Seize the week ahead by understanding the key market drivers, potential currency shifts, and upcoming economic events that could shape your Forex trading strategy. This comprehensive analysis provides insights into major currencies, pairs, and a trade idea to help you navigate the Forex landscape effectively.
Key Insights
- Risk-On Sentiment: Overall risk appetite prevails, weakening the U.S. Dollar and boosting equities, driven by hopes for a Ukraine peace deal and delayed tariffs.
- Inflation Concerns: Inflation remains a key concern, influencing central bank policies and market expectations, despite positive economic data.
- Central Bank Watch: The RBA and RBNZ rate decisions will significantly impact the AUD and NZD, respectively.
- Data-Driven Decisions: UK inflation data, along with other key economic releases, will be critical for currency valuations.
- GBP Strength: With better-than-expected economic data, the British Pound has shown remarkable resilience, making it an interesting currency to watch.
Market Drivers
The Forex market is poised for another exciting week, commencing February 17, 2025, with a complex interplay of factors influencing currency valuations. A dominant theme is the prevailing risk-on sentiment, as evidenced by the advance of equity markets and a weakening U.S. Dollar. This sentiment is partly fueled by optimism surrounding a potential resolution to the conflict in Ukraine and a delay in reciprocal tariffs, fostering an environment where investors are more inclined to take on riskier assets.
However, it’s crucial to acknowledge that inflation concerns continue to linger, casting a shadow on the global economic outlook. Despite encouraging economic data in certain regions, persistent inflationary pressures are shaping central bank policies and market expectations. The Federal Reserve, for instance, has signaled its commitment to maintaining a hawkish stance, emphasizing the need for further action to bring inflation under control.
Trade policy remains a significant driver of market sentiment, with investors closely monitoring developments related to tariffs and trade agreements. Shifting trade policies introduce uncertainty and volatility into the market, creating both challenges and opportunities for Forex traders.
Currencies Analysis
🇺🇸 U.S. Dollar (USD): The U.S. Dollar has exhibited weakness against most G10 currencies, primarily driven by improved global risk appetite and potential trade de-escalation. Despite slightly higher-than-expected CPI and PPI data, the dollar’s decline underscores underlying vulnerabilities. The Federal Reserve is anticipated to maintain a hawkish stance, yet market participants have adjusted their expectations for future rate cuts, now leaning towards the second half of the year. Technically, the U.S. Dollar Index has invalidated its long-term bullish trend, signaling a potential bearish reversal if risk-on sentiment persists.
🇪🇺 Euro (EUR): The Euro has benefited from increased risk appetite and optimism surrounding a potential ceasefire in Ukraine, reducing the war risk premium. Despite inherent risks such as upcoming tariffs and the German election, the Euro has maintained its position above key technical levels. Traders perceive the Euro as being more susceptible to the impact of tariff escalations and political developments.
🇬🇧 British Pound (GBP): Sterling has demonstrated strength against both the Yen and the Dollar, riding the wave of improved risk sentiment. Stronger-than-expected UK GDP data has dampened expectations of Bank of England rate cuts, providing support for the pound. However, UK inflation figures will be a critical focal point in the coming week. Technically, GBP/USD has printed a large bullish weekly candlestick, reaching its highest price since December 2024, surpassing 1.2600.
🇯🇵 Japanese Yen (JPY): The Yen initially weakened due to dovish comments from the Bank of Japan (BoJ), but later regained some losses. Overall, it was the weakest major currency last week.
🇨🇦 Canadian Dollar (CAD): The Canadian Dollar gained strength as the new set of tariffs proposed by President Trump point to a potential delay in the 25% tariffs imposed earlier this month and CPI/PPI data confirmed overall macro backdrop.
🇦🇺 Australian Dollar (AUD): The Australian Dollar was the strongest major currency last week. The RBA rate decision and Australian employment data will be crucial for currency direction.
🇨🇭 Swiss Franc (CHF): The Swiss franc’s safe-haven status makes it sensitive to changes in global risk aversion. Improved global risk appetite is weighing on safe haven currencies and markets are not pricing in two rate cuts by the SNB this year as a result.
