CFD Markets News and Forecasts — 03-02-2025

• GBP/USD plunged after the weekend’s tariff threats.
• Significant concessions in US tariff scheme sees market sentiment recover.
• Broader markets brush off tariffs to recover risk appetite.

GBP/USD sewered after a batch of fresh tariff threats from US President Donald Trump hit the markets, but plunges across global risk markets clawed back to recover ground after looming US tariffs on Canada and Mexico gave way to 30-day concessions from the Trump administration. Odds of US tariffs on the UK specifically remain limited, and Cable managed to rebound to the 1.2450 region at the tail-end of the Monday trading session.

The Bank of England (BoE) is set to give another rate call later this week, and markets are broadly pricing in another rate cut. The BoE’s Monetary Policy Committee (MPC) is expected to vote eight-to-one on cutting interest rates another quarter-point to 4.5%, with the one holdout expected to vote for holding rates steady for another meeting.

Another US Nonfarm Payrolls (NFP) print looms ahead on Friday. Jobs figures are unlikely to move the needle too much this week. The US labor segment remains sturdy, and geopolitical headlines are taking the front seat this week.

GBP/USD price forecast

Despite a bullish recovery, GBP/USD remains caught on the wrong end of momentum. The early week’s price action cut a deep gouge in the pair, dragging bids into a two-week low below 1.2300.

Price action pared back intraday losses, but Cable still remains south of the 50-day Exponential Moving Average (EMA) at the 1.2500 handle. 

GBP/USD daily chart

• USD/CAD attracts some sellers to around 1.4410 in Monday’s late American session, down 1.09% on the day. 
• Trump confirmed the postponement of his Canada tariffs. 
• US ISM Manufacturing PMI bested the estimates in January. 

The USD/CAD pair tumbles to near 1.4410 during the late American session on Monday. The Canadian Dollar (CAD) rebounds after falling to a level not seen since 2003, as US President Donald Trump confirmed the postponement of his Canadian tariffs in a post on Truth Social. 
 
Late Monday, Trump said that he will pause for one month new 25% tariffs on goods entering the United States from Mexico and Canada. The announcement came two days after Trump slapped 25% tariffs on goods from Mexico and Canada and 10% tariffs on goods imported from China. The Loonie attracts some buyers in an immediate reaction to this headline. 

On the other hand, the upbeat US economic data could provide some support to the US Dollar (USD). Data released by the Institute for Supply Management (ISM) on Monday showed that the Manufacturing PMI rose to 50.9 in January from 49.3 in December. This reading came in better than the estimation of 49.8. Traders will take more cues from the Fedspeak. Federal Reserve (Fed) Raphael Bostic and Mary Daly are set to speak later on Tuesday.

According to the CME FedWatch tool, markets reduce expectations of rate cuts from the Fed in the wake of the tariff news, with futures pricing in just a 50% odds of two cuts this year. This, in turn, might underpin the Greenback in the near term. 

Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee noted during a radio interview during the late Monday session that economic uncertainty is exactly the type of thing that would trigger a pause in future rate cuts.

Key highlights

Canadian Prime Minister Justin Trudeau announced late Monday that a tit-for-tat spat of trade tariffs between the US and Canada would be suspended for 30 days as the two countries agree to meet at the negotiating table. This follows a similar deal between the US and Mexico where a similar tariff was imposed in an effort to bully both Mexico and Canada to the table in order for US President Donald Trump to renegotiate his own renegotiation of the North American Free Trade Agreement (NAFTA), which was rebranded the USMCA trade deal after Donald Trump forced a renegotiation of the trilateral trade agreement during his first term.

Key highlights

• NZD/JPY declines 0.99% on Monday, settling at 86.55 after hitting its lowest level since August 2024.
• The pair briefly dropped to 85.70 before bouncing back around 87.00, though it remains below the 20-day SMA at 88.00.

The NZD/JPY pair saw heightened volatility on Monday, plunging to a fresh multi-month low of 85.70 before staging a partial recovery to close at 86.55. Despite the rebound, the broader outlook remains bearish, as the pair continues to struggle below key resistance levels, with the 20-day Simple Moving Average (SMA) at 88.00 acting as a cap.

Technical indicators suggest mixed signals regarding momentum. The Relative Strength Index (RSI) remains flat at 41 in negative territory, signaling persistent selling pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is printing rising red bars, which further supports the bearish thesis.

Looking ahead, the pair faces immediate resistance at 87.00, and a sustained break above this level could pave the way for a move toward the 20-day SMA at 88.00. On the downside, renewed selling could push the pair back toward 85.70, with further losses potentially targeting 85.30. As long as NZD/JPY remains below the 20-day SMA, the outlook remains tilted to the downside.

NZD/JPY daily chart

• NZD/USD drops 0.59% on Monday, hitting 0.5515, its lowest level since October 2022.
• The pair staged a partial recovery to 0.5595 but remains under heavy bearish pressure.
• RSI stays flat in negative territory, while MACD histogram shows decreasing green bars, signaling fading bullish attempts.

The NZD/USD pair extended its downward trajectory on Monday, falling sharply to 0.5515, its lowest point in over a year, before managing a slight rebound to settle at 0.5595. Despite the brief recovery, the pair remains trapped in a bearish structure, with sellers firmly in control amid persistent downside momentum.

Technical indicators confirm the lack of strong buying interest. The Relative Strength Index (RSI) points down at 41 in negative territory, suggesting that selling pressure has yet to ease. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is printing decreasing green bars, pointing to waning bullish momentum and reinforcing the broader downtrend.

For now, support is seen at 0.5515, and a sustained break below this level could expose further downside toward 0.5480. On the other hand, if the pair attempts a rebound, initial resistance is found at 0.5620, followed by the 20-day Simple Moving Average (SMA) near 0.5630. As long as NZD/USD trades below this key threshold, the broader bearish outlook is expected to persist.

NZD/USD daily chart

• Silver rises 0.71%, trading between $30.60 and $31.60, awaiting clear market direction.
• Bullish technical momentum; a break above $32.00 could push gains to $34.00.
• Risk of downside if silver falls below $31.00, potential pullback to $30.32 SMA support.

Silver prices advance late in the North American session on Monday, up 0.71%, as trade tensions between the US, Canada, China, and the Eurozone (EU) rise. The XAG/USD trades at $31.49 at the time of writing.

XAG/USD Price Forecast: Technical outlook

The XAG/USD has consolidated within the $30.60-$31.60 area during the last two days but lacks a clear bias in the medium-to-long term, indicating that neither buyers nor sellers are in charge.

Nevertheless, according to the Relative Strength Index (RSI), momentum indicates that bulls have the upper hand. However, they need to clear key ceiling levels before the grey metal turns bullish from a market structure point of view.

If buyers clear the $32.00 figure, this will shift the bias to upwards, paving the way for testing the December 12 high at $32.32, followed by the October 25 swing low of $33.09. On further strength, the next resistance will be the $34.00 mark.

However, if bears push prices below $31.00 daily, the next support would be the 50-day Simple Moving Average (SMA) at $30.32, followed by the 200-day SMA at $30.16.

XAG/USD Price Chart – Daily

• AUD/USD fell 0.80% to 0.6245 on Tuesday amid heightened risk-off sentiment.
• The Australian Dollar extended its losing streak for a sixth consecutive session as investors reacted to renewed US tariff measures.
• US President Trump’s decision to impose import duties on China, one of Australia’s key trading partners, intensified trade war fears.

The Australian Dollar (AUD) extends its losing streak against the US Dollar (USD) on Monday as the pair tests critical support near 0.6250. Amid escalating trade war concerns spurred by US President Donald Trump’s latest tariff policy on Chinese imports, the AUD is under pressure despite some recovery attempts.

Daily digest market movers: Markets assess fresh US tariffs

• Investor attention shifted sharply after President Trump announced a 25% tariff on Canadian imports and a 10% duty on Chinese goods, actions that have raised inflation concerns and spurred speculation on the Federal Reserve’s potential response.
• A planned 25% tariff on Mexican imports was temporarily postponed after Mexican authorities agreed to bolster border security by deploying 10,000 troops to the border, a move aimed at reducing drug smuggling.
• Canada signaled it would take swift retaliatory measures, while China vowed to challenge the tariffs through international trade bodies.
• January’s ISM Manufacturing PMI exceeded forecasts, signaling continued strength in the US private sector and bolstering the US Dollar's safe-haven appeal despite earlier weakness.

AUD/USD technical outlook: Sellers push to conquer 0.6200 level

The AUD/USD pair has been trading within a tight range lately. On Friday, it managed a modest recovery, rising to 0.6215. The Relative Strength Index (RSI) currently stands at 47, indicating that while momentum is not fully restored, the market remains in a cautious, negative zone. The Moving Average Convergence Divergence (MACD) histogram is showing rising green bars, suggesting that bullish elements are gradually emerging despite overall indecision.

If buyers can push the price above 0.6300, it may signal a more definitive recovery. However, further weakness would lead to additional downside pressure if the support at 0.6200 fails to hold.

• USD/CHF gains 0.19% to 0.9126, retreating from three-week peak as trade negotiations show promise.
• Technical analysis suggests bullish trend with potential to target 0.9200 if support at 0.9100 holds.
• Downside risks loom if pair drops below 0.9100, with possible retracement to 0.8990 SMA level.

The USD/CHF trims some gains after reaching a three-week high of 0.9195. Risk appetite improves due to a delay in the US applying tariffs in Mexico, an indication that Washington is open to negotiating trade terms. At the time of writing, the pair trades at 0.9126, up 0.19%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF is in a correction mode on an intraday basis, but the overall trend is upward, as depicted in the daily chart. However, bulls need to keep prices above 0.9100 on a daily basis so they can challenge the 0.9200 figure in the near term.

Momentum favors further upside, as depicted by the Relative Strength Index (RSI). Therefore, if USD/CHF advances past 0.9200, the following key resistance would be the April 2024 high at 0.9224 before challenging 0.9300.

Nevertheless, if sellers push the USD/CHF exchange rate below 0.9100, this could pave the way for a pullback towards the 50-day Simple Moving Average (SMA) at 0.8990. A breach of the latter will expose a November 2024 swing low of 0.8956.

USD/CHF Price Chart – Daily

The US Dollar kicked off the week on a strong note as market participants assessed the implementation of US tariffs over the weekend, while investors should remain focused on the US labour market data throughout this week as well as comments from Fed’s rate setters.

Here is what you need to know on Tuesday, February 4:

The US Dollar Index (DXY) advanced to the boundaries of the 110.00 mark as investors digested US tariffs on Canada, Mexico and China, while US yields traded in a mixed fashion. The JOLTs Job Openings will start the release of jobs-related data seconded by Factory Orders, and the API’s weekly report on US crude oil supplies. In addition, the Fed’s Musalem, and Daly are due to speak.

EUR/USD plummeted to new lows in the vicinity of the 1.0200 region on the Dollar’s sharp rebound. Next on tap on the domestic calendar will be the final HCOB Services PMIs in Germany and the euro area on February 5, along with Producer Prices in the bloc and the speech by the ECB’s Lane.

GBP/USD managed to bounce off lows near 1.2250 and regain the 1.2400 zone to end Monday’s session around the 1.2400 level. Across the Channel, the final S&P Global Services PMI will be released on February 5.

USD/JPY started the week on the defensive and partially eroding Friday’s advance amid mixed US yields and further gains in JGB 10-year yields. Next on tap in Japan will be the final Jibun Bank Services PMI and Average Cash Earnings, all due on February 5.

AUD/USD broke below the 0.6100 support to hit multi-year lows on the back of the Greenback’s rally, US tariffs, and weakness in the Chinese yuan. Next of note in Oz will be the final Judo Bank Services PMI.

Prices of the barrel of WTI flirted with multi-week lows near the $72.00 mark per barrel following the stronger Greenback and US tariffs.

Prices of Gold rose to an all-time peak around $2,830 per ounce troy backed by rising safe haven demand amid concerns over a potential global trade war. Silver prices rose markedly and faded Friday’s downtick, trading well north of the $31.00 mark per ounce.

• Tariff headlines grip global markets as US President Trump lashes out at global trade stability.
• A wide cut of US tariffs has sewered global market sentiment.
• A last-minute aversion of Mexico tariffs has bolstered investor hopes that a global trade war might not happen.

GBP/USD roiled on Monday, tumbling 1.5% during the overnight session before recovering back to flat for the day at the 1.2400 handle. Import tariffs from the US brewing into a large-scale global trade war hobbled market sentiment over the weekend.

The US was geared up to impose sweeping import tariffs of 25% on Canada and Mexico, as well as an additional 10% on China, with US President Donald Trump promising to add an additional 10% levy on goods imported from the EU. However, Mexico was able to obtain a one-month reprieve from the US' tariffs, leading investors to hope that the majority of global tariffs will able to be averted by countries acquiescing to whatever Trump demands in exchange for easing tariffs. Donald Trump specifically voiced a desire for "rare earth metals" agreements from Ukraine in exchange for the US' continued help with the Russian invasion, as well as re-floating taking control of the Panama Canal, which is currently owned and controlled by the country of Panama.

Trump specifically waved off the idea of tariffs on the UK, stating that it is likely that the two countries would be able to work something out, sparking a relief rally in the Pound Sterling that took Monday's bearish plunge back to flat. 

The Bank of England (BoE) is expected to cut interest rates later this week. However, things could change rapidly if it appears like tariffs are going to become an ongoing, globally-inflationary issue.

GBP/USD price forecast

GBP/USD continues to grind through a middle-ground technical stance, hung up on price action near the 1.2400 handle. However, continued tests into the low end and a general uptick in volatility this week will likely keep the Pound Sterling on the defensive as Cable continues to fall away from the 50-day Exponential Moving Average (EMA) near 1.2500.

GBP/USD daily chart

• Gold rises 0.87%, maintaining gains as market navigates US tariff implications on global trade.
• US Dollar Index peaks at two-week high, later retreating as the US-Mexico tariff delay tempers momentum.
• Investors focus on upcoming US Nonfarm Payrolls and Fed communications.

