country has been declining for the fourth month in a row, and in November the number of jobs created fell from 173.0 thousand to 36.0 thousand. At the same time, inflation remains above the Bank of England's target level (2.0%) and stands at 2.5% YoY according to December data./Against this background, the markets are already pricing in the possibility of a reduction in the interest rate by the Bank of England at the next meeting on February 6 – by 25 bps, from 4.75% to 4.50%, which puts negative pressure on the British currency.An additional risk factor remains the meeting of the US Federal Reserve, the results of which will be announced today at 21:00 (GMT+2). According to the CME FedWatch Tool, the probability of maintaining the rate at 4.50% is 99.5%, which supports the US dollar and strengthens its long-term upward trend. This creates additional pressure on the GBP/USD, increasing the likelihood of a further decline in the pair.Another key driver of uncertainty remains expectations of new trade duties from Donald Trump, primarily against China, Mexico and Canada.However, experts do not rule out that the United Kingdom and the EU may be included in the White House list, which will create additional pressure on the British currency. The first tariff innovations may come into force as early as February 1, which increases the demand for protective assets.Technical analysis for GBP/USD for todayLong-term trend: downwardAgainst the background of the January drop, GBP/USD broke through the support level of 1.2300, but in recent days it has entered a corrective phase. In case of continued growth, the key resistance is the 1.2560 mark, from which sales may resume with a target of 1.2300.Medium-term trend: change to an upward trendLast week, the pair overcame the resistance zone of 1.2407–1.2379, which opened the way to the next range of 1.2687–1.2659. If the correction deepens, the support zone shifts to 1.2243–1.2215. If the quotes test this level, we will get a good opportunity to buy with a target of 1.2521 (weekly maximum).The main forex indicators do not give unambiguous signals.Trading Recommendations, Short positions:• Sale: from 1.2560• Target: 1.2325• Stop-Loss: 1.2625, Long positions:• Buy: above 1.2625• Target: 1.2785• Stop-Loss: 1.2560In the coming days, the dynamics of GBP/USD will depend on the decisions of the Bank of England and the US Federal Reserve, as well as the geopolitical risks associated with the possible imposition of trade duties.

The Fed is preparing for a pause, investors' attention is focused on key meetings of Central banksToday, the Federal Reserve System (Fed) is expected to take a pause in the rate cut cycle, leaving the target range of 4.25–4.50% unchanged.This decision is consistent with market assumptions and consensus forecasts.In March, the Fed may cut the rate by 25 bps, but high uncertainty in fiscal and trade policy is likely to prevent Jerome Powell from giving a clear signal on further steps.Macroeconomic background: attention to the GDP of Spain and SwedenSpanish GDP data for the fourth quarter of 2024 will be published today, and an aggregated indicator for the Eurozone will be released tomorrow. The Spanish economy shows steady growth: +0.8% QoQ in the second and third quarters. Growth is expected to be 0.6% QoQ in the fourth quarter, which confirms the positive trend. The European Commission will also present a draft of the Competitiveness Compass, a new EU economic strategy until 2029 aimed at simplifying regulation and accelerating growth.In Sweden, a preliminary GDP estimate will be released at 08:00 CET, and if the forecast of 0.3% QoQ is confirmed, this will ensure annual economic growth of 0.6%. The Riksbank will hold a meeting at 09:30 CET, where the rate is expected to decrease by 25 bps to 2.25%. Given the weak inflation data and declining consumer demand, the likelihood of a second consecutive rate cut remains high.Bank of Canada's decision: market expects policy easingThe Bank of Canada will announce the rate decision at 15:45 CET today. A decrease of 25 bps to 3.00% is expected, which coincides with analysts' forecasts. The main reasons for monetary expansion are oversupply in the market, trade risks due to US policy and expectations of further easing of monetary conditions. In addition to the rate decision, the BoC will also publish a quarterly monetary policy report to help understand the regulator's next steps.Recent events: market reactionJapan: the Bank of Japan is preparing for further rate hikesMinutes of the Bank of Japan (BoJ) meeting in December showed that the regulator was discussing a neutral interest rate after a prolonged period of deflation.According to BoJ estimates, its range is in the range of 1.0–2.5%, but the head of the bank, Kazuo Ueda, noted that accurate calculations are difficult.In January, the BoJ already raised the rate from 0.25% to 0.5%, and it is projected to increase further to 1.0% over the course of the year.Australia: weakening inflation increases the chances of a rate cut by the RBA.Inflation data in Australia for the fourth quarter turned out to be lower than expected. The core consumer price index decreased to 3.2% QoQ (expected 3.3%, previous value 3.5%). This reinforces expectations that the Reserve Bank of Australia (RBA) may cut interest rates as early as February, which will be the first policy change in more than a year.USA: declining consumer confidenceAccording to the Conference Board, the consumer confidence index in the United States declined in January, indicating a weakening of sentiment regarding both the current situation and future expectations. A decrease in consumer intentions to go on vacation has become particularly noticeable, which may signal a slowdown in demand.At the same time, the "job availability index" has fallen to a minimum since September, which confirms the weakening of the labor market. However, it is worth considering the