Key Insights

  • 📅 Trump’s Inauguration is expected to create market volatility.
  • 🇯🇵 BoJ’s rate decision could significantly impact the yen.
  • 🇪🇺🇬🇧 Euro and pound under pressure from weak PMIs.
  • 🇨🇦🇳🇿 Inflation data to influence Canadian and New Zealand currencies.
  • 🇨🇦🇳🇿 Inflation data to influence Canadian and New Zealand currencies.
  • 📈 Netflix earnings may shape tech sector sentiment.

Market Overview

As we head into the week of January 18, 2025, the Forex market is poised for significant movements driven by key events. ​The upcoming inauguration of Donald Trump on Monday is expected to stir volatility, particularly in the US dollar, as traders anticipate his policies on tariffs and corporate tax cuts.​ Hawkish rhetoric could bolster the dollar and Treasury yields, while equities may face pressure due to the NYSE closure for Martin Luther King Day.

On Friday, the Bank of Japan (BoJ) is expected to announce its first rate decision of the year, with an 80% chance of a 25bps hike. This decision is crucial as it reflects the BoJ‘s response to rising inflation and wages. A failure to meet hawkish expectations could lead to a significant drop in the yen, while a rate hike might strengthen it, albeit with intervention risks looming.

The Eurozone and the UK will also be in focus with the release of preliminary January PMIs on Friday. Weak data could exacerbate the existing monetary policy divergence with the Federal Reserve, leading to further declines in both the euro and pound.

Additionally, inflation data from Canada and New Zealand will be released, with implications for their respective central banks’ rate decisions. A hot CPI in Canada could reduce the likelihood of a BoC rate cut, while a weak CPI in New Zealand may heighten expectations for a significant cut.

Currencies Analysis

🇺🇸 US Dollar: The dollar is set to react strongly to Trump’s inaugural speech, particularly regarding tariffs and inflation expectations. Hawkish comments could lead to a rally in the dollar, while dovish tones may result in a pullback. Traders should monitor the speech closely for directional cues.

🇯🇵 Japanese Yen: The yen’s fate hangs on the BoJ‘s rate decision. A 25bps hike is largely anticipated, but any deviation from this could lead to volatility. Traders should prepare for potential intervention risks that could arise if the BoJ fails to meet market expectations.

🇪🇺 Euro: The euro faces pressure from anticipated weak PMIs, which could deepen concerns about the ECB‘s monetary policy. A further cut in rates is expected, and traders should be cautious of any negative surprises in the data that could lead to a sell-off.

🇬🇧 British Pound: Similar to the euro, the pound is under pressure from weak economic data. The divergence in monetary policy with the Fed is a significant concern, and traders should watch for any signs of economic resilience in the upcoming PMIs.

🇨🇦 Canadian Dollar: The loonie’s performance will hinge on the upcoming CPI data. A strong CPI could bolster the currency and reduce the likelihood of a BoC rate cut, while weak data could lead to a bearish outlook.

🇳🇿 New Zealand Dollar: The kiwi is vulnerable to the upcoming Q4 CPI data. A weak reading could prompt expectations for a bold rate cut, pushing the currency lower. Traders should be prepared for volatility based on the inflation figures.

Upcoming Economic Calendar

The upcoming week features several high-impact economic events, including Trump’s inauguration on Monday, the BoJ‘s rate decision on Friday, and preliminary PMIs for the Eurozone and UK on the same day. Additionally, inflation data from Canada and New Zealand will be released on Tuesday. These events are crucial as they will shape market sentiment and influence trading strategies. Traders should be vigilant and ready to adjust their positions based on the outcomes of these key releases.

📅 Ziwox Terminal, Economic calendar

Conclusion

The Forex market is gearing up for a week filled with potential volatility driven by significant events, including Trump’s inauguration and the BoJ‘s rate decision. Traders should stay informed and prepared to react to the economic data releases that could impact currency valuations.