🇳🇿 New Zealand Dollar (NZD): Markets will be watching the RBNZ’s rate decision, with expectations for a 25bps cut to 3.8%. If the central bank signals further easing, the NZD could face renewed pressure.
🇨🇳 Yuan (CNY): The Yuan weakened despite an uptick in inflation.
Upcoming Economic Calendar
Reserve Bank of Australia (RBA) Policy Meeting: On Tuesday, markets anticipate a rate cut to 4.1%. Investors will analyze the RBA’s commentary for further dovish signals that could affect the AUD.
Reserve Bank of New Zealand (RBNZ) Policy Meeting: On Wednesday, a 25bps rate cut to 3.8% is expected. The market will be watching for indications of further easing, which could put downward pressure on the NZD.
UK CPI (Inflation): Scheduled for release during the week, with expectations around 2.5%. A higher-than-expected figure could strengthen the GBP by pushing back Bank of England (BoE) rate cut expectations.
Canadian CPI (Inflation): This will be a crucial data point for the CAD, as markets assess whether the Bank of Canada might continue cutting rates.
- February 17 (Monday): US and Canada Public Holiday. Japan GDP.
- February 18 (Tuesday): RBA Policy Meeting. UK Wages/Unemployment. Canadian CPI
- February 19 (Wednesday): RBNZ Policy Meeting. UK CPI. US Housing Starts. Fed Minutes. HSBC FY24
- February 20 (Thursday): US Leading Index. Walmart Q4 25. Rivian Q4 24. Lloyds Bank FY24
- February 21 (Friday): UK Retail Sales. US, French, and German Flash PMI Services & Manufacturing. US Unemployment Claims. Canadian Retail Sales. Eurozone PMIs. UK Public Sector Borrowing
📅 Ziwox Terminal, Economic calendar
Pairs of the Week
AUD/JPY: This pair is in focus because the Australian Dollar was the strongest major currency last week, while the Japanese Yen was the weakest. It was up by 1.91% last week.
EUR/USD: The pair is up over 1% this week and recording a fresh month high beyond $1.0450. Escalating trade risks and diverging central bank policies could keep EUR/USD upside limited to $1.05-$1.0550.
GBP/USD: The pair printed a large bullish weekly candlestick, reaching its highest price since December 2024. The British Pound was one of the strongest major currencies, partly because British economic data recently came in much higher than expected.
USD/CAD: The US dollar has plunged against the Canadian dollar during the trading week to break down below the 1.42 level. This of course is a very negative week, as traders are starting to price out the idea of a trade war with the United States.
AUD/USD: AUDUSD has triggered fresh pattern-based buy signals following early week volatility, with price action testing crucial resistance at the 0.6318 50-day moving average, which represents the lower bound of a significant resistance cluster.
Trade of the Week:
Trade Idea: Long GBP/USD
The British Pound has demonstrated strength, appreciating against both the Yen and the US Dollar. Stronger-than-expected UK GDP data has reduced expectations of Bank of England rate cuts, providing a tailwind for the GBP. UK wages and unemployment will be key this week, and inflation figures loom this week. An upside surprise should support the pound.
The US Dollar weakened against most G10 currencies, even with slightly higher-than-expected CPI and PPI data. Disappointing retail sales figures suggest a potential slowdown in consumer spending, adding to the dollar’s woes. The market is pricing in fewer rate cuts by the Federal Reserve.
Improved global risk appetite is weighing on safe-haven currencies like the US Dollar, while benefiting currencies like the British Pound. Technically, GBP/USD printed a large bullish weekly candlestick, reaching its highest price since December 2024, surpassing 1.2600. GBP/USD has overcome its 50-day moving average located at $1.2475, and the short-term upside target is around $1.26-27.
Conclusion
As we embark on the Forex trading week of February 17, 2025, a confluence of factors including risk sentiment, inflation concerns, central bank decisions, and key economic data releases are poised to shape currency valuations. By closely monitoring these dynamics and conducting thorough fundamental and technical analysis, traders can identify potential opportunities and navigate the Forex landscape with greater confidence.
Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Trading Forex involves risk, and you should consult with a qualified financial advisor before making any investment decisions.
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