The ECB and the FOMC Meetings This Week: What to Expect from Them
The European Central Bank and the Federal Reserve are going to hold a meeting this week. The FOMC meeting will take place on Wednesday, while the ECB members will meet on Thursday. The Federal Reserve is unlikely to make any changes as they are going to hold the rates unchanged.
According to the latest forecasts, the Fed is likely to make another rate cut at the beginning of Summer. The latest macroeconomic data from the United States favors the FOMC as there is no need to make any aggressive steps currently.
On the other hand, the European Central Bank is likely to cut rates on Thursday. Moreover, market participants are expecting the central bank to conduct other rate cuts throughout the year. The current rate cut is expected to lower the rate from 3.15% to 2.90%. It is recommended to follow the ECB press conference as it may shed light on the future steps that the ECB is likely to make in 2025.
The technical picture looks uncertain as the EUR/USD currency pair has just moved below the simple moving average of 50. This means that market moods have shifted and bears are now controlling the market.
The currency pair remains below the SMA50 as mentioned, which means that sell-offs may continue. The closest target on the downside can be at 1.0370, which prevents the currency pair from moving at 1.0340 and protects it from further downside. On the upside, the currency pair has a strong resistance at the SMA50.
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GBP/USD: Weak British Pound on Higher Risks for BoE
The UK CPI index was below expectations and softer than the November readings, which means that the inflation in the UK is slowing down. The inflation rate was the steepest for the previous one and a half years in both the industrial and service sectors. However, higher wage growth together with higher prices for raw materials may stimulate inflation, which will pose higher risks for the Bank of England.
The BoE will announce its first monetary policy decision on February 6. Market participants expect the central bank to cut rates by 25 bps and the borrowing rates to decrease to 4.5%. According to the latest Morgan Stanley forecasts, the UK GDP growth is expected to plunge to 0.9% from 1.3% in 2024.
When it comes to further decisions, the Bank of England will have to consider inflation pressure on the one hand and weaker economic growth on the other. While market participants still expect more rate cuts this year, the situation may change if inflation will show higher readings in the approaching months.
When it comes to technical analysis, GBP/USD stays right below the SMA50, which means that the market sentiment has recently changed from bullish to bearish. The currency pair is aiming at 1.2400, which is a round psychological level protecting the price from moving lower at 1.2350. When it comes to the upside, the closest resistance level is at the SMA50. It prevents GBP/USD from reaching current local highs at 1.2490.
USD/JPY: Japanese Yen Loses Positions, but the Downside is Limited
The Japanese yen struggles to recover as rumors of new Trump tariffs spread across markets. The US President has promised universal tariffs on Monday, which is likely to push the inflation in the United States higher. Therefore, the US dollar has gained support on expectations that the Fed will be more cautious this year in cutting rates. The Band of Japan, in turn, has already increased rates this year and this is likely to be only the first step in 2025. The officials are likely to make other restrictive decisions in the upcoming meetings. Therefore, these expectations can limit JPY losses.
According to technical analysis, the currency pair stays right above the SMA50, hinting at the bullish sentiment. However, as was already mentioned, JPY is likely to have another chance to move higher, which means that the upside for the currency pair is limited. On the upside, the closest target will be at 156.00, which is a round number. Then the next one can be at 156.70. On the downside, the currency pair is supported by the SMA50, which prevents the asset from plunging lower and targeting 155.15.
WTI: Oil Prices Lose Momentum
Oil prices were recently pushed down by news from China, one of the largest oil importers. Beijing reported an unexpected contraction in January’s manufacturing activity. The PMI plunged to 49.1 from 50.1 in December, which was below market expectations. This resulted in an oil price drop as there are concerns about the oil demand growth. Moreover, the upcoming US import tariffs may cut demand further as they may push the Chinese economy down. Market participants are expecting new comments on tariffs as they can reduce demand on commodities in general
The oil price moves down and currently stays right below the SMA50, which means that bears are still controlling the market. The closest support level is 72.40. If crude oil breaks it below, it may target 72.00. On the upside, the price is below the SMA50, which prevents it from moving higher.
Bitcoin: Market Participants Anticipate New Drivers
Bitcoin plunged on Monday but managed to gain back almost all its losses. Traders and investors are looking forward to hearing some new comments from Donald Trump about creating strategic Bitcoin reserves. According to the latest news, the US President has signed the documents about the creation of this reserve. Also, the white House administration is going to launch the Stargate project.
Bitcoin managed to jump over the SMA50 on the news that the US President adopted crypto reserves in the United States. BTC/USD is aiming at 105,000 currently. On the downside, it is supported by the SMA50, which prevents the currency pair from plunging to 100,000, which is a strong support level currently.