political factor - according to the University of Michigan, Republican respondents are much more optimistic about the economy than Democrats, which may influence the results of polls.Eurozone: tough credit conditions continue to constrain growthThe ECB's survey on bank lending showed a further tightening of business lending standards in the fourth quarter of 2024. Demand for loans remains weak, and in the first quarter of 2025, banks plan to further tighten conditions for households and companies. This confirms that the ECB's policy remains restrictive.Norway: weak retail sales increase the likelihood of a rate cutDecember retail sales in Norway decreased by 0.1% mom, which confirms weak consumer demand during the holiday season. Despite real wage growth of 2%, the economy is not yet showing a steady recovery. This increases the likelihood of an interest rate cut in March.Financial markets: reaction to macro data and corporate reportsStock indexes: growth on the background of the technology sectorOn Tuesday, global stock markets showed a recovery, which increased risk appetite through currency correlation. In the stock market, the growth was mainly in the technology sector. Investors were reviewing the impact of DeepSeek (a new technology trend), which led to a reversal after Monday's drop.• Dow Jones +0,3%• S&P 500 +0,9%• Nasdaq +2,0%• Russell 2000 +0,2%In Asia, many markets are closed due to the Lunar New Year, but Japan and several other countries are experiencing growth. Futures for the US and European indices are also trading with a slight increase.Debt markets: correction after rising yieldsYesterday, global bonds partially recovered Monday's losses, when investors went into defensive assets.• The spread between French and German bonds narrowed by 1 bps to 72 bps, which is the lowest level since October.• Italian BTP initially showed good growth, but came under pressure towards the end of the session amid an investigation into Prime Minister Giorgi Meloni.The ECB lending survey indicates the continuation of tight monetary policy, which is holding back the decline in yields.Foreign exchange market: dollar strengthens, euro stays above 1.04• EUR/USD has stabilized above 1.04, but overall the dollar continues to strengthen amid new headlines about Trump's trade policy, which promotes the introduction of universal import tariffs in excess of 2.5%.• USD/CAD is focused on the decision of the Bank of Canada, where the probability of a 25-bp rate cut remains high.• SEK is in investors' focus ahead of the Riksbank meeting, which could set a new vector for the Swedish krona.Conclusion: markets are waiting for the decisions of the Fed, the Bank of Canada and the RiksbankThe key events today are the meetings of the Federal Reserve and other central banks. The Fed's decision to leave the rate unchanged is expected, but Powell's rhetoric will be decisive for the dynamics of the dollar and global markets.

Weak inflation data increases pressure on the AUDDuring Wednesday's Asian session, AUD/USD shows an uncertain decline, developing a downward trend in the short term.At the moment, the pair is testing the level of 0.6235, while market participants are analyzing the latest macro statistics on inflation in Australia.The published data indicate further disinflation, which may be an argument in favor of a soft monetary policy of the Reserve Bank of Australia (RBA).The December consumer price index (CPI) accelerated from 2.3% to 2.5%, but remained at 0.2% in quarterly terms (against the forecast of 0.3%).In annual terms, the indicator decreased from 2.8% to 2.4%, while 2.5% was expected.Core inflation, calculated by the RBA using the truncated average method, also turned out to be lower than expected:Slowed down from 3.6% to 3.2% in annual terms (the forecast was 3.3%).In quarterly terms – from 0.8% to 0.5% (0.6% expected).The slowdown in inflation, along with a drop in business confidence, indicates the weakness of the economy, which increases the likelihood of holding interest rates unchanged for a longer period of time or even lowering them later. This factor puts pressure on AUD.Markets are waiting for the Fed's decision and Trump's new tariff initiativesThe US Federal Reserve meeting will be held today at 21:00 (GMT+2). Although most investors are confident that the rate will remain at 4.50%, markets are closely monitoring the regulator's rhetoric regarding future plans.The trade policy of Donald Trump adds additional uncertainty. Despite the fact that the promised high tariffs on Chinese imports have not yet been introduced, 25% duties on products from Canada and Mexico will begin to take effect on February 1. Moreover, according to Financial Times sources, Scott Bessent, the new candidate for the post of Finance Minister, advocates the introduction of universal import tariffs with a base rate of 2.5%, which will be reviewed monthly.The escalation of protectionist measures by the United States may lead to increased volatility in the foreign exchange market, which will affect the AUD/USD positions.AUD/USD Technical Analysis for todayOn the daily chart, the Bollinger Band indicator shows moderate growth, but the price range of the indicator is narrowing, which indicates uncertainty in the short term.The MACD turned down, forming a sell signalStochastic indicates a continuation of the decline, but it is already approaching the oversold zone (the "20" level), which increases the likelihood of a short-term rebound.Trading ScenariosSelling after a confident breakdown down to 0.6225, target 0.6178, stop loss 0.6250.Buy on a rebound from 0.6225 and an upward breakout of 0.6250 resistance, target 0.6300, stop loss 0.6225.The current dynamics of AUD/USD largely depends on the tone of the Fed's statements and the course of US trade policy. In the short term, pressure on the Australian dollar remains, but local rebounds are possible against the background of technical factors.

