Weekly Forex Forecast - Sunday, Feb. 2 -

Weekly Forex Forecast – Sunday, Feb. 2

Feb 02, 2025Jeremy ParkinsonFinance0

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Fundamental Analysis & Market Sentiment
I previously wrote on Sunday, Jan. 19, 2025 that the best trade opportunities for the week were likely to be the following:

Short of the EUR/USD currency pair. Unfortunately, this currency pair rose by 2.07% over the following week.

Long of Bitcoin in US dollar terms following a New York close above $106,187. This did not set up.

Long of corn futures. Corn futures rose by 0.45% over the week.

The weekly loss of 1.62% equals 0.54% per asset. Meanwhile, last week saw several very key data releases, and the directional movement was above average. The most notable events included the following:

US Federal Reserve Policy Meeting – the Fed left its interest rate unchanged, as was widely expected, but the Fed also gave a minor hawkish tilt as it made clear it was in no rush to cut rates further over the near-term.

US Core PCE Price Index – this came in as expected, showing a month-on-month increase of 0.2%.

European Central Bank Policy Meeting – no surprises were given with the 0.25% rate cut, but the Bank warned about the deteriorating Eurozone economy, and this helped push the euro to fall in value over the week.

US Advance GDP – this came in considerably lower than expected, showing an annualized rate of only 2.3% when 2.7% was expected, giving a tailwind to the recent decline in the US dollar.

Bank of Canada Policy Meeting – rates were cut by 0.2% as expected, for the sixth consecutive policy meeting.

German Preliminary CPI – surprisingly, this was negative at -0.2% over the month, when a 0.1% increase was expected, suggesting declining inflationary pressure, which may increase pressure for further rate cuts and help sink the euro.

Australian CPI – this was a fraction lower than expected.

Canadian GDP – this showed a decline a fraction lower than expected, confirming the recent weakening of the Canadian economy.

US CB Consumer Confidence – this came in a fraction lower than expected.

US Employment Cost Index – this came in exactly as expected.

US Unemployment Claims – this was a little better than expected.

Chinese Manufacturing PMI – this was a little worse than expected.

Additionally, last week’s key takeaways were as follows:

A general continuing decline in inflation and the continuation of rate cuts in G7 nations, with the notable exception of the US — which is finding inflation sticky, although not far from its 2% target.

US President Trump has made good on his threats to impose tariffs on Canada, Mexico, and China, with new tariffs taking effect on Saturday of 25% on Canada and Mexico (only 10% on energy imports) and 10% on China. President Trump has also begun to threaten BRICS nations with a 100% tariff if they do not drop plans to create an alternative global reserve currency to the US dollar.

Interestingly, these two developments should be helping to increase the relative value of the US dollar, which is still in a valid long-term bullish trend. The US Dollar Index did increase in value last week, after a few weeks of relative weakness.Canada has just responded to the new US tariffs by imposing a blanket 25% tariff on all imports from the US.Both the US and Canadian dollars will likely be interesting currencies to watch over the coming week. This will likely put the USD/CAD currency pair in focus over the coming days.

The Week Ahead: Feb. 3-7, 2025
The coming week has a lighter schedule of releases, so we are very likely to see a lower level of activity and volatility in the Forex market. The coming week’s important data points, in order of likely importance, are as follows:

US Average Hourly Earnings

US Non-Farm Employment Change

Bank of England Policy Meeting

US JOLTS Job Openings

US ISM Services PMI

US ISM Manufacturing PMI

US Unemployment Rate

US Unemployment Claims

Canadian Unemployment Rate

New Zealand Unemployment Rate

It should be noted that Monday is a public holiday in China, and Thursday is a public holiday in New Zealand.

Monthly Forecast for February 2025
For February 2025, I forecast that the EUR/USD currency pair will decline in value.For January, I forecasted that the USD/JPY currency pair would rise in value and that the EUR/USD currency pair would fall in value. The final performance of this forecast was as follows:

Weekly Forecast for Sunday, Feb. 2, 2025
Two weeks ago, I made no weekly forecast as there were no unusually strong price movements to be seen in currency crosses, which is the basis of my trading strategy.The Japanese yen was the strongest major currency last week, while the Australian dollar was the weakest. Volatility declined last week, as 37% of the most important Forex currency pairs and crosses changed in value by more than 1%. It is likely to fall further over the coming week.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis – US Dollar Index
Last week, the US Dollar Index printed a bullish candlestick that continued the long-term bullish trend, after bouncing off an area of support. There were two further price action signs:

The price closed right at the high of the week’s range.