Gold price hit a record high on Monday after the US initially scheduled tariffs on Canada, Mexico and China, sparking flows toward the non-yielding metal's safe-haven appeal. At the time of writing, XAU/USD trades at $2,821 above its opening price by 0.87%.

Market mood has improved, yet the golden metal holds to previous gains. Tariffs have been the main driver of the markets since US President Donald Trump took office. The Greenback began the week on the front foot after the US enacted 25% tariffs on two of its largest trading partners and 10% on China.

The US Dollar Index (DXY) hit a two-week high of 109.88, but news that the US is delaying tariffs on Mexico due to an agreement between both countries weighed on the Greenback, providing a leg-up in XAU/USD.

In the meantime, tariffs on Canada and China remain in place, set to begin on Tuesday. However, US President Trump said he would hold talks with Canada’s Prime Minister Justin Trudeau.

Moving to economic drivers, the Institute for Supply Management (ISM) revealed that US business activity in the manufacturing sector improved. Furthermore, traders will be eyeing US data, with the release of US Nonfarm Payrolls (NFP) for January and Federal Reserve (Fed) officials crossing the newswires.

Daily digest market movers: Gold price boosted by falling US Treasury yields

• The US 10-year T-note yield drops one and a half basis points to 4.537%. US real yields, as measured by the 10-year Treasury Inflation-Protected Securities (TIPS), are unchanged at 2.095%.
• The ISM Manufacturing PMI for January rose to 50.9, surpassing expectations of 49.8 and improving from December's reading of 49.2, signaling an enhancement in business activity. A closer look at the data shows the prices paid sub-component increased from 52.5 to 54.9, indicating higher input costs. Additionally, the employment index showed significant improvement, moving from 45.4 in December to 50.3, reflecting better employment conditions within the sector.
• Bart Melek, Head of Commodity Strategies at TD Securities, commented that the market is not fully aware of the extent of the trade war. "We haven't seen a complete response from Gold, and if this trade war continues for a considerable period, it could lead to significantly higher Gold prices down the road," he added.
• Boston Fed President Susan Collins said the Fed could be patient on rate cuts due to tariff uncertainty.
• Atlanta’s Fed President Raphael Bostic said the Fed needs to get inflation to 2% for the credibility of the institution. He added that the labor market is solid, and he wants to see what the 100 bps of easing last year translates into the economy.
• Money market futures now price in 44 basis points of Fed rate cuts in 2025, with traders anticipating the first move in June.

XAU/USD technical outlook: Gold price remains bullish as buyers eye $2,850

Gold price’s uptrend resumed on Monday as the yellow metal hit an all-time high (ATH) of $2,830. Further upside is seen amid geopolitical uncertainty due to the US imposing tariffs, the Middle East conflict, and the Russia-Ukraine war.

If XAU/USD rises past $2,830, the next resistance would be the 100% Fibonacci level near $2,844 as part of the January 25 to January 31 leg up, which can be seen in the 4-hour chart below. If surpassed, the next resistance will be the 161.8% Fib extension at $2,889, ahead of $2,900.

Conversely, if sellers clear the 50-period Simple Moving Average (SMA) at $2,770, this will be followed by the January 27 swing low of $2,730. The next stop below there would be $2,700.

• The Dow Jones has gained over 660 points during the US session.
• Despite the gains, the Dow is still off of last week’s highs above 45,000.
• A temporary waive of tariffs on Mexico bolstered sentiment, but now EU tariffs loom.

The Dow Jones Industrial Average (DJIA) is caught in a lurch on Monday, falling below the 44,000 handle in the overnight session before recovering lost ground after headlines hit that US tariffs on Mexico may be delayed for up to a month as the two countries work out their differences. However, fresh threats of new tariffs on Europe further complicate investor sentiment to kick off the trading week.

United States (US) Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic noted that he and the rest of the Federal Open Market Committee (FOMC) are willing to hold off even longer on interest rate adjustments. Tariffs are spiraling into a global trade war between the US and the majority of its trading allies, weighing heavily on stability and the inflation outlook.

Mexico potentially scored a one-month delay on US tariffs, but details remain fuzzy and are dependent on how negotiations between the two sides evolve. Canada, China, and now the European Union remain on the block as countries that President Trump will punish by charging his own constituents excess fees for buying their goods.

The US ISM Purchasing Managers Index (PMI) recovered in January, climbing to 50.9 from 49.3, its highest point since late 2022. However, US economic signals are taking a hard backseat to geopolitical turmoil and trade war headlines. This is likely the last time that PMIs will have steady bullish prints for a while as the US trade taxes it is imposing on itself take hold and squeeze economic activity.

Dow Jones news

Despite a steep trim of the Dow Jones Industrial Average over the weekend, the major equity board is holding surprisingly steady in the aggregate, with about half of the index holding in the green for Monday. Apple (AAPL) and Nvidia (NVDA) are the biggest losers on the Dow, falling 3.4% and 2.8% respectively. Apple backslid to $228 per share, with Nvidia falling to a share price of $117. Both megacompanies are hugely exposed to trade tariffs, with the technology sector relying heavily on cross-border trade in order to manufacture and assemble their products.

Dow Jones price forecast

The Dow Jones Industrial Average is scrambling to dig in its heels at the 44,500 level, caught in whipsaw chop as equities go reeling. The Dow kicked off the trading week below the 44,000 handle, but investor sentiment is catching some bids on easing tariff headlines, keeping price action overall on the bullish side, though the Dow Jones remains caught on the low side of all-time highs above 45,000.

Dow Jones daily chart

United States (US) President Donald Trump hit the newswires with a wide swath of off-hand statements on Monday, ranging from the war in Ukraine, where President Trump expects 'rare earth metals' in exchange for obtaining a ceasefire with Russia. Donald Trump also noted that he remains "not happy" with the Panama situation, and reiterated that his work on tariffs is not over yet.

Key hightlights

• The US Dollar retraces after failing to test 110.00 but remains 0.7% higher intraday.
• Trump imposes 25% tariffs on Canada and 10% on China, sparking concerns over inflation.
• The ISM Manufacturing PMI surpasses expectations, boosting confidence in US economic resilience.
• The DXY Index consolidates above 108.00 as traders digest trade policies and economic data.

The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, retreats slightly after failing to test the 110.00 level but remains well-supported above 108.00. Investor focus shifts to the latest US tariffs, with President Trump imposing a 25% tariff on Canada and 10% on China. These measures have heightened inflationary concerns, fueling speculation on how the Federal Reserve may respond.

A 25% tariff on Mexico was shelved for one month after Mexican President Claudia Sheinbaum agreed to send 10,000 troops to the US-Mexico border in order to reduce drug smuggling. Both leaders said they would attempt to hammer out a trade deal to forestall the tariffs.

Additionally, January’s ISM Manufacturing PMI exceeded expectations, suggesting continued strength in the US economy and reinforcing the US Dollar’s resilience in global markets.

Daily digest market movers: US Dollar firms as markets assess tariffs and data

• The US Dollar remains elevated as markets digest the impact of Trump’s new tariffs on major trading partners.
• The pause of tariffs on Mexico arrested a global sell-off in financial markets, sparked by his decision to move forward with tariffs on goods from Canada and China.
• Trump also threatens additional tariffs on the European Union, criticizing their trade policies and lack of US imports.
• On the data front, the ISM Manufacturing PMI for January climbed to 50.9 from 49.3, exceeding market expectations of 49.8.
• The Prices Paid Index, a key inflation measure, rose to 54.9 from 52.5, signaling persistent pricing pressure.
• The Employment Index improved to 50.3 from 45.4, indicating stronger labor market conditions in the manufacturing sector.
• The New Orders Index jumped to 55.1, reflecting growing demand and business optimism despite trade tensions.
• The CME FedWatch Tool indicates an 80% probability that the Fed will keep rates steady at the March meeting.

DXY technical outlook: Bulls aim for 110.00 as indicators recover

The US Dollar Index remains supported above 108.00, showing resilience despite retracing from its recent rally. Momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are recovering, suggesting a potential continuation of bullish momentum.

If buying pressure persists, the DXY could attempt to retest 110.00 in the near term. Key resistance lies at 108.80, with additional upside barriers at 109.50. On the downside, support is seen around 107.80, with a break below this level potentially shifting sentiment toward a more corrective phase.

Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic noted on Monday that although the US labor market remains surprisingly resilient, tariff threats throw a wrench in outlook expectations.

Key highlights

• Mexican Peso recovered after weakening to an almost three-year low, as US – Mexico pledged to cooperate.
• The US Dollar Index curtails gain post-announcement, supporting a stronger Peso amidst market optimism.
• ISM data shows US business activity improves, while Fed's Collins warns tariffs could inflate prices further.

The Mexican Peso (MXN) recovered some ground after weakening to an almost three-year low of 21.28 against the US Dollar (USD) as United States (US) President Donald Trump and Mexican President Claudia Sheinbaum agreed to pause tariffs for one month as they compromise to cooperate in security and trade. The USD/MXN trades at 20.53, down 0.99%.

Recently, Mexican President Sheinbaum said that she and US President Donald Trump had some conversations, which resulted in a one-month pause on tariffs. The market mood shifted positively after the news broke on Sheinbaum’s X account, followed by Trump’s statement on his Truth account.

Even though the Mexican Peso took a respite following the news, it would remain adrift to Trump’s rhetoric.

Following the news, the US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, trimmed earlier gains of over 1.27% and is up 0.23% at 108.75. The DXY’s fall boosted the Mexican Peso, which has reached a two-day high at 20.41.

On the data front, the Institute for Supply Management (ISM) revealed that business activity in the United States improved in January, while Boston Fed President Susan Collins commented that tariffs “would push up prices across production levels,” adding that the Fed needs to do more to lower inflation.

Daily digest market movers: Mexican Peso saved by the bell as Sheinbaum and Trump agreed to terms

• Mexican President Sheinbaum said that Mexico would deploy 10,000 national guards to the border immediately to avoid the trafficking of drugs to the US. She asked US President Trump to work to avoid selling high-powered weapons to Mexico.
• Sheinbaum added that tariffs have been paused for a month now.
• Trump agreed to pause tariffs for one month with Mexico’s President immediately. He added that the US would hold negotiations with Mexico headed by Rubio, Bessent, Howard Lutnick, and high-profile Mexican officials.
• The US ISM Manufacturing PMI for January rose to 50.9, surpassing estimates of 49.8 and improved from December's reading of 49.3. The ISM Manufacturing sub-component of prices paid increased from 52.5 to 54.9, indicating higher input costs.
• JP Morgan revealed via Reuters that the Mexican Peso could depreciate 11.8% if the US imposes 25% tariffs. The US bank said that the “base case” is for postponing tariffs.
• Money market futures now price in 46 basis points of Fed rate cuts in 2025, with traders anticipating the first move in June.

Technical outlook: The Mexican Peso appreciates but clashes with support at the 50-day SMA

USD/MXN uptrend remains in place, even though the Peso erased its over 2% losses on Trump’s tariffs rhetoric. Since hitting a daily high of 21.29, the exotic pair tumbled towards 20.50, shy of clearing the 50-day Simple Moving Average (SMA) at 20.43.

A breach of the latter will expose the 100-day SMA at 20.14, before challenging the psychological 20.00 mark. Conversely, if USD/MXN rises past the previous year-to-date (YTD) peak of 20.90, a move towards 21.00 is on the cards.

• The Canadian Dollar dipped to its lowest value in over two decades.
• Canada immediately hit back against Trump’s import tariffs with their own export tariffs.
• Markets have moderated Loonie selling, but the CAD remains at multi-year lows.

The Canadian Dollar (CAD) plummeted to its lowest bids against the US Dollar (USD) in 21 years at the outset of the trading week after the US and Canada went tit-for-tat on trade tariffs that will pulverize key aspects of both economies. Overall market sentiment recovered ground after Mexico was able to negotiate a one-month ceasefire on US tariffs targeting goods imported from Mexico, but the Loonie is still testing its lowest bids since 2020.

The US imposed a flat 25% import tariff on all goods crossing the border from Canada over the weekend, though US President Donald Trump caved on pressure to reduce tariffs on Canadian-sourced Crude Oil to 10%. Canada immediately responded with their own export taxes on goods and energy sold to the US, daring President Trump to follow through with his threat to double import fees on Canadian goods if Canada retaliated against his tariffs. According to some analysts, the tit-for-tat trade spat between the US and Canada could add another 0.7% to underlying core demand-led inflation in the US.

Daily digest market movers: Trade war 2.0 underway as US bills its own businesses

• The Canadian Dollar hit 1.4800 against the US Dollar for the first time in over two decades.
• Markets have recovered their footing, but USD/CAD is still testing into pandemic highs as market sentiment keeps the Greenback bid.
• A one-month reprieve on the US’ tariffs on Mexico has been granted as Mexican President Claudia Sheinbaum agrees to trade negotiations with President Trump’s cavalcade of appointees with very important jobs but little practical experience. Canada opted to retaliate with export fees on the exact same goods that the US will be charging import taxes on.
• President Trump promised to double tariffs if either Canada or Mexico retaliated.
• Donald Trump’s tariffs are broadly expected to crunch the Canadian economy, as well as contribute to targeted joblessness within the US and contribute meaningfully to core US inflation metrics.
• Jumpstarting inflation and a possible rise in US Crude Oil costs is a poor way to get rate cuts from the Federal Reserve (Fed).

Canadian Dollar price forecast

The Canadian Dollar came within a stone’s throw of 1.4800 against the US Dollar early Monday before markets were able to pump the brakes. The Loonie has recovered some footing after falling to 21-year lows, in tandem with a slight easing in the Greenback.

USD/CAD is still trading into almost five-year highs near the 1.4600 handle as the Greenback accelerates into a sixth straight gaining session against the Loonie. USD/CAD has risen over 10% bottom-to-top from its low of 1.3420 last September.