FOREX Fundamental analysis for EUR/USD on January 29, 2025The history of financial markets clearly shows that even experienced participants are not immune from the repetition of previous miscalculations. The most common losses of traders are passed down from generation to generation. At the beginning of Donald Trump's first presidential term, experts predicted an acceleration of US economic growth and increased inflationary pressures. However, the reality turned out to be different - inflation remained moderate, and the slowdown in the economy forced the Fed to reconsider its course and begin lowering interest rates in 2019. Today's "bears" on EUR/USD risk treading on the same rake if they underestimate the possible consequences of the new policy of the White House.Protectionism and the economy: the risk of a repeat of the 2019 scenarioIn 2018-2019, the tariffs introduced were relatively mild compared to those currently under consideration. However, even then, the main impact fell on the US industrial sector, which, contrary to expectations of employment growth, faced job cuts.Investment activity has slowed, output has fallen, and real median household incomes have declined for the first time in five years. According to some estimates, the total losses of American consumers amounted to about $8 billion.The slowdown in the economy forced the Fed not only to revise its GDP growth forecasts, but also to lower the federal funds rate in order to support business activity.How will the macroeconomic picture change?Former Commerce Secretary Wilbur Ross notes that Trump remains committed to protectionist policies, but the economic environment has changed significantly. If the Fed struggled with low inflation in the past decade, today CPI and PCE are already at elevated levels. The introduction of large-scale import tariffs could further exacerbate inflationary pressures.However, the Trump administration is offering alternative ways to deal with rising prices. Among them are measures to reduce the cost of oil by increasing production from OPEC+ and American shale companies, as well as large–scale cuts in government spending. Already, many officials have been asked to voluntarily leave their posts with pay for 8 months. The White House expects 5-10% of civil servants to respond to such an initiative, which will reduce budget expenditures by $100 billion.However, these measures also carry certain risks. Control over oil prices remains outside the competence of the White House, and sanctions pressure on Russia may lead to an increase in quotations of "black gold". The reduction of the public sector can trigger a decline in GDP. In conditions of high uncertainty, investors continue to move into the dollar, providing its support for 17 consecutive weeks.US Dollar forecast: what should the markets expect?Forex trading methods are based on the principle that the dollar will remain strong until there are convincing arguments to the contrary. However, if Trump's economic policy does lead to a slowdown in GDP growth, the US currency may come under pressure, and the USD index will enter a sell-off phase.In the short term, investors' attention is focused on the upcoming Fed meeting. DoubleLine Capital analysts consider it one of the most predictable in recent years, as the regulator is likely to leave the rate unchanged, trying to preserve room for further maneuver.While EUR/USD is trading above 1.0415, it makes sense to be cautiously optimistic about holding bullish positions. However, the macroeconomic risks associated with US protectionism can quickly change the balance of power in the market.EUR/USD technical analysisEUR/USD is trying to recover from the support area (A) of 1.0441 - 1.0432. If successful, we can expect a continuation of the short-term uptrend with the first target at 1.0482 and the second at 1.0533.If the support area (A) is nevertheless broken down during trading, the correction will continue to the trend line of 1.0395 - 1.0381. After reaching this zone, we will also consider purchases with the main goal in the high area on January 27.To change the direction of the trend and subsequent sales, the bears need to break down the 1.0381 mark. In this case, from the next trading day, it will be possible to consider selling the pair with a target at the lower target zone of 1.0257 - 1.0229.

