Forex Signals Brief January 7: Can A Jump in Eurozone Inflation Help the Euro?
Today we have the US services and JOLTS jobs figures, but the highlight will likely be the Eurozone CPI inflation which is expected to jump in December.
The dollar faltered further when Trump denied the tariff rumors. This saw EUR/USD rise sharply from 1.0340 to 1.0436, while USD/JPY dropped nearly two cents from 158.00 to 156.25 before partially recovering by 1.5 cents. Despite this, other currencies held their ground, with GBP/USD and USD/CAD maintaining gains of nearly 1% on the day.
Equity markets responded positively to the tariff speculation, with S&P 500 futures climbing above 6,000 points at one point. European indices also posted strong gains, led by the DAX rising over 1% and the CAC 40 gaining more than 2%, although some of these advances were pared later in the day. In bond markets, yields eased from earlier highs, with 10-year Treasury yields retreating from 4.63% to 4.57%.
Commodities saw a notable recovery, with gold bouncing off its 100-day moving average to turn earlier losses into a 0.3% gain, closing near $2,643. Silver had a strong session as well, surging over 2% to $30.32 before retreating slightly to finish the day just under $30. The start of the year has shown resilience in precious metals, reflecting their appeal amid market fluctuations.
Today’s Market Expectations
The Swiss Consumer Price Index (CPI) on a month-to-month basis remained unchanged at -0.1%, while the year-on-year figure is expected to dip slightly to 0.6% from the previous 0.7%. The Swiss National Bank (SNB) recently took a notable step by cutting its policy rate by 50 basis points, bringing it down to 0.50%. This decision also marked the removal of earlier indications of potential further rate cuts in the near term. Market expectations suggest two additional 25 basis point rate cuts this year, indicating a slowdown in the pace of monetary easing. For the first quarter of 2025, the SNB has forecast an average inflation rate of 0.3%, setting the stage for discussions at its upcoming meeting in March.
In the Eurozone, inflation figures are showing a mixed trend. The headline CPI year-on-year is expected to rise to 2.4% from 2.2%, while the core CPI is predicted to remain steady at 2.7%. The European Central Bank (ECB) recently reduced its policy rate by 25 basis points to 3.00%, signaling confidence in managing inflation. The central bank also revised its communication, noting that the risks of inflationary pressures have diminished and reaffirming its intent to maintain restrictive monetary policies “for as long as necessary.” Market forecasts currently assign a 92% likelihood of a rate cut at the next ECB meeting, with expectations of a total easing of 102 basis points by the end of the year.
In the United States, the economic outlook remains robust, particularly in the services sector. The ISM Services PMI is projected to rise to 53.0 from 52.1, reflecting steady growth. Supporting this trend, the S&P Global US Services PMI reached a 38-month high, driven by a surge in new orders, the strongest seen since March 2022. Inflation pressures within the services industry remain subdued, with prices rising at their slowest pace since June 2020. Meanwhile, job openings in the US are forecast to decline slightly to 7.700 million from 7.744 million. Labor market dynamics reveal challenges for job-seekers, with hiring rates near cycle lows. However, the quit rate has seen a resurgence, suggesting some confidence among workers. In the gold market, prices have been volatile, reflecting shifting expectations around monetary policy.
Forex Signals Update
Yesterday the market started the week pretty volatile, with the USD losing more than a cent during the European session after the rummours on tariffs, only to reverse most of the losses in the US session after Trump denied the rumours. We were caught on the wrong side in the first move, being long on the USD, but made up with some winning forex signals during the reversal.
Gold Rejected by the 50 Daily SMA
Last week, gold fell by $100 after failing to break the critical resistance level of $2,725. This decline was driven by strong US services PMI data and heightened expectations of a Federal Reserve rate cut, which weighed on market sentiment. The drop below the 100-day Simple Moving Average (SMA) turned it into a resistance level, thwarting recovery attempts. Despite these setbacks, gold prices have rebounded after falling below $2,600. The metal is now testing the 50-day SMA (yellow) and has regained ground above the 100-day SMA (green).
XAU/USD – Daily Chart
EUR/USD Faces the 50 SMA After Climbing Above 1.03
In the forex market, EUR/USD, which had established a base around 1.0330-50 in November following a hawkish Fed rate drop, saw that support hold through December. However, the final days of 2024 were notably bearish for the Euro and bullish for the U.S. dollar. This led to a 2-cent decline in EUR/USD, breaching key support levels and paving the way toward parity at 1.00. Sellers continue to dominate the market, prompting a strategy of selling upward retraces in EUR/USD.
EUR/USD – Daily Chart
Cryptocurrency Update
Bitcoin Moves Above $100K
In the cryptocurrency market, Bitcoin experienced significant fluctuations. Early in the week, it surged to $108,000 but lost momentum following a 25 basis point rate cut, retreating below $100,000 and eventually dipping into the low $90,000s. While brief rallies pushed Bitcoin above $100,000, they were short-lived, with $90,000 becoming a critical support zone. A bounce from the 50-day SMA (yellow) lifted prices above $95,000, but resistance from the 20-day SMA (gray) pushed Bitcoin back near $90K. This level has since held firm, with prices showing signs of recovery toward $100,000.
BTC/USD – Daily chart
Ethereum Approaches the $4,000 Level Again
Ethereum also saw heightened volatility, rising from $3,000 to nearly $4,000 midweek. Despite this surge, it struggled to sustain levels above $4,000 and eventually fell below $3,500. Over the past two weeks, Ethereum has rebounded, finding strong support at the 50-day SMA (yellow) and regaining some of its lost ground. The economic and market developments reflect a complex interplay of monetary policies, inflation expectations, and investor sentiment, with each asset class responding uniquely to these shifting dynamics.
ETH/USD – Weekly Chart
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