USD/CAD daily chart

• EUR/USD declines to lows around 1.0200 on Monday, marking a 0.90% drop as bearish pressure intensifies.
• The pair managed to trim losses towards 1.0300 but the outlook remains negative.
• RSI declines to 42, signaling weakening momentum, while MACD prints rising red bars, reflecting persistent bearish traction.

The EUR/USD pair continued its downward trajectory on Monday, slipping to a low around 1.0200 before staging a brief rebound to 1.0300. However, the failed attempt to extend gains highlights the prevailing selling pressure, keeping the pair below its 20-day Simple Moving Average (SMA) and maintaining a bearish outlook.

Technical indicators further support the negative bias. The Relative Strength Index (RSI) has declined to 42, suggesting that downside momentum is gaining traction. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is showing rising red bars, indicating that selling pressure remains dominant despite intermittent recovery attempts.

Looking ahead, immediate support stands at 1.0200, a key level that, if broken, could trigger a move toward 1.0150. On the upside, the first resistance appears at 1.0300, followed by the 20-day SMA near 1.0350. Until the pair clears these resistance zones, the broader trend remains tilted to the downside.

EUR/USD daily chart

• USD/JPY declines from highs of 155.86, settling at 154.51 amid tariff-induced volatility.
• ISM Manufacturing PMI rises, signaling robust business activity despite global trade fears.
• Bank of Japan maintains optimistic outlook, ready to navigate Trump’s protectionist policies.

The USD/JPY retreated from daily highs of 155.86 hit after US President Donald Trump advanced on its protectionist policies, enacting tariffs in Canada, Mexico, and China. Initially, the Greenback rose, but as fears faded, the pair dipped below its opening price by 0.44% and traded at 154.51.

Yen strengthens after initial drop as Trump's new tariffs unsettle markets

Market participants seem worried, as portrayed by global equities trading in the red. US President Trump applied 25% tariffs on Canada and Mexico and 10% to China. US-North American partners vowed retaliatory measures, while the latter, would challenge this policy at the World Trade Organization (WTO).

At the time of writing, the ISM Manufacturing PMI for January increased by 50.9, exceeding forecasts of 49.8. It was up from December 49.2, an indication of improvement in business activity. Digging deeper into the data, the sub-component of prices paid advanced from 52.5 to 54.9, while the employment index improved from 45.4 in December to 50.3.

In the meantime, during the Asian session, the Bank of Japan revealed its January meeting Summary of Opinions. Some of the members added that inflation expectations are heightening as prices rise above the 2% inflation target, and others said that hiking rates would be sufficiently neutral. Policymakers stated that Japan’s economy is resilient and can navigate through protectionist policies implemented by Trump.

This week, the US economic docket will feature Fed speakers, JOLTS Job Orders data, and Factory Orders on February 4. In Japan, the schedule is light with the Jibun Bank Services PMI final release for January.

USD/JPY Price Analysis: Technical outlook

The USD/JPY is forming a ‘bearish candle’ with a long upper shadow, an indication that the pair is not finding acceptance within the 154.78-155.88 range. This is bearish, as seen by price action, with the pair extending its downtrend inside the Ichimoku Cloud (Kumo). Sellers are eyeing the next support at Senkou Span B at 153.76.

On further weakness, the next support would be the 200-day Simple Moving Average (SMA) at 152.83

On the other hand, if buyers achieve a daily close above 155.00, look for further upside. Key resistance is found at the Senkow Span A at 155.76.

Trump fired the first shot in a multifront trade war on Saturday when tariffs on

Mexico, Canada and China became a reality, Danske Bank analysts Senior Analyst and Chief Analyst note.

Impact on US economy to be moderate for now

"The tariffs are linked to border security and thus could be removed or reduced following negotiations. However, there is also a risk we see a tit-for-tat escalation in the short term. We also expect to see more tariffs on China later this year and that EU and possibly other countries will be hit as well before long."

"US growth may take a moderate short-term hit but fiscal easing keeps the medium term outlook broadly unchanged for now. Inflation will see a modest one-off impulse."

"The biggest impact for now may be the uncertainty the global economy is faced with, and supply chain planning for businesses have only become more tricky."

The Dollar Index (DXY) has rebounded after probing the upper part of previous multi-month range at 107, BBH FX analysts report.

DXY can inch higher towards projections of 111

"DXY has gapped up to start the week and is fast approaching the high achieved last month near 110.15. Daily MACD has started posting negative divergence denoting receding upward momentum. However, signals of a deeper decline are not yet visible. It would be interesting to see if the index can establish itself beyond 110.15."

"Should this crossover materialize, the Dollar Index could inch higher towards projections of 111 and 111.90. Defence of recent gap level at 108.55 is crucial to avert deeper pullback."

• The USD Index retraces after failing to revisit 110.00 but is still 0.7% higher intraday.
• US President Trump imposed 25% tariffs on Canada and Mexico, and 10% on China.
• Investors expect Trump’s tariffs would be inflationary for the US economy.

The US Dollar (USD) surrenders some of its intraday gains in Monday’s North American session, with the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, dropping to near 109.20 after posting a fresh two-week high near 109.90.

The Greenback strengthened after United States (US) President Donald Trump imposed 25% tariffs on Canada and Mexico, and 10% on China. He also left the door open for tariffs on the Eurozone but didn’t provide much information. This scenario uplifted the US Dollar by increasing its safe-haven appeal.

Donald Trump had been warning that his North American peers and China could face hefty tariffs for allowing illegal immigrants and the deadly opioid fentanyl enter into the economy.

Market participants expect the imposition of bulky tariffs would lead to a global trade war. Such a scenario will be inflationary for the US economy, which would force the Federal Reserve (Fed) to maintain a restrictive monetary policy stance for longer.

Last week, the Fed left its key borrowing rates steady in the range of 4.25%-4.50% as officials were worried about stalling progress in the disinflation trend toward the central bank’s target of 2%. Fed Chair Jerome Powell guided that monetary policy adjustments would become appropriate only when they see “real progress in inflation or at least some weakness in the labor market”.

Going forward, investors will focus on the US ISM Manufacturing PMI data for January, which will be published at 15:00 GMT. The Manufacturing PMI is expected to come in at 49.8, slightly higher from 49.3 in December, but still will be below the 50.0 threshold that separates expansion from contraction.

China’s official manufacturing PMI dropped to 49.1 in January from 50.1 in February, entering contractionary territory again since October. The official survey suggests a broad-based m/m decline in demand and production activity. Only the equipment manufacturing PMI stayed above 50 in January, while hi-tech, consumer goods and high-energy-consuming manufacturing PMIs fell below 50. External headwinds have increased with the latest US announcement of additional 10% tariffs on China imports, weighing on the overall manufacturing outlook, in our view, Standard Chartered's economists report.

Mindful of holiday distortions

"The services PMI retreated to 50.3 in January after jumping to 52 in December, despite an acceleration in tourist-related services activity (including railway transport, accommodation and catering). Meanwhile, our SME survey and high-frequency data suggest that real-estate performance softened from December. New home sales in major cities dropped m/m, partly due to seasonal effects. In addition, the construction PMI fell to new low of 49.3 in January, partly affected by weather and holiday disruptions."

"Only FX reserves, inflation and monetary data for January will be released this month. China’s trade and real activity data for January and February will be combined and released in March, in order to smooth Lunar New Year effects. We expect FX reserves to have remained relatively stable. The DXY index dropped modestly and UST yields picked up."

"We expect CPI inflation to have edged up to 0.5% y/y in January from 0.1% in December. Food CPI likely picked up. Vegetable and fruit prices picked up seasonally on holiday demand. Meanwhile, pock prices dropped m/m, per interim data. Non-food CPI likely edged up due to an increase in prices of tourist-related services, entertainment and household services. In addition, the National Development and Reform Commission (NDRC) raised domestic gasoline retail prices following the movement in international oil prices."

US President Donald Trump carried out his threat over the weekend and imposed tariffs of 25% on Canada and Mexico and 10% on China, starting on Tuesday. Canada and Mexico already vowed to retaliate against US tariffs with their own measures, while China has pledged “corresponding countermeasures” to Trump’s levies on Chinese exports. Tariff threats have kept metals markets on edge since Trump’s win in the presidential election in November, ING's commodity experts Ewa Manthey and Warren Patterson note.

Tariffs are a major headwind to metals

"Tariffs on metals are likely to hit Canada the hardest. Canada accounts for over half of US Aluminum imports by value. The country is also the second biggest, behind Chile, source of Copper, and it’s the biggest supplier of steel to the US, followed by Brazil and Mexico. The US President said that Copper tariffs will take a little bit longer to implement than those of Aluminum and steel."

"Tariffs are a major headwind to metals. Inflationary in nature, tariffs could limit interest rate cuts from the US Federal Reserve. At the same time, higher rates along with higher tariffs and greater geopolitical uncertainty will push up the dollar, providing headwinds to industrial metals demand. Tariffs are also likely to result in higher domestic prices in the US. For Aluminum, tariffs will result in higher prices in the US, representing a significant upside risk to the US Midwest premium this year."

"Back in 2018 Trump imposed a 10% duty on imported Aluminum and a 25% tariff on imported steel to promote domestic metal production. The tariffs on Canada and Mexico were lifted a year later after a new free-trade agreement was negotiated between the two countries and the US."

The Pound Sterling (GBP) is weaker on the session but it has held up a little better than its G10 peers, Scotiabank's Chief FX Strategist Shaun Osborne notes, Scotiabank's Chief FX Strategist Shaun Osborne notes.

GBP is trading weaker on the day

"The UK has yet to draw the tariff ire of President Trump. The US runs a small trade surplus with the UK overall and the UK’s trade advantage lies in services, rather than goods. That does not mean that tariffs in some form are not coming but the economic hit may be relatively less severe. Final January UK manufacturing PMI was revised up 0.1 to 48.3."

"Sterling has been less affected by the weekend volatility and intraday chart patterns are leaning mildly bullish in early trade as the pound edges off the early low. Cable gains have been capped at 1.2325 so far intraday but a push through the low 1.23s should see spot rebound to1.2375/00 at least. Support is 1.2250."

US tariffs on imports from Canada, Mexico and China are set to come into effect on 4 February and failing to come to a deal would mean tariffs of 25% on Canadian and Mexican goods and 10% on imports from China. For Canadian energy, the Trump administration decided to impose a tariff of only 10%. However, this has still seen NYMEX RBOB and ULSD trading stronger in early morning trading today, which also dragged WTI higher, ING's commodity experts Ewa Manthey and Warren Patterson note.

USD to provide headwinds for broader commodities complex

Canada is a key supplier of crude oil to the US, with the US importing around 4m b/d from Canada (61% of total imports). This crude oil is a heavier crude, which many US refineries are configured to run on, particularly in the Mid-West. Given the importance of Canadian oil to the US, it is not surprising to see that WTI is trading stronger this morning. In theory, tariffs mean higher feedstock prices for US refiners (which will ultimately be passed onto consumers)."

"If Canada had a more sizeable export infrastructure allowing it to export to other external markets, Canadian oil producers would feel less pain from these tariffs. There is 890k b/d of pipeline capacity (Trans Mountain pipeline) from Alberta to the West Coast of Canada, allowing Canadian crude to be exported to other markets, and we are likely to see more of this pipeline capacity used once tariffs are imposed. Ultimately, given that Canadian producers have fewer alternatives than US refiners, means Canadian oil producers are likely to feel relatively more pain from these tariffs."

"More broadly, an escalation in trade tensions is not supportive for risk assets with it souring sentiment and raising concerns over the impact it could have on global growth, which means the strength in crude oil prices may be short-lived. The strength in the USD will also likely provide some headwinds not just for oil but the broader commodities complex."

The EUR slumped to 1.0150 in early Asian trade but has since stabilized in the low/mid-1.02 range. President Trump made it clear that tariffs are coming for the EU as well in the not-too-distant future, Scotiabank's Chief FX Strategist Shaun Osborne notes.

More losses look likely ahead

"The tariff threat is likely to bolster expectations for easier ECB policy in the months ahead, given the implications for EU growth. Eurozone Manufacturing PMI data for January was revised up (to 46.6, from 46.1) on upwardly revised (but still soft) German data. Eurozone CPI fell less than expected in January (- 0.3% M/M) to leave inflation a little higher than forecast (2.5% Y/Y, versus 2.4% expected)."

"The EUR’s weekend plunge has also left a gap on the short-term charts that the market may try and fill as the initial move lower moderates. A push to the 1.0300/50 range is likely to draw out renewed selling interest, however. Broader technical risks remain geared to a push under 1.00 and a drop towards 0.95/0.96 in the months ahead."

US Dollar (USD) could rise further; overbought conditions suggest 7.4000 is unlikely to come into view. In the longer run, strong opening gap in USD suggests further advance; expect 7.4000 to provide resistance, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Overbought conditions suggest 7.4000 is unlikely to come into view

24-HOUR VIEW: "USD gapped opened today and appears to have risen above last month’s high of 7.3700. While USD could rise further, conditions are already overbought, and the major resistance at 7.4000 is unlikely to come into view. On the downside, any pullback is unlikely to threaten last Friday’s low of 7.3150."

1-3 WEEKS VIEW: "The strong opening gap in USD today suggests further advance, but we expect the 7.4000 level to provide resistance. To maintain the rapid buildup in momentum, USD must remain above 7.2950. On a short-term note, 7.3150 is already quite a strong support level."

• Gold price rebounds strongly above $2,800 as the US Dollar surrenders some gains.
• The imposition of tariffs by US President Trump on his North American peers and China has improved safe-haven demand.
• This week, investors will focus on the US NFP data for January.

Gold price (XAU/USD) recovers its intraday losses and turns positive in Monday’s North American session. The precious metal returns to near its all-time highs above $2,800 as the US Dollar (USD) surrenders some of its gains.

Earlier in the day, the Gold price slumped to near $2,770 after opening mildly higher. The precious metal faced selling pressure as the US Dollar had a gap-up opening after United States (US) President Donald Trump imposed 25% tariffs on Canada and Mexico and 10% on China and started the global trade war. He also reiterated his intentions of a slappy tariff on the Eurozone but didn’t provide much information.