AUD/USD analysis on January 27, 2025The Australian dollar remains stable after the publication of the latest macroeconomic data. The index of business activity in the manufacturing sector rose to 49.8 points in January (previous reading: 47.8), but remains in the stagnation zone. In the service sector, the index dropped from 50.8 to 50.4 points, approaching the critical value of 50 points. Due to the celebration of Australia Day, today's market activity is limited, and the further movement of the pair will depend on new fundamental drivers.The US dollar index remains near the level of 107.50. The dollar is supported by geopolitical events. US President Donald Trump has intensified his aggressive rhetoric on trade policy. On Sunday, January 26, there was a diplomatic conflict with Colombia over the deportation of illegal migrants. Colombian President Gustavo Petro refused to allow American planes to land, accusing the United States of improper treatment of deportees. In response, Donald Trump threatened to impose 25% duties on all goods from Colombia, with a possible increase to 50%. Despite the escalation, the parties quickly came to an agreement, which underlined the seriousness of the US intentions in matters of trade policy.Against the background of domestic statistics, the continued growth of sales in the secondary housing market has become a positive signal for the US economy. In December, volumes increased by 2.2% and reached 4.24 million homes against 4.15 million a month earlier. This indicates a partial recovery in the real estate markets, one of the weakest sectors of the American economy.AUD/USD technical analysis for todayOn the daily chart, the AUD/USD pair is trying to exit the descending channel, the boundaries of which are defined by the levels 0.6280–0.6140.Technical indicators give a buy signal• The moving averages of the alligator indicator are directed upwards, increasing the discrepancy with the signal line.• The Awesome Oscillator (AO) histogram has completely moved into the positive zone, confirming the bullish momentum.Trading recommendations• Long positions: open after the breakdown and consolidation above the level of 0.6330 with a target at 0.6450. The stop loss is set at 0.6280.• Sales: they will be relevant if they decrease and consolidate below 0.6260. The nearest target is 0.6140. The stop loss is at 0.6320.

Today, the markets' attention is focused on the Ifo business climate index in Germany. Investors are interested in whether the Ifo data will support the positive dynamics unexpectedly shown by the German PMI on Friday?This week promises to be a busy one. Central bank meetings are in the spotlight. On Wednesday, the Riksbank (Sweden), the Bank of Canada and the US Federal Reserve will announce their rate decisions. The ECB meeting will be held on Thursday. In addition, significant macroeconomic data is expected to be released - the preliminary GDP of the Eurozone for the 4th quarter, data on the GDP of individual countries, as well as preliminary inflation for January in Spain (on Thursday). Inflation data in Germany and France for January will be published on Friday. In the US, the key events will be durable goods orders (Tuesday), Q4 GDP (Thursday) and PCE inflation (Friday).Key events of the past daysChinaChina's national PMI indexes showed a decline in January. The composite index fell to 50.1 (previous reading: 52.2), due to a slowdown in both the manufacturing and service sectors. The manufacturing index dropped to 49.1 (expectation: 50.1, previous reading: 50.1), the lowest since August 2024. Chinese authorities said the decline was partly due to the upcoming holidays. Data on industrial profits were also published, which decreased by 3.3% in 2024.GeopoliticsThe United States has confirmed the extension of the ceasefire between Israel and Lebanon until February 18. The initial agreement was reached in November, ending the 14-month conflict between Israel and Hezbollah.PMI in EuropeOn Friday, the key event was the release of PMI data for January. In the Eurozone, the composite index rose to 50.2 (expectation: 49.7, previous value: 49.6), indicating a recovery in business activity. The main contribution was made by the manufacturing sector, whose index rose to 46.1 (expectation: 45.3). The service sector PMI remained virtually unchanged at 51.4, supporting expectations of 0.2% QoQ GDP growth in the first quarter.UK PMIThe UK PMI data also exceeded forecasts. The composite index rose to 50.9 (expectation: 50.1), indicating an improvement in business activity, especially in the service sector. However, continued price pressures remain a challenge for the Bank of England. Despite this, analysts expect a 25bp rate cut at the next meeting on February 6..US PMIIn the USA, the dynamics of the PMI turned out to be mixed. The composite index dropped to 52.4 amid an unexpected drop in the service index to 52.8 (expectation: 56.5), while the manufacturing PMI rose to 50.1, beating forecasts. In the manufacturing sector, there is a recovery in demand in both the domestic and foreign markets, which indicates stabilization.The situation on the financial marketsStock marketsGlobal stock indexes declined on Friday after eight days of gains. In the US, the Dow, S&P 500, Nasdaq and Russell 2000 each lost 0.3–0.5%. Asian markets are mostly trading in the red this morning. The focus is on the technology sector, where concerns are growing about competition from DeepSeek AI, which could affect U.S. leadership in technology and chips.CurrenciesOn the Forex market on Friday, the EUR/USD pair overcame the 1.05 level on the back of strong PMI data from the Eurozone. Nevertheless, the US dollar strengthened due to the resumption of tariff threats from Donald Trump. The pound showed some correction, despite the weak start to the year.BondsEuropean ten-year bond rates rose by 3 bps on Friday thanks to unexpectedly strong PMIs, which lowered expectations for further ECB rate cuts.This week will be a key week for understanding the direction of central banks' monetary policy. Investors are closely watching the rhetoric of the Fed, the ECB and other regulators, as well as data on inflation and economic growth.