Technically, geopolitical tensions improve the appeal of safe-haven assets such as Gold. However, the higher USD has capped Gold’s upside.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gives up gains after rallying to near 109.90 but is still 0.6% higher than its previous close.

This week, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for January, which will be released at the end of the week. The NFP data will significantly influence market expectations for how long the Federal Reserve (Fed) will keep interest rates in the range of 4.25%-4.50%. Fed’s approach of keeping a restrictive monetary policy stance weighs on Gold.

Gold technical analysis

Gold price trades around all-time highs at $2,817.30. The upward-sloping 20-day Exponential Moving Average (EMA) near $2,735.70 suggests that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) oscillates in the 60.00-80.00 range, indicating a strong bullish momentum.

Looking up, the Gold price could rise to near $2,900. On the contrary, the January 27 low of $2,730.50 will act as support.

Gold daily chart

The Canadian Dollar (CAD) has weakened in response to President Trump applying 25% tariffs on Canadian exports to the US. A 10% tariff will apply to Canadian energy exports. In response, Canada has announced limited counter-tariff retaliation of 25% covering USD107bn of US exports to Canada. Canadian officials suggest they may pursue legal measure to remove tariffs but appear resigned to these measures remaining in place for some weeks at least, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD weaker but off lows

"There are potential off-ramps, for example, but tariffs are clearly a big part of President Trump’s toolbox and—despite evident growth risks for the US economy from these actions—it’s hard to see an easy out for Canada from this situation. Limited retaliation from Canada tilts risks towards some additional BoC easing ahead as growth risks appear more significant than inflation at this point, given Canada’s partial tariff response. The CAD is at risk of weakening further against the USD. Markets had priced in the risk of some tariff action over the past few weeks but not, I believe, the full extent of the plans announced thus far."

"Given the 10% oil/energy carve out, the average tariff on Canadian exports to the US is around the 20% mark. The CAD may have to weaken to the 1.50-1.55 range to help offset the tariff impact. Uncertainties are high and significant— how long will tariffs last, will exemptions be granted, what will the US economy’s response be, are these measures subject to legal challenges?—and the CAD’s relatively benign response to developments thus far are perhaps not indicative of its likely performance in the weeks ahead."

"The USD rally early Monday has stalled on the short-term chart after peaking just under 1.48. The weekend advance has left a gap on the intraday chart between 1.4550/00 which markets may have to try and fill before the USD’s broader advance resumes. Recent, positive technical signs for the CAD have been overwhelmed by the USD’s jump to new, multi-year highs and sustained gains through the 1.4650/1.47 zone suggest medium term risks are tilted towards a push on to 1.50, if not higher."

Upward momentum is beginning to build; US Dollar (USD) is likely to rise above 156.00 but is unlikely to reach 156.80. In the longer run, bias for USD is tilted to the upside; currently, any advance is likely part of a higher trading range of 154.30/157.20, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

USD/JPY fis likely to rise above 156.00

24-HOUR VIEW: "USD closed at 155.18 last Friday (+0.57%), but it rose sharply in early Asian trade today. Upward momentum is beginning to build, and USD is likely to rise above 156.00. The next major resistance at 156.80 is likely out of reach for now. On the downside, we expect any pullback to remain above 155.00 (minor support is at 155.40)."

1-3 WEEKS VIEW: "The pullback in USD to 153.70 in late January appears to have stabilized. While short-term upward momentum is building, it is premature to expect a sustained advance from here. That said, the bias is tilted to the upside, but at this time, we view any advance as part of a higher trading range of 154.30/157.20."

The first real shots of a global trade war were fired at the weekend, with President Trump levying 25% tariffs on Canada and Mexico, an additional 10% on Chinese goods and telling Europe that tariffs are 'absolutely' coming. The president will hold separate talks with Canada and Mexico today but the hopes for a last minute—or early—off ramp for these measures appear very dim, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Tariff action pushes USD to moderate in early trade

"The USD jumped, driving the MXN more than 2.5% lower at one point, and while the CAD has hit the lowest since the early 2000s, it is outperforming some of its peers. Japan has yet to fall under the tariff gaze of the White House, helping the JPY outperform broadly on the session—rising 0.3% on the day. Stocks are lower across the globe and bonds are firmer, outside of US Treasuries. The consequences of tariffs for the US economy and consumers may be significant."

"Prices for basic goods are likely to rise sharply, construction costs will increase, auto prices may rise by $3000, according to some estimates. The auto sector may start to slow sharply and relatively quicky, given intricate North American supply chains. Higher inflationary pressures (helping keep US interest rates relatively firmer) and somewhat slower growth may result."

"The DXY advanced strongly over the weekend but the index failed to reach the early January high above 110 and has traded well off the overnight high so far today. Markets may be thinking that the economic and market downsides of tariffs will make Trump rethink quickly but that might be an error. The longer tariffs persist, the firmer the USD is likely to trade."

• AUD/USD refreshes four-year low near 0.6100 as US President Trump imposes 10% tariffs on China.
• The RBA is widely anticipated to start reducing interest rates from the policy meeting this month.
• The US Dollar strengthens as US Trump starts global trade war.

The AUD/USD pair recovers slightly after plummeting to a fresh four-year low near 0.6100 but is still more than 1.10% down in Monday’s European session. The Aussie pair faces a sharp sell-off as Antipodeans pay the cost of being leading trading partners of China.

Over the weekend, United States (US) President Donald Trump imposed 10% tariffs on China and 25% on Canada and Mexico. This led to a sharp decline in the appeal of the Australian Dollar (AUD), which is a proxy for China’s economic outlook.

Apart from US tariffs on China, the Australian Dollar (AUD) has also weakened on the domestic front amid growing expectations that the Reserve Bank of Australia (RBA) will pivot to policy normalization from the policy meeting on February 18.

Meanwhile, the US Dollar (USD) has strengthened as Trump’s tariffs has improved its safe-haven appeal. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, climbs above 109.50.

In Monday’s session, investors will focus on the US ISM Manufacturing PMI for January, which will be published at 15:00 GMT.

AUD/USD posts a fresh four-year low around 0.6100. The 20-week Exponential Moving Average (EMA) near 0.6375 slopes downwards, suggesting that the overall trend is bearish. The 14-week Relative Strength Index (RSI) oscillates inside the 20.00-40.00 range, indicating a strong bearish momentum.

More downside would appear if the pair breaks below the immediate support of 0.6100, which would let it towards the psychological support of 0.6000 and 26 March 2020 low of 0.5870.

On the flip side, a sustenance move above the January 13 high of 0.6330 will open doors to the round-level resistance of 0.6400 and the December 5 high of 0.6456

AUD/USD weekly chart

New Zealand Dollar (NZD) could drop further and test 0.5510 before stabilization can be expected. In the longer run, risks for NZD are on the downside; it must break clearly below 0.5510 before a move to 0.5450 is likely, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

NZD can test 0.5510 before stabilization

24-HOUR VIEW: “The sharp drop in NZD this morning appears to be excessive. However, the weakness has not stabilized, and NZD could drop further and test 0.5500 before stabilization can be expected. As conditions are already deeply oversold, a sustained decline below 0.5510 seems unlikely for now. Resistance levels are at 0.5575 and 0.5600.”

1-3 WEEKS VIEW: “Although the plunge in NZD today indicates continuing downside risk, it is worth noting that 0.5510 is a significant support level. NZD must break and remain below this level before a move to 0.5450 is likely. The chance of NZD is breaking clearly below 0.5450 will remain intact, provided that 0.5630 is not breached in the coming days.”

The balance of growth and inflationary effects from US tariffs is of huge importance for FX, as this will determine the Bank of Canada’s policy reaction and potentially widen the USD-CAD rate gap even further, ING’s FX analysts Francesco Pesole and James Knightley note.

BoC cuts exacerbate the depreciation of CAD

“With 75% of Canada’s exports going to the US – equating to 20% of Canada’s entire GDP – the risk of an outright recession is high. The BoC has already cut the overnight rate 200bp and our call for two additional 25bp rate cuts now is subject to significant risk.”

“The BoC will be concerned about the inflationary threat provided by Canada’s own tariffs, but given the headwinds to Canadian growth and jobs that Trump’s actions pose we suggest the balance of probabilities is skewed towards the BoC offering more support via looser monetary policy.”

“That could result in a ‘snowball effect’ for CAD, where BoC cuts exacerbate the depreciation already caused by tariff-related risk premium. We cannot exclude the possibility of the Trump administration then accusing Canada of ‘artificially’ depreciating CAD via lower rates to mitigate the tariff impact.”

Chance for Australian Dollar (AUD) to drop further; given the deeply oversold conditions, a sustained decline below 0.6080 appears unlikely today. In the longer run, AUD is under pressure; it is too early to determine if there is enough momentum for it to drop towards 0.6000, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Not enough momentum for AUD to drop towards 0.6000

24-HOUR VIEW: “While further AUD declines appear likely in the coming days, the sharp plunge today appears to be overdone. That said, there is a chance for AUD to drop further, but given the deeply oversold conditions, a sustained decline below 0.6080 appears unlikely today. The 0.6045 support level is also unlikely to come under threat. On the upside, any recovery is likely to remain below 0.6205, with 0.6185 providing strong resistance.”

1-3 WEEKS VIEW: “After recovering to a high of 0.6330 late last month, AUD fell sharply. Today, it fell below last month’s low of 0.6131, reaching levels not seen since Apr 2020. The price action suggests further AUD weakness, but it is too early to determine if there is enough momentum for AUD to drop towards the significant support level at 0.6000. Overall, we expect AUD to remain under pressure, as long as it remains below 0.6230.”

Saturday's announcement that Washington would go into full tariff mode against Mexico and Canada starting tomorrow has come as a surprise to FX markets. As recently as Friday afternoon, reports were circulating that tariffs would come into effect on 1 March – seemingly providing a month for Canada and Mexico to negotiate away the tariff threat. Instead, it looks like the 'maximum pressure' negotiating position of this new Trump administration is to tariff first, perhaps in an effort to get the best deal as quickly as possible, ING’s FX analysts Chris Turner notes.

DXY to stay bid near this year's high

“The trouble for investors, however, is that the off-ramp to these tariffs remains unclear. There have been remarks from President Donald Trump to the effect that there's 'nothing they can do' to avoid these tariffs. This points to a more substantial, permanent shift to a high tariff-low tax US economy and perhaps is consistent with the major report being asked of the US Commerce Department as to why the US runs large, perennial trade deficits. This report is due in April and could lead to universal tariffs.”

“The FX market reaction has unsurprisingly been a defensive rally in the dollar. The DXY gapped higher by a percent. The currencies most heavily hit were understandably the commodity currencies - those currencies that benefit from global growth. In fact, the New Zealand and Australian dollars have been hit harder than the Canadian dollar. Outperforming are the defensive Japanese yen and Swiss franc. This is also driven by the 2% fall in S&P futures - under pressure on the prospect that US supply chains will break and corporate profitability will be hit.”

“Unless Donald Trump surprises with a very last-minute de-escalation in tariffs (unlikely) expect DXY to stay bid near this year's high. Friday's benchmark revisions will probably be the best chance of DXY filling the overnight gap left down to 108.56.”

• NZD/USD rebounds after diving to a more than two-year low of 0.5516, but the outlook is still bearish.
• US President Trump has imposed a 25% tariff on Canada and Mexico and 10% on China.
• This week, investors will pay close attention to the US NFP data for January.

The NZD/USD pair pares some intraday losses after nosediving to an over-two-year low near 0.5516 in Monday’s European session. The pullback move in the Kiwi pair after a sharp downside is expected to be capitalized by market participants for adding shorts as the imposition of 10% tariffs on China by United States (US) President Donald Trump has dampened the appeal of the New Zealand Dollar (NZD).

The Kiwi dollar is impacted by an economic change in China as New Zealand (NZ) is one of the leading trading partners of China.

Signs of muted trading activities in the NZ economy with China would result in further economic contraction. Such a scenario would force the Reserve Bank of New Zealand (RBNZ) to continue reducing its Official Cash Rate (OCR) further.

With the announcement of 10% tariffs on China and, 25% on Canada and Mexico, Donald Trump has started a global trade war, which is expected to boost inflationary pressures across the globe. The scenario has resulted in a significant weakness in the appeal of risk-perceived assets. Meanwhile, the appeal of the US Dollar (USD) has strengthened, with the US Dollar Index (DXY) refreshing a two-week high near 109.90.

Going forward, the US Dollar will be influenced by an array of US economic data, notably the Nonfarm Payrolls (NFP), which will show the current status of the labor market. Signs of strong job data would boost expectations that the Federal Reserve (Fed) will keep interest rates at their current levels for longer.

German Chancellor Olaf Scholz said on Monday, the European Union (EU) can react with its own tariffs but cooperation is more important.

Additional quotes

Market reaction

EUR/USD is shedding 1.20% on the day to trade at 1.0238, as of writing.

• EUR/USD faces an intense sell-off as US President Donald Trump confirms that he will impose tariffs on the European Union.
• The US Dollar strengthens as investors rush to safe-haven fleet amid global trade war.
• Investors await the US ISM Manufacturing PMI data for January.

EUR/USD nosedives over 1% to near 1.0240 at the start of the week. The major currency pair plummets as United States (US) President Donald Trump reiterates threats to impose tariffs on the European Union (EU). Over the weekend, Donald Trump slapped 25% tariffs on Canada and Mexico and 10% on China. Trump also warned that he will also raise levies on the trading bloc, but he didn’t provide much information.

 "It will definitely happen with the European Union. I can tell you that because they've really taken advantage of us," Trump said. He also accused the old continent of not buying enough US cars and farm products. Trump added that the EU take “almost nothing and we take everything from them”.

The imposition of tariffs on the Eurozone will accelerate its troubles. The shared currency bloc is already facing risks of a slowdown. Preliminary Eurozone Gross Domestic Product (GDP) data for the fourth quarter of 2024 showed that the economy was flat after expanding 0.4% in the third quarter. The shrinking German economy remained the weak link to the Eurozone's flat GDP growth. Flash German GDP data showed that the economy contracted by 0.2% year-over-year in the last quarter of 2024.

Signs of further weakness in the Eurozone economy could force the European Central Bank (ECB) to continue reducing interest rates. The ECB reduced its Deposit Facility rate by 25 basis points (bps) to 2.75% on Thursday and guided that the monetary policy path is clear, which is expansionary. Traders have fully priced in three interest rate cuts and see them coming by the summer as ECB officials are confident that inflation will sustainably return to the desired rate of 2% this year.

 On Monday, a flash Harmonized Index of Consumer Prices (HICP) report for January showed that price pressures deflated on a month-on-month basis. The core HICP – which excludes volatile food and energy prices – deflated by 1% after growing 0.5% in December. In the same period, the headline HICP also deflated by 0.4%. On year, the headline HICP rose steadily by 2.7%, faster than estimates of 2.6%. The core HICP rose expectedly by 2.5%, faster than expectations of 2.4%. 

Daily digest market movers: EUR/USD plunges as USD’s safe-haven appeal increases

• EUR/USD faces an intense sell-off due to the strength of the US Dollar (USD). The safe-haven demand for the US Dollar has increased significantly as US President Trump has started a trade war. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surges above 109.50.
• The US Dollar’s movement is mainly influenced by Trump’s comments on global trade. However, investors will also focus on a slew of US economic data, such as ISM Manufacturing and Services Purchasing Managers Index (PMI), ADP Employment Change and the Nonfarm Payrolls (NFP) for January, and JOLTS Job Openings for December, which will release this week.
• Investors will pay close attention to labor market-related data to know its current status. On Wednesday, the Fed kept interest rates at their current levels and guided that the central bank will stay in the waiting mode until it sees “real progress in inflation or some weakness in the labor market”.
• In Monday’s session, investors will focus on the US Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) and the revised S&P Global Manufacturing PMI data for January. 

Technical Analysis: EUR/USD plummets to near 1.0200

EUR/USD dives vertically to near 1.0200. Last week, the major currency pair started declining after a short-lived recovery move to 1.0533, which market participants capitalized for adding shorts. The pair has fallen below the 20- and 50-day Exponential Moving Averages (EMAs) around 1.0378 and 1.0440, respectively, suggesting a bearish trend.

The 14-day Relative Strength Index (RSI) slides below 40.00, suggesting a strong bearish momentum.

Looking down, the January 13 low of 1.0177 and the round-level support of 1.0100 will act as major support zones for the pair. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.

The Eurozone Harmonized Index of Consumer Prices (HICP) advanced at an annual rate of 2.5% in January after increasing 2.4% in December, the official data released by Eurostat showed Monday. The market consensus was for a 2.5% growth in the reported period.

The core HICP rose 2.7% YoY in January, at the same pace seen in December, beating the 2.6% market forecast.

On a monthly basis, the bloc’s HICP declined 0.3% in January compared to December’s 0.4%. The core HICP inflation arrived at -1% month-over-month (MoM) in the same period versus a 0.5% growth in December.

The European Central Bank’s (ECB) inflation target is 2.0%. The old continent’s HICP inflation data significantly impacts the market’s pricing of the ECB's future interest rate cuts.

Key details from the Eurozone inflation report (via Eurostat)

Looking at the main components of euro area inflation, services is expected to have the highest annual rate in January (3.9%, compared with 4.0% in December), followed by food, alcohol & tobacco (2.3%, compared with 2.6% in December), energy (1.8%, compared with 0.1% in December) and non-energy industrial goods (0.5%, stable compared with December).

EUR/USD reaction to the Eurozone inflation report

The Euro remains deep in the red following the inflation report, with EUR/USD trading near 1.0230 as of writing. The pair is down 1.24% on the day.

Sterling has been one of the least badly hit G10 currencies, arguably because the UK runs a trade deficit with the US and goods exports to GDP are relatively small, ING’s FX analysts Chris Turner notes.

A bias towards 1.2100 for GBP/USD looks likely this week

“That is why EUR/GBP is under pressure today. However, we see Thursday's Bank of England rate meeting as a possible negative event risk for sterling. Given the broadly positive dollar environment, however, this looks more like a story for GBP/USD than EUR/GBP. A bias towards 1.2200 and possibly 1.2100 for GBP/USD looks likely this week, depending on the US trade story.”

Sharp drop in GBP has scope to extend; the 1.2245 level is expected to provide support. In the longer run, GBP is likely to trade with a downward bias towards 1.2245, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

GBP is likely to trade with a downward bias

24-HOUR VIEW: “While the sharp drop in GBP today has scope to extend, we expect the 1.2245 level to provide support. The next support, at 1.2200, is unlikely to come into view. Resistance is at 1.2355. To sustain the rapid buildup in momentum, GBP must remain below 1.2395.”

1-3 WEEKS VIEW: “Despite dropping sharply upon opening today, there has been no significant increase in downward momentum. However, GBP is likely to trade with a downward bias towards 1.2245. Further decline below 1.2245 is not ruled out, but currently, GBP does not appear to have enough momentum to reach 1.2200. The downward bias will remain intact as long as 1.2435 is not breached.”

The growing prospect of a global trade war and tariffs heading towards the EU is a clean euro negative, ING’s FX analysts Chris Turner notes.

There is now an upside gap to 1.0350

“Those important two-year EUR:USD rate differentials have widened around 20bp over the last couple of sessions as investors price less easing from the Fed and more easing from the European Central Bank. This plus the increased risk premium for a global trade war saw EUR/USD touch a new cycle low of 1.0140 in early Asia.”

“There is now an upside gap to 1.0350, but that only gets filled if there is some rapprochement in North America today or equities fall hard enough to prompt some wide-scale deleveraging of positions to a market very long the dollar already.”

“Presumably tough talk from Europe that it will not be pushed around will be seen as a euro negative. And as above, the threat of a major report in April to justify US universal tariffs will see investors retain a sell-rally mindset in EUR/USD.”

Oversold decline has not stabilized; support levels are at 1.0175 and 1.0100. In the longer run, risk is for further Euro (EUR) weakness; it remains to be seen if it can break and remain below 1.0100, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.

Oversold decline has not stabilized

24-HOUR VIEW: “ EUR gapped lower when it opened today. While it is already oversold, the weakness has not stabilized, and EUR could continue to decline. Support levels are at 1.0175 and 1.0100. The latter level is likely out of reach for now. To sustain the sharp increase in momentum, EUR must remain below 1.0350. There is another resistance level at 1.0300.”

1-3 WEEKS VIEW: “EUR plunged when it opened today. The sharp drop has resulted in an increase in downward momentum, and in the coming days, the risk is for further EUR weakness. However, it remains to be seen if it can break and remain below 1.0100. Looking ahead, the round-number support level of 1.0000 is expected to provide significant support as well. Overall, only a breach of 1.0380 (‘strong resistance’ level) would indicate that the weakness in EUR has stabilized. The ‘strong resistance’ level is expected to move lower in the coming days.”

Silver prices (XAG/USD) fell on Monday, according to FXStreet data. Silver trades at $31.17 per troy ounce, down 0.51% from the $31.33 it cost on Friday.

Silver prices have increased by 7.86% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 89.79 on Monday, up from 89.41 on Friday.

(An automation tool was used in creating this post.)

European Central Bank (ECB) Governing Council member Gediminas Šimkus said on Monday that he sees another 25 basis points (bps) interest rate cut in March.

Further comments

European Central Bank (ECB) policymaker Peter Kazimir said on Monday, “latest rate cut moves us closer to our destination.”

Additional quotes

Market reaction

EUR/USD was last seen trading at 1.0246, down 1.10% on the day, heavily undermined by US President Donald Trump’s announcement of tariffs on Canada, China and Mexico over the weekend.

• The US ISM Manufacturing PMI  is seen improving modestly in January.
• Markets will also look at the ISM Prices index and the Employment index. 
• EUR/USD remains under pressure around the 1.0400 zone. 

Excitement is building as the Institute for Supply Management (ISM) prepares to release the January US Manufacturing Purchasing Managers’ Index (PMI) this Monday. This report is a key barometer of the health of the United States (US) manufacturing sector and offers valuable insights into the broader economy's direction.

Here’s what to watch for:

PMI Thresholds: A PMI above 50.0 signals that the manufacturing sector is expanding, while a reading below 50.0 indicates contraction.

Expectations: Analysts are anticipating a PMI of 49.5 for January. This is a slight improvement from December’s 49.3, suggesting a modest easing in contraction but still below the critical 50.0 mark.

Despite the slight uptick, the January PMI is expected to remain in contraction territory. However, it's important to note that the overall economy has been on an expansion path for an impressive 56 months, with only a brief dip in April 2020 during the height of the pandemic.

What to expect from the ISM manufacturing PMI report?

In December, the manufacturing sector showed promising signs of growth for the second month in a row, thanks to an improvement in the ISM Manufacturing PMI.

The ISM Manufacturing PMI has several key components. First, the New Orders Index kept expanding for the second consecutive month, indicating that manufacturers are receiving more orders. In December, the Production Index bounced back into expansion territory after six months of contraction, signaling that factories ramped up their output. Meanwhile, the Prices Index continued to rise, reflecting ongoing increases in production costs.

One interesting highlight is the Backlog of Orders Index, which climbed to 45.9 percent in December, up 4.1 percentage points from November’s 41.8 percent. This rise suggests that manufacturers are facing higher demand and are building up their order queues. On the flip side, the Employment Index dipped by 2.8 percentage points compared to November, indicating a slight slowdown in hiring within the sector.

Generally, a PMI reading above 50 percent means the manufacturing sector is growing, while below 50 percent indicates a contraction. However, even a reading above 42.5 percent over time can signal overall economic expansion.

What does this mean for investors? With the manufacturing sector showing strength, high-yielding assets like stocks might see an upward trend. At the same time, the US Dollar (USD) could face selling pressure as investors grow more confident and take on more risk. Additionally, signs of continued growth—such as rising new orders and easing price pressures—are likely to be welcomed by investors looking for further expansion in the economy.

When will the ISM Manufacturing PMI report be released and how could it affect EUR/USD?

The ISM Manufacturing PMI report is scheduled for release at 15:00 GMT on Monday. Ahead of the data release, the US Dollar struggled to extend its weekly recovery, while EUR/USD corrected further south after hitting new yearly peaks around 1.0530 last week. 

Pablo Piovano, Senior Analyst at FXStreet, notes: “The continuation of the downward trend should put EUR/USD en route to revisit its 2025 low of 1.0176 established on January 13. The breakdown of this level could signal a bearish turn back to the crucial parity zone.”

“On the flip side, the pair faces a minor resistance at the 2025 high of 1.0532 recorded on January 27. Should it break through this barrier, traders might see a spirited climb toward the December 2024 peak of 1.0629 (set on December 6) once the Fibonacci retracement of the September-January decline at 1.0572 is cleared.”

Piovano adds: “The ongoing negative outlook is expected to persist as long as spot trades below its critical 200-day SMA at 1.0765. Further indicators note that the Relative Strength Index (RSI) has eased below 46, indicating some loss of momentum, while the Average Directional Index (ADX) approaching 22 denotes a weakening trend.”

• GBP/JPY could further depreciate amid the increased likelihood of further Bank of Japan rate hikes.
• The BoJ Summary of Opinions suggested that policymakers discussed the likelihood of raising interest rates further.
• The Pound Sterling struggles as the BoE is widely expected to deliver a 25 basis point rate cut on Thursday.

GBP/JPY trims its recent losses, trading around 191.50 during the European hours on Monday. However, the GBP/JPY cross could face challenges as the Japanese Yen (JPY) attracts increased buying demand, driven by rising expectations of further rate hikes by the Bank of Japan (BoJ).

Additionally, the BoJ Summary of Opinions suggested that policymakers discussed the likelihood of raising interest rates further. A significant rise in Tokyo's core inflation, at the fastest annual pace in nearly a year, supports prospects for further policy tightening by the BoJ, which provides some support to the JPY.

BoJ board members emphasized that it would be necessary to continue hiking rates if economic activity and prices remain on track, though this does little to boost the Japanese Yen. Japan's Economy Minister Ryosei Akazawa stated on Monday that officials aim to achieve the BoJ's 2% inflation goal and plan measures to mitigate the impact of rising living costs.

Further downside for the EUR/GBP cross appears possible as the Pound Sterling (GBP) faces risks due to expectations that the Bank of England (BoE) will restart its policy-easing cycle, likely cutting interest rates by 25 basis points (bps) to 4.5% in February.

Investors are closely watching the BoE's monetary policy decision next Thursday, with expectations of a dovish stance given recent signs of slowing inflation, despite continued wage growth acceleration. The BoE's monetary policy guidance could be dovish as recent inflation indicators show signs of deceleration, although wage growth remains on the rise. Financial market participants anticipate three interest rate cuts from the BoE this year amid declining labor demand and weakening business confidence.

• EUR/GBP depreciates due to the increased likelihood of further ECB rate cuts.
• ECB’s Villeroy described Trump's tariffs as a "very worrying development."
• Traders expect the BoE to deliver a 25 basis point rate cut on Thursday.

EUR/GBP trades around 0.8330 during the European session on Monday after recovering some part of its daily losses. However, the EUR/GBP cross faces challenges as the Euro remains under pressure due to increasing expectations of further interest rate cuts by the European Central Bank (ECB). The January’s Harmonized Index of Consumer Prices for the European Monetary Union will be eyed later in the day.

Last week, the ECB cut its Deposit Facility Rate by 25 basis points (bps) to 2.75%, while the Main Refinancing Operations Rate dropped to 2.9%, as anticipated. Markets had already factored in the rate cut, expecting inflation in the Eurozone to remain on track toward the ECB's 2% target.

On Monday, ECB policymaker Francois Villeroy de Galhau stated that US President Donald Trump's tariffs will heighten economic uncertainty, describing it as a "very worrying development." He added that there will likely be further rate cuts, according to Reuters.

On Saturday, the US informed that it would impose 25% tariffs on Canadian and Mexican goods, while Chinese exports would face a 10% tariff. These tariffs are set to take effect on Tuesday and will remain in place until the fentanyl overdose crisis is "sorted."

The downside of the EUR/GBP pair might be limited as the Pound Sterling (GBP) faces risks due to expectations that the Bank of England (BoE) will restart its policy-easing cycle, likely cutting interest rates by 25 basis points (bps) to 4.5% in February.

Investors are closely monitoring the BoE’s monetary policy decision next Thursday, with expectations of a dovish stance given recent signs of slowing inflation, despite continued wage growth acceleration. The BoE’s monetary policy guidance could be dovish as recent inflation indicators show signs of deceleration, although wage growth remains on the rise. Financial market participants anticipate three interest rate cuts from the BoE this year amid declining labor demand and weakening business confidence.

• The Pound Sterling plummets below 1.2300 against the US Dollar as market sentiment turns risk-averse after US President Trump imposes tariffs on Canada, Mexico and China.
• Investors await the US employment-related economic data and the BoE’s policy decision this week.
• The BoE is expected to cut interest rates by 25 bps to 4.5%.

The Pound Sterling (GBP) trades significantly lower to near 1.2250 against the US Dollar (USD) in Monday’s European session. Earlier in the day, the GBP/USD pair had a gap-down opening as the imposition of tariffs on Canada, Mexico, and China by United States (US) President Donald Trump spooked global financial markets, forcing investors to shift to safe-haven fleets.

Dismal market sentiment has led to a sharp increase in the US Dollar (USD), which performs strongly in a turbulent environment. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rallies above 109.50, the highest level seen in over two weeks.

President Trump slapped 25% tariffs on Canada and Mexico and 10% on China during the weekend. Trump had already threatened to raise tariffs on his North American partners for allowing illegal immigrants and the deadly opioid fentanyl to enter the country.

On the economic front, investors will pay close attention to labor market-related economic indicators this week, which will influence market speculation for how long the Federal Reserve (Fed) will keep interest rates at their current levels. After the policy meeting on Wednesday, in which the Fed left interest rates unchanged in the range of 4.25%-4.50%, Chair Jerome Powell said that monetary policy adjustments would become appropriate only when they see “real progress in inflation or some weakness in the labor market”.

In Monday’s session, investors will focus on the US Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) and the revised S&P Global Manufacturing PMI data for January. The ISM Manufacturing PMI is estimated to have improved to 49.5, still below the 50.0 threshold that separates expansion from contraction, from 49.3 in December, suggesting that factory activities contracted but at a slower pace. 

Daily digest market movers: Pound Sterling will be influenced by BoE’s policy decision

• The Pound Sterling exhibits a mixed performance against its major peers on Monday as investors focus on the Bank of England’s (BoE) monetary policy decision, which will be announced on Thursday.
• Trades are confident that the BoE will reduce interest rates by 25 basis points (bps) to 4.50%. Of the nine-member-led Monetary Policy Committee (MPC), seven members are expected to vote for a 25 bps interest rate reduction, while two are expected to favor keeping interest rates unchanged. BoE policymaker Catherine Mann, who has been an outspoken hawk, is anticipated to be one of those two members.
• Market participants are confident about the BoE reducing interest rates on the back of a slowdown in the United Kingdom (UK) inflationary pressures and growing risks of soft labor demand. The UK core Consumer Price Index (CPI) – which excludes volatile items prices such as energy and food  – decelerated to 3.2% in December. The labor market data for the three months ending November showed that the economy added 35K new workers as business owners slowed the hiring process due to dissatisfaction over Chancellor of the Exchequer Raches Reevers’s announcement of raising employers’ contribution to National Insurance (NI).

Technical Analysis: Pound Sterling plunges below 1.2300

The Pound Sterling falls back to near 1.2250 after failing to extend recovery above the 50-day Exponential Moving Average (EMA), which trades around 1.2500, last week. The near-term outlook of the Cable has turned bearish as it slides below the 20-day EMA, which hovers around 1.2388.

The 14-day Relative Strength Index (RSI) drops to near 40.00. Should the pair face bearish momentum if the RSI dives below that level

Looking down, the January 13 low of 1.2100 and the October 2023 low of 1.2050 will act as key support zones for the pair. On the upside, the December 30 high of 1.2607 will act as key resistance.

European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Monday that US President Donald Trump's tariffs will increase economic uncertainty, calling it a "very worrying development," as reported by Reuters.

He also described Trump's tariffs as "very brutal" and said that everyone loses in this kind of protectionist trade war.

Commenting on the policy outlook, "there will likely be further rate cuts," Villeroy added.

Market reaction

EUR/USD stays under strong bearish pressure early Monday and trades below 1.0250, losing more than 1% on a daily basis.

• USD/CAD rises over 1% after Trump's 25% tariffs on Canadian imports, set to take effect on Tuesday.
• The US imposed a 25% tariff on Mexican goods and a 10% duty on Chinese exports.
• The pair appreciates due to the interest rate differential between the BoC and the Fed.

The USD/CAD pair gains strength for the sixth consecutive day, trading around 1.4710 during the early European hours on Monday. The pair has risen by over 1% following US President Donald Trump's 25% import tariff on Canada. Additionally, Canadian energy exports will face a 10% tariff, according to Reuters.

The US also imposed 25% tariffs on Mexican goods on Saturday, while Chinese exports will face a 10% tariff. These tariffs are set to begin on Tuesday and will remain in place until the fentanyl overdose crisis is resolved. In response, Canada, Mexico, and China have promised to retaliate against the extensive trade restrictions. China's foreign ministry warned that the tariffs would inevitably affect future cooperation on drug control, per Reuters.

The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, rises for the fifth consecutive day and is trading around 109.50 at the time of writing. The ISM Manufacturing PMI for January will be closely watched during the North American session.

US Treasury Secretary Scott Bessent warned Key Square Capital Management partners a year ago that “tariffs are inflationary and would strengthen the US Dollar—hardly a good starting point for a US industrial renaissance.” However, according to the Financial Times (FT), Bessent last week supported new universal tariffs on US imports, proposing an initial 2.5% rate that would gradually increase.

The USD/CAD pair appreciates due to the interest rate differential between the Bank of Canada (BoC) and the US Federal Reserve (Fed). Last week, the BoC reduced its key interest rate by 25 bps to 3.0% and ended its quantitative tightening program, indicating plans to resume asset purchases in early March. Meanwhile, the Fed has chosen to keep its interest rates unchanged.

Here is what you need to know on Monday, February 3:

The US Dollar (USD) gathers strength on the first trading day of February as markets adopt a cautious stance in reaction to US President Donald Trump's tariff announcements. Later in the European session, January inflation data from the Euro area will be watched closely by investors. In the second half of the day, the US economic calendar will feature ISM Manufacturing PMI data for January. Meanwhile, market participants will keep a close eye on headlines surrounding the Trump administration's trade policies.

Trump announced on Saturday that they will impose sweeping 25% tariffs on Mexican and Canadian imports and 10% on Chinese goods entering the US. In response, Canadian Prime Minister Justin Trudeau set out "far-reaching" 25% tariffs on US goods, worth more than $100 billion. Similarly, Mexican President Claudia Sheinbaum announced on Saturday that she ordered retaliatory tariffs against the US. While speaking to reporters on Sunday, Trump said that he would "definitely" impose tariffs on European imports but refrained from providing any details regarding the size or the timing.

In the European morning on Monday, US stock index futures are down between 1.5% and 2.5%. In the meantime, the USD Index is up nearly 1% on the day at around 109.50.

EUR/USD opened with a large bearish gap and was last seen trading slightly below 1.0250, losing more than 1% on a daily basis. In the Euro area, the core Harmonized Index of Consumer Price is forecast to rise 2.6% on a yearly basis in January.

Pressured by the broad-based US Dollar strength, GBP/USD stays on the back foot early Monday and trades below 1.2300.

During the Asian trading hours, the data from Australia showed that Retail Sales declined by 0.1% on a monthly basis in December. This reading came in better than the market expectation for a decrease of 0.7% but failed to help the Australian Dollar (AUD) find support. At the time of press, AUD/USD was down 1.2% on the day at 0.6140.

USD/CAD shot higher at the weekly opening and rose above 1.4700 for the first time since 2003. Similarly, USD/MXN gathered bullish momentum and climbed to its highest level in nearly three years at 21.2951 before retreating slightly.

After setting a new record-high above $2,800 on Friday, Gold corrects lower on Monday and trades below $2,790.

• USD/CHF extends its upside to around 0.9165 in Monday’s early European session.
• USD strengthens on Trump's tariffs.
• Swiss Real Retail Sales rose by 2.6% YoY in December vs. 0.6% expected.

The USD/CHF pair extends the rally to near 0.9165 during the early European trading hours on Monday. The US Dollar (USD) jumps after US President Donald Trump's sweeping tariffs kicked off a trade war.

The Greenback gains up to 0.60% against the Swiss franc (CHF), reaching a peak not seen since May 2024. The move comes after Trump put 25% tariffs on imports from Mexico and Canada on Saturday, as well as a fresh 10% levy on Chinese products.

However, the Wall Street Journal reported on Monday, citing unnamed sources, that the Chinese government is preparing an opening bid to try to head off greater tariff increases and technology restrictions from the Trump administration, indicating that China is keen to begin trade discussions. Investors will closely monitor the development surrounding trade tariff policies. Any sign of a renewed trade war between the US and trading partners could boost the US Dollar against its rivals.

Data released by the US Bureau of Economic Analysis (BEA) reported on Friday showed that the Personal Consumption Expenditures (PCE) Price Index rose 2.6% YoY in December versus 2.4% in November. This figure came in line with the market consensus. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, climbed 2.8% YoY in December, matching November's reading and the estimation.

This US inflation report suggested that the US Federal Reserve (Fed) would probably be in no hurry to resume cutting interest rates, supporting the USD. Investors pared expectations of rate reductions from the Fed, pricing in 54% odds of two cuts this year and 44% for just one in the wake of the tariff news.

On the Swiss front, the country’s Real Retail Sales rose by 2.6% YoY in December versus 1.4% (revised from 0.8%) prior, according to the Federal Statistical Office on Friday. This reading came in hotter than the 0.6% expected.

Japan's Economy Minister Ryosei Akazawa said on Monday that the officials aim to reach the 2% Bank of Japan’s (BoJ) inflation goal and plan measures to mitigate the impact of increasing living costs. 

Key quotes

Market reaction  

At the press time, the USD/JPY pair is up 0.18% on the day to trade at 155.36. 

• AUD/JPY dives to a multi-month low in reaction to Trump’s new trade tariffs.
• Bets for a February RBA rate cut weigh on the Aussie and contribute to the fall.
• The bearish technical setup supports prospects for a further depreciating move. 

The AUD/JPY cross attracts heavy selling at the start of a new week and dives to its lowest level since September 2024, around the 94.70-94.65 region during the Asian session. Spot prices, however, trim a part of intraday losses and currently trade near the 95.20 area, still down 1.20% for the day.

US President Donald Trump imposed tariffs on imports from Canada, Mexico, and China, fueling concerns about a global trade war. This, in turn, tempers investors' appetite for riskier assets, which benefits the Japanese Yen's (JPY) relative safe-haven status against the perceived riskier Australian Dollar (AUD). Apart from this, rising bets for a rate cut by the Reserve Bank of Australia (RBA) later this month contribute to the AUD/JPY pair's downfall.

From a technical perspective, the recent repeated failures near the 100-day Simple Moving Average (SMA) constituted the formation of multiple tops on the daily chart. A subsequent breakdown below the 96.00-95.90 horizontal support validates the bearish setup and supports prospects for deeper losses. Moreover, bearish oscillators on the daily chart suggest that the path of least resistance for the AUD/JPY cross remains to the downside.

That said, it will still be prudent to wait for some follow-through selling below the daily low, around the 94.70-94.65 area, before positioning for an extension of over a one-week-old downtrend. The AUD/JPY cross might then accelerate the slide towards the 94.00 round figure en route to the September 2024 trough, around the 93.55-93.50 region.

On the flip side, the 95.65-95.70 area now seems to act as an immediate hurdle ahead of the 96.00 mark. Any further move up beyond the 96.25 hurdle could be seen as a selling opportunity and runs the risk of fizzling out rather quickly ahead of the 97.00 round figure. The latter should act as a key pivotal point, which if cleared could trigger a short-covering rally and lift the AUD/JPY cross beyond the 97.20 resistance, towards 97.55-97.60 horizontal resistance.

AUD/JPY daily chart

• Silver price loses ground to around $30.90 in Monday’s early European session, losing 1.30% on the day.
• The positive view of silver prevails above the 100-period EMA with a neutral RSI indicator.
• The initial support level is located at $30.60; the immediate resistance level is seen at $31.72.

The Silver price (XAG/USD) tumbles to near $30.90 during the early European trading hours on Monday. The mounting fears of a global trade war following US President Donald Trump's sweeping tariff measures boost the US Dollar (USD) broadly and exerts some selling pressure on the white metal.

According to the 4-hour chart, the bullish outlook of the white metal remains intact, with the price holding above the key 100-period Exponential Moving Averages (EMA). Nonetheless, the Relative Strength Index (RSI) hovers around the midline, suggesting that further consolidation cannot be ruled out.

The first downside target is located at $30.60, the 100-period EMA. Further south, the next contention level to watch is $30.40, the lower limit of the Bollinger Band. Extended losses will pave the way to the $30.00, psychological level, en route to $29.50, the low of January 13.

In the bullish case, the immediate resistance level emerges at $31.72, the high of January 31. The next hurdle is seen at the $31.90-$32.00 region, representing the upper limit of the Bollinger Band and the round mark.

Silver price 4-hour chart

• EUR/USD struggles as it is confined within a descending channel pattern.
• The 14-day RSI drops near the 30 level, indicating persistent selling pressure on the pair.
• The primary support appears at 1.0177, a 27-month low reached on January 14.

The EUR/USD pair continues its downward trend, which started on January 27, trading around 1.0230 during the Asian session on Monday. A closer examination of the daily chart indicates that the bearish momentum is likely to persist, with the pair confined within a descending channel pattern.

The 14-day Relative Strength Index (RSI), a key indicator of momentum, is falling towards the 30 level, suggesting ongoing selling pressure on the EUR/USD pair. Furthermore, the pair remains below both the nine- and 14-day Exponential Moving Averages (EMAs), signaling weaker short-term momentum and reinforcing the bearish outlook.

The EUR/USD pair is likely to test its primary support at 1.0177, a 27-month low reached on January 14. A break below this level could push the pair towards the psychological support at 1.0000, aligning with the lower boundary of the descending channel. A decisive move below this point could intensify the bearish sentiment, potentially driving the pair down to 0.9730, the lowest level since November 2022.

On the upside, the EUR/USD pair could face initial resistance at the nine-day EMA around 1.0369. A breakout above this level could improve market sentiment, paving the way for a move toward the upper boundary of the descending channel at 1.0500. Further gains may bring the pair to the three-month high of 1.0630, reached on December 6.

EUR/USD: Daily Chart

The Wall Street Journal has reported, citing unnamed sources, that Beijing is preparing an opening bid to try to head off greater tariff increases and technology restrictions from the Trump administration, indicating that China is keen to begin trade discussions.

Even though the White House hit China with a 10% levy, starting Tuesday, for its failure to crack down on chemicals used to make fentanyl, neither side appears ready to launch a full-on trade war. Chinese leader Xi Jinping has shown a willingness to negotiate with Trump. 

Market reaction

The Australian Dollar (AUD) remains under selling pressure following this headline. At the press time, AUD/USD is down 1.56% on the day to trade at 0.6116. 

• Gold price retreats further from the record high amid a broad-based USD rally.
• Concerns over Trump’s new trade tariffs offer support to the XAU/USD pair.
• Bets for further policy easing by the Fed help limit losses for the commodity. 

Gold price (XAU/USD) attracts heavy selling at the start of a new week and moves away from a fresh all-time peak, around the $2,717 region touched on Friday. US President Donald Trump's decision to impose tariffs on Canada, Mexico, and China lifts the US Dollar (USD) back closer to over a two-year high, which, in turn, is seen as a key factor weighing on the commodity. Apart from this, speculations that the Federal Reserve (Fed) could delay cutting interest rates for some time this year amid a rise in prices and surging consumer spending contribute to driving flows away from the non-yielding yellow metal.

Markets, however, are still pricing in the possibility that the US central bank will lower borrowing costs twice by the end of 2025. Furthermore, concerns about the potential economic fallout from Trump's trade policies and the risk-off impulse could offer some support to the safe-haven Gold price. This, in turn, makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out in the near term. Traders now look to key US macro data scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI, for a fresh directional impetus. 

Gold price is weighed down by Trump’s tariff-inspired USD upsurge; downside seems limited

• The US Dollar (USD) spiked in reaction to US President Donald Trump's move to impose a 25% tariff on Canadian and Mexican imports, and a 10% tariff on goods from China, which, in turn, weighed heavily on the Gold price. 
• The US Commerce Department reported on Friday that inflation closed out 2024 on a strong note and consumer spending surged in December, pushing back expectations for more aggressive easing by the Federal Reserve. 
• The Personal Consumption Expenditures (PCE) Price Index edged higher to 2.6% on a yearly basis in December from 2.4%, while the core gauge climbed 2.8%, matching November's reading and consensus estimates.
• Moreover, investors remain worried that Trump's new tariffs, if sustained, could significantly worsen inflation in the US and validate hawkish Fed expectations, further undermining the non-yielding yellow metal.
• US Treasury Secretary Scott Bessent, who pushed for new universal tariffs on US imports to start at 2.5% and rise gradually, said that tariffs are inflationary and would continue to strengthen the US Dollar. 
• Trump's demand for lower interest rates, along with the prospects for further policy easing by the Fed, keeps the US Treasury bond yields depressed and could help limit any meaningful downside for the commodity.
• Furthermore, worries that Trump's new tariffs could impact the global economy temper investors' appetite for riskier assets and warrant some caution before placing bearish bets around the safe-haven XAU/USD. 
• Traders now look to this week's important US macro data scheduled for the beginning of a new month, starting with the release of the ISM Manufacturing PMI, to determine the near-term trajectory for the precious metal.

Gold price could extend the intraday decline once the $2,772 immediate support is broken

From a technical perspective, the intraday slide finds some support near the $2,772 horizontal resistance breakpoint. The said area should now act as a key pivotal point, which if broken might prompt some technical selling and drag the Gold price to the next relevant support near the $2,755 region. The corrective decline could extend further towards the $2,740 intermediate support en route to the $2,725-2,720 area. This is followed by the $2,700 round figure, which if broken decisively could pave the way for deeper losses.

On the flip side, the $2,790-2,800 zone now seems to act as an immediate hurdle ahead of the record high, around the $2,817 region. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, some follow-through buying will be seen as a fresh trigger for bullish traders. This, in turn, will set the stage for an extension of the recent well-established uptrend from the December monthly swing low.

FX option expiries for Feb 3 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0325 1.5b
• 1.0400 1.8b
• 1.0425 1b

GBP/USD: GBP amounts     

• 1.2650 428m

USD/JPY: USD amounts                                 

• 155.00 646m

USD/CAD: USD amounts       

• 1.4300 718m
• 1.4400 2b
• 1.4500 852m

USD/CNY: USD amounts

• 7.2500 405m
• 7.3000 903m
• 7.3500 606m

Gold prices fell in India on Monday, according to data compiled by FXStreet.

The price for Gold stood at 7,787.56 Indian Rupees (INR) per gram, down compared with the INR 7,849.73 it cost on Friday.

The price for Gold decreased to INR 90,831.32 per tola from INR 91,557.68 per tola on friday.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• USD/MXN appreciates over 2% following Trump's 25% tariffs on Mexican imports, effecting on Tuesday.
• The US also set 25% tariffs on Canadian goods, while Chinese exports would face a 10% tariff.
• The US tariffs reinforce the dovish expectations of Banxico delivering a larger rate cut on Thursday.

USD/MXN hits the week by extending its gains for the third successive session, trading near 21.20 during the Asian hours on Monday. The pair has surged over 2% following US President Donald Trump's decision to impose 25% tariffs on Mexican imports. Set to take effect on Tuesday, the tariffs target concerns such as illegal immigration and fentanyl smuggling. In response, Mexican President Claudia Sheinbaum announced retaliatory tariffs on Saturday, ranging from 5% to 20%.

The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, rises for the fifth successive day and trades above 109.50 at the time of writing. ISM Manufacturing PMI for January will be eyed later on Monday.

Meanwhile, US inflation data reinforced the Federal Reserve’s (Fed) hawkish stance on the monetary policy outlook. The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose 0.3% MoM in December, up from 0.1% in November. On an annual basis, PCE inflation accelerated to 2.6% from the previous 2.4%, while core PCE, which excludes food and energy, remained steady at 2.8% YoY for the third straight month.

The US tariffs along with the economic slowdown reinforce the expectations surrounding the Banco de México (Banxico) to deliver a larger rate cut on Thursday. However, the central bank was expected to lower rates by at least 25 basis points (bps), bringing them down from 10% to 9.75%, though analysts at Capital Economics suggest a 50 bps cut remains a possibility.

• WTI could appreciate due to potential supply disruptions following Trump tariffs on Canada and Mexico.
• Canadian energy products will incur a 10% duty, while Mexican energy imports will be subjected to the full 25% tariff.
• OPEC+ is unlikely to deviate from its current plan for a gradual increase in output when it meets on Monday.

West Texas Intermediate (WTI) Oil price edges lower to near $73.00 per barrel during the Asian session on Monday. However, concerns over potential supply disruptions from Canada and Mexico—two of the largest suppliers to the United States (US)—provided support to crude Oil prices, though expectations of weaker fuel demand limited gains.

On Saturday, US President Donald Trump announced a 25% tariff on Canadian and Mexican goods, while China, the world's largest Oil importer, would face a 10% tariff. Canadian energy products will be subject to a 10% duty, whereas Mexican energy imports will face the full 25% tariff, according to White House officials.

These tariffs are set to take effect on Tuesday and will remain in place until the fentanyl overdose crisis is "resolved." In response, Canada, Mexico, and China have vowed to implement retaliatory measures against the broad trade restrictions.

Canada and Mexico are the largest sources of US crude imports, supplying about a quarter of the Oil processed by US refiners into products such as gasoline and heating Oil, per the US Department of Energy. The new tariffs will increase costs for the heavier crude grades essential for optimal refinery operations, potentially reducing profitability and forcing production cuts, industry sources told Reuters.

Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) faces growing pressure from Trump to reverse production cuts. However, OPEC+ delegates told Reuters the group is unlikely to deviate from its current plan for a gradual increase in output when it meets on Monday.

• The Indian Rupee falls to a fresh record low in Monday’s Asian session. 
• The strengthening USD and persistent outflows weigh on the INR. 
• Investors await the US January ISM Manufacturing PMI report, which is due on Monday. 

The Indian Rupee (INR) tumbles on Monday. Trump’s announcement of the imposition of tariffs on major trading partners including China, Canada, and Mexico exert some selling pressure on the local currency. Additionally, the stronger US Dollar (USD), persistent foreign institutional investors (FIIs) outflows, and risk-off sentiment contribute to the INR’s downside. 

On the other hand, the foreign exchange intervention from the Reserve Bank of India (RBI) should defend the Rupee and cap its downside. Later on Monday, traders will keep an eye on the US ISM Manufacturing PMI for January. 

Indian Rupee remains under selling pressure amid fears of a trade war

• India's foreign exchange reserves were down to $629.557 billion as of January 30, 2024, from $701.176 billion on October 4, 2024.
• Finance Minister Nirmala Sitharaman said in the budget on Friday that the Indian government will target a narrower fiscal deficit of 4.4% of Gross Domestic Product (GDP) for fiscal year 2025-26, down from a revised 4.8% for the current year. 
• The government increased gross borrowing to 14.82 trillion rupees ($171.26 billion) from the market to fund the deficit, compared with 14.01 trillion rupees in the current year.
• The White House said on Saturday that a levy of 25% on Canadian and Mexican imports as well as an additional 10% tax on Chinese goods would come into force on Tuesday.
• Canada, Mexico and China have vowed to respond to sweeping new tariffs on their exports to the US announced by Trump.
• "Tariff announcement is necessary to hold China, Mexico, and Canada accountable for their promises to halt the flood of poisonous drugs into the United States," the White House said in a statement on X on Saturday.

USD/INR seeks a new all-time high 

The Indian Rupee trades on a weaker note on the day. The USD/INR pair maintains a constructive outlook on the daily chart as the price is above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 63.20, suggesting that the support is likely to hold rather than break. 

The 87.00 psychological mark acts as a first upside barrier for the pair. Sustained gains above this level could see a run to 87.50. 

On the other hand, the initial support level emerges at 86.51, the low of January 31. A decisive break below this level could expose 86.31, the low of January 28. 

US Senior Republican Senator Mitch McConnell said in an American TV show '60 Minutes' late Sunday, he objects to tariffs pushed by President Donald Trump.

“It’ll be paid for by American consumers. I mean why would you want to get in a fight with your allies over this?” he said.

Market reaction

The US Dollar Index (DXY) holds close to three-week highs near 109.80, adding 1.30% on the day, courtesy of a flight to safety theme.

• The Japanese Yen weakens further against USD amid concerns about Trump’s trade tariffs.
• Bets for more BoJ rate hikes and the risk-off mood could limit losses for the safe-haven JPY. 
• The narrowing US-Japan rate differential might also contribute to cap the USD/JPY pair. 

The Japanese Yen (JPY) drifts lower against its American counterpart for the second straight day on Monday and moves away from over a one-month high touched last week. Concerns about the economic fallout from US President Donald Trump’s trade tariffs to a large extent, overshadow the hawkish Bank of Japan (BoJ) Summary of Opinions and undermine the JPY. Apart from this, a broad-based US Dollar (USD) rally pushes the USD/JPY pair to the 156.00 neighborhood, or a four-day top during the Asian session. 

Meanwhile, a rise in Tokyo's core inflation by the fastest annual pace in nearly a year keeps market expectations for further interest rate hikes by the Bank of Japan (BoJ). Moreover, a fresh wave of the global risk-aversion trade, along with the narrowing interest rate differentials between Japan and the rest of the world, could offer support to the safe-haven JPY. Adding to this, the recent decline in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets and cap gains for the USD/JPY pair. 

Japanese Yen is weighed down by concerns about the impact of Trump’s trade tariffs

• US President Donald Trump signed an order on Saturday to impose 25% tariffs on Canadian and Mexican imports and 10% on goods from China starting on Tuesday.
• Canada's Prime Minister Justin Trudeau, Mexico's President Claudia Sheinbaum, and China's foreign ministry were quick to respond with the upcoming tit-for-tat moves.
• The US Dollar rallies across the board and advances back closer to over a two-year high touched in January, which assists the USD/JPY pair to build on Friday's move up. 
• The Bank of Japan's Summary of Opinions released earlier this Monday showed that policymakers discussed the likelihood of raising rates further at the January meeting.
• BoJ board members reiterated that it will be necessary to continue hiking rates, if economic activity and prices remain on track, though it does little to boost the Japanese Yen. 
• Japan's Finance Minister Katsunobu Kato said that the government intends to monitor the impact of Trump's new tariffs on its currency amid worries about the fallout.
• The US-Japan yield differential hovers near a multi-week low. This, along with the risk-off impulse, could help limit a further JPY depreciation in the near term. 
• Traders now look forward to this week's important US macro releases scheduled at the start of a new month, starting with the ISM Manufacturing PMI later today.
• The focus, however, will remain glued to the US monthly employment data – popularly known as the Nonfarm Payrolls (NFP) report due for release on Friday. 

USD/JPY might struggle to capitalize on the positive move beyond the 156.25 resistance

From a technical perspective, last week's goodish rebound from the 50% retracement level of the December-January rally and the subsequent move up favor bullish traders. That said, any further strength beyond the 156.00 mark might confront some hurdle near last week's swing high, around the 156.25 area. A sustained strength beyond the said barrier could trigger a fresh bout of a short-covering rally and lift the USD/JPY pair to the 156.70-156.75 region en route to the 157.00 round figure and the 157.60 horizontal barrier. The momentum could extend further towards the 158.00 mark, above which spot prices could aim to retest the multi-month top, around the 158.85-158.90 region touched on January 10.

On the flip side, the 155.00 psychological mark now seems to protect the immediate downside ahead of the 154.55-154.50 horizontal zone and the 154.00 round figure. This is closely followed by the January monthly trough, around the 153.70 area touched last Monday. A convincing break below the latter would be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to accelerate the fall further towards the 153.30 support. Spot prices could eventually drop to the 153.00 mark.

• The Australian Dollar declined as US President Donald Trump set tariffs against China, Canada, and Mexico.
• China's Caixin Manufacturing Purchasing Managers' Index fell to 50.1 in January, down from 50.5 in December.
• The US plans to impose a 25% tariff on Canadian and Mexican goods, while China will face a 10% tariff.

The Australian Dollar (AUD) extends its losing streak against the US Dollar (USD) for the sixth consecutive session on Monday. The AUD/USD pair dropped over 1% amid risk-off sentiment following US President Donald Trump’s decision to impose import tariffs on China, one of Australia’s key trading partners.

On Saturday, the US announced plans to implement 25% tariffs on Canadian and Mexican goods, while Chinese exports would face a 10% tariff, according to Bloomberg. These tariffs, set to take effect on Tuesday, will remain in place until the fentanyl overdose crisis is "resolved."

In response, Canada, Mexico, and China have vowed to retaliate against the broad trade restrictions. China’s foreign ministry warned that the tariffs would inevitably impact future cooperation on drug control.

Meanwhile, Australia’s Retail Sales declined by 0.1% month-on-month in December 2024, marking the first drop in nine months. Although the decline was less severe than the anticipated 0.7% contraction, it highlights weakening consumer spending, increasing speculation that the Reserve Bank of Australia (RBA) may consider a rate cut in February.

China's Caixin Manufacturing Purchasing Managers' Index (PMI) declined to 50.1 in January, down from 50.5 in December. The reading fell short of market expectations, which had anticipated a steady 50.5.

Australian Dollar loses ground as Trump initiates trade war

• The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, rises for the fifth successive day and trades above 109.50 at the time of writing. ISM Manufacturing PMI for January will be eyed later on Monday.
• The US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose 0.3% MoM in December, up from 0.1% in November. On an annual basis, PCE inflation accelerated to 2.6% from the previous 2.4%, while core PCE, which excludes food and energy, remained steady at 2.8% YoY for the third straight month.
• The Department of Commerce reported that Gross Domestic Product Annualized (Q4) fell to 2.3% from 3.1%, missing expectations of 2.6%. Additionally, Initial Jobless Claims for the week ending January 24 came in at 207K, below forecasts of 220K but an improvement from the previous week’s 223K.
• Fed Chair Jerome Powell emphasized during the post-meeting press conference that the central bank would need to see “real progress on inflation or some weakness in the labor market” before considering any further adjustments to monetary policy.
• US Treasury Secretary Scott Bessent warned Key Square Capital Management partners a year ago that “tariffs are inflationary and would strengthen the US Dollar—hardly a good starting point for a US industrial renaissance.” However, according to the Financial Times (FT), Bessent last week advocated for new universal tariffs on US imports, proposing an initial 2.5% rate that would gradually increase.
• President Trump announced his threat on X (formerly Twitter) to levy 100% tariffs on BRICS nations if they attempt to introduce an alternative currency to challenge the US dollar in international trade.
• Australia’s Retail Sales increased by 4.6% year-over-year compared to December 2023. On a seasonally adjusted basis, sales rose 1.0% QoQ in the December quarter of 2024.
• ANZ, CBA, Westpac, and now National Australia Bank (NAB) all anticipate a 25 basis point (bps) rate cut from the Reserve Bank of Australia (RBA) in February. Previously, the NAB had forecasted a rate cut in May but has now moved its projection forward to the February RBA meeting.
• The Reserve Bank of Australia released its January 2025 Bulletin, featuring a detailed analysis of how monetary policy changes influence interest rates in the economy and how fluctuations in interest rates impact economic activity and inflation.

Australian Dollar breaks below  descending channel’s lower boundary

AUD/USD hovers around 0.6130 on Monday, trading below the descending channel pattern on the daily chart, signaling a strengthening bearish bias. The 14-day Relative Strength Index (RSI) has dropped near the 30 mark, reinforcing the ongoing downside momentum.

On the downside, the AUD/USD pair could test the psychological support level of 0.6131, last seen in April 2020.

Alternatively, if the pair attempts a rebound, it may re-enter the descending channel and target the upper boundary, which aligns with the nine-day Exponential Moving Average (EMA) at 0.6217.

AUD/USD: Daily Chart

• NZD/USD tumbles to 0.5545 in Monday’s early Asian session. 
• China’s Caixin Manufacturing PMI eased to 50.1 in January vs. 50.5 expected.
• Fears of an escalating trade war boost the USD and create a headwind for the pair. 

The NZD/USD pair faces some selling pressure to near 0.5545 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens as trade tensions mount after the US tariff announcement by US President Donald Trump and China’s Caixin Manufacturing PMI came in weaker than expected in January. 

Trump slapped Canada, Mexico and China with tariffs, which are due to take effect on Tuesday. The countries immediately vowed retaliatory measures, and China said it would challenge Trump's levies at the World Trade Organization (WTO). The risk-off sentiment and concern about the trade war boost the safe-haven flows and act as a headwind for the pair.

Data released by Caixin Insight Group and S&P Global on Monday showed that China’s Manufacturing Purchasing Managers Index (PMI) eased to 50.1 in January. This reading came in weaker than expected and a previous reading of 50.5. The Kiwi remains weak in an immediate reaction to the downbeat Chinese economic data as China is a major trading partner to New Zealand.

The prospect of more Reserve Bank of New Zealand (RBNZ) rate cuts could further weigh on the New Zealand Dollar (NZD). "In line with RBNZ guidance, markets continue to imply another 50bps rate cut to 3.75% at the February 19 meeting and the policy rate to bottom at 3.00% over the next 12 months," said BBH FX analysts. 

China's Caixin Manufacturing Purchasing Managers' Index (PMI) dropped to 50.1 in January from December’s 50.5, the latest data showed on Thursday.

The markets expected a 50.5 figure in the reported month.

Key highlights (via Caixin)

“Growth in the manufacturing sector, although limited, continued for the fourth straight month. Supply and demand continued to expand. Some downstream manufacturers increased inventories amid an improving market,” said Wang Zhe, an economist at Caixin Insight Group.

AUD/USD reaction to China’s PMI data

The discouraging Chinese Manufacturing PMI adds to the pressure on the Aussie Dollar, as AUD/USD remains heavy near 0.6125 at the time of writing, down 1.38% on the day.

• USD/CAD rallies hard in reaction to Trump’s trade tariffs on Canada, Mexico, and China. 
• The risk-off impulse lifts the USD back closer to a two-year top and weighs on the major.
• The divergent BoC-Fed policy outlooks contribute to the momentum and favor bulls. 

The USD/CAD pair builds on last week's breakout momentum above a short-term trading range and gains strong positive traction during the Asian session on Monday. The momentum lifts spot prices to mid-1.4700s, or the highest level since April 2003, and is sponsored by the launch of US President Donald Trump's tariff trade war. 

Trump on Saturday ordered 25% tariffs on Canadian and Mexican imports and 10% on goods from China starting on Tuesday and declared that they would remain in place until the countries stem the flow of illegal drugs and immigrants into the US. The announcement tempers investors' appetite for riskier assets and provides a strong boost to the safe-haven US Dollar (USD). In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, jumps back closer to over a two-year top touched in January and acts as a tailwind for the USD/CAD pair. 

The Canadian Dollar (CAD), on the other hand, is weighed down by the Bank of Canada's (BoC) dovish move last week, to cut interest rates for the sixth time in a row since June and announced an end to its quantitative tightening program. This marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish pause, which favors the USD bulls and suggests that the path of least resistance for the USD/CAD pair remains to the upside. Adding to this, the recent decline in Crude Oil prices validates the near-term negative outlook for the commodity-linked Loonie.

In a letter to Key Square Capital Management partners sent a year ago, US Treasury Secretary Scott Bessent said that “tariffs are inflationary and would strengthen the dollar—hardly a good starting point for a US industrial renaissance.”

Last month, Bessent pushed for new universal tariffs on US imports to start at 2.5% and rise gradually, per the Financial Times (FT).  

• GBP/USD depreciates around 1% amid US President Donald Trump’s tariff threats against China, Canada, and Mexico.
• US announced plans to impose a 25% tariff on Canadian and Mexican goods, while China will face a 10% tariff.
• The British Pound struggles as the BoE is widely anticipated to deliver a 25 basis point rate cut in February.

GBP/USD continues its decline for the fifth consecutive session, hovering around 1.2270 during Monday’s Asian trading hours. The pair has weakened by around 1% as the US Dollar Index (DXY), which measures the US Dollar (USD) against six major peers, gains strength following US President Donald Trump’s tariffs against China, Canada, and Mexico.

On Saturday, the US informed that it would impose 25% tariffs on Canadian and Mexican goods, while Chinese exports would face a 10% tariff. Additionally, Canadian energy exports will be subject to a 10% tariff, according to CTV. These tariffs are set to take effect on Tuesday and will remain in place until the fentanyl overdose crisis is "sorted." In response, Canada, Mexico, and China have pledged retaliatory measures against the sweeping new trade restrictions.

Meanwhile, US inflation data reinforced the Federal Reserve’s (Fed) hawkish stance on the monetary policy outlook. The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose 0.3% MoM in December, up from 0.1% in November. On an annual basis, PCE inflation accelerated to 2.6% from the previous 2.4%, while core PCE, which excludes food and energy, remained steady at 2.8% YoY for the third straight month.

The Pound Sterling (GBP) faces additional downside risks as traders anticipate the Bank of England (BoE) will restart its policy-easing cycle, likely cutting interest rates by 25 basis points (bps) to 4.5% in February. Investors are closely watching the BoE’s monetary policy decision next Thursday, with expectations that policymakers may adopt a dovish stance, given recent signs of slowing inflation, despite continued wage growth acceleration.

• Gold price loses momentum to around $2,795 in Monday’s early Asian session. 
• Trump delivers on the promise of 25% levies on Canada and Mexico, a 10% duty on China.
• Fed rate-cutting cycle and safe-haven flows might help limit the Gold price’s losses. 

Gold price (XAU/USD) edges lower to around $2,795 during the early Asian session on Monday. The yellow metal faces some pressure from the stronger Greenback after US President Donald Trump set tariffs over the weekend.  

On Saturday, Canada was notified that the United States will place 25% tariffs on Canada and Mexico while China will be hit with 10% tariffs. Canadian energy will be tariffed at 10%, according to CTV. The tariffs will take effect on Tuesday. Canada, Mexico and China have vowed to respond to sweeping new tariffs on their exports to the US announced by Trump. This, in turn, boosts the US Dollar (USD) broadly and drags the USD-denominated commodity price lower.  

On the other hand, the Federal Reserve’s (Fed) rate-cutting cycle, safe-haven demand due to uncertainties and concerns over global economic growth, and robust central bank buying might provide some support to the precious metal. Prathamesh Mallya, DVP-Research at Angel One Ltd, noted that gold prices surged over 2% last week as market players sought refuge in safe-haven assets amidst concerns about rate cuts and tariff ambiguity.

Australia’s Retail Sales, a measure of the country’s consumer spending, declined 0.1% MoM in December, compared to an increase of 0.8% in November, the official data published by the Australian Bureau of Statistics (ABS) showed on Monday.

The reading came in above the market expectations of a decrease of 0.7%. 

Market reaction to Australia’s Retail Sales data

At the time of writing, the AUD/USD pair is down 1.20% on the day at 0.6138.

• EUR/USD kicks off the new week on a bearish note amid resurgent USD demand. 
• Trump imposed tariffs on Canada, Mexico, and China, boosting the safe-haven buck.
• The divergent ECB-Fed outlook also contributes to the downfall and favors bears.

The EUR/USD pair attracts heavy follow-through selling on Monday and dives to the 1.0200 neighborhood, or a three-week low during the early Asian session. Spot prices have now moved back closer to over a two-year low touched in January and seem vulnerable to prolonging a multi-month-old downtrend. 

The US Dollar (USD) surges across the board in reaction to US President Donald Trump's decision over the weekend to impose 25% duties against Canada and Mexico, and an additional 10% duty on China. This marks the start of a new global trade war and tempers investors' appetite for riskier assets. The anti-risk flow provides a goodish lift to the safe-haven buck, which turns out to be a key factor that exerts downward pressure on the EUR/USD pair. 

Meanwhile, Trump announced on Friday evening that he would slap tariffs on goods from the European Union. This comes on top of the European Central Bank's (ECB) dovish stance, which continues to undermine the shared currency and contributes to the offered tone surrounding the EUR/USD pair. In fact, the ECB lowered borrowing costs by 25 basis points (bps) last Thursday, as expected, and left the door open for more rate cuts by the end of this year. 

This marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish pause, which favors the USD bulls and supports prospects for a further depreciating move for the EUR/USD pair. That said, the recent sharp pullback in the US Treasury bond yields acts as a headwind for the buck and could offer some support to spot prices. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

The Bank of Japan (BoJ) published the Summary of Opinions from its January monetary policy meeting, with the key findings noted below.  

Key quotes

Market reaction  

Following the BoJ’s Summary of Opinions, the USD/JPY pair is up 0.14% on the day to trade at 155.30 as of writing