The close was within the upper half of the previous week’s candle’s range.

The US dollar got a tailwind last week from the Fed’s slightly hawkish tilt in its comments on inflation, as well as President Trump’s imposition of tariffs against Canada, Mexico, and China.The dollar will likely continue to rise over the coming week. The price has room to rise to at least the next resistance level at the 110.00 mark.

EUR/USD
The EUR/USD currency pair appears to be in a valid long-term bearish trend. Just as I explained earlier about the US Dollar index, we see the same bearish technical signs. However, the price rose quite high over the previous week, so we are still some way off of the long-term lows.This currency pair often has very reliable trends, so I am generally interested in being short. This is backed by fundamentals and sentiment. The euro is weaker after the ECB not only cut its interest rate, but, more importantly, also warned against a weakening Eurozone economy, and the US dollar is getting a boost from a hawkish Fed and the imposition of new tariffs by President Trump.I see this currency pair as a sell. It is probably the most reliable trade opportunity right now in the entire Forex market.

USD/CAD
The USD/CAD currency pair advanced strongly last week to a new four-year high price, continuing the long-term bullish trend and breakout which have been ongoing for a few months now.This trend has legs because the US economy is relatively strong while the Canadian one is relatively weak, but also, and more importantly over the short-term, President Trump has just imposed a 25% tariff on non-energy imports from Canada (energy will be subject to a 10% tariff). Canada has just announced a retaliatory 25% tariff, with Prime Minister Trudeau urging Canadians to “buy Canadian.”These tariffs are likely, overall, to boost the US dollar and hurt the value of the Canadian dollar.Technically, although it is worth noting that the price gave up some of its gains, as shown by the upper wick of last week’s candlestick, this is due more to volatility than due to the end of an upwards spike. It is quite likely that this currency pair will continue to rise over the coming week.

XAU/USD
Gold advanced last week to reach a new all-time high above $2,800 per ounce. The price gave up some of its gains towards the weekly close to end the week back below the round number of $2,800. However, looking at the weekly price chart below, we can see that the price closed above the previous record high made in December of 2024.This trend may see a relatively slow rise, but we can see how steadily and strongly gold gained over the past year, so this looks likely to be a solid trend. I am not sure that gold will reach $3,000 per ounce over the coming week, but this target is certainly in sight now.

Coffee Futures
The price chart below shows that coffee futures have been breaking out to long-term high prices over a period of more than six months, although last week’s strong price rise was the most aggressive increase seen through this time. This is suggestive of a climax, which would make going long potentially dangerous, but the weekly closing price was very near the high price of the week, so that may not be the case.Taking long trades when major commodities break out to new six-month highs has historically been a very profitable trading strategy, which is the main reason that I want to be long here.Arabica coffee has reached an all-time high, due partly to climatic factors such as the recent drought in Brazil, and partly due to political factors, both of which are working to reduce supply, while demand continues to be as high as it ever has been.Unfortunately, coffee futures are quite expensive and usually just too large for retail traders, but there is an ETF called COFF which can be used to participate in increases in the price of coffee. However, note that this ETF does not always cleanly mirror the price action of coffee futures, so if you are using the ETF, be careful.I think coffee is a buy.

Corn Futures
Corn futures have been breaking to new highs, although the last two days of the week saw the price decline for consecutive days.I think corn is a buy, but only if it makes a new daily high closing price. Although we clearly have a medium or maybe long-term bullish trend in corn, this bullish move is relatively new and may already have run out of steam, which is why I am cautious.Many analysts see this move as mostly seasonal in nature, and they do not seem to think the price is going to make a new high any time soon. I will be prepared to enter a new long trade if we see corn futures make a new six-month high closing price at the end of any day over the coming week.

Bottom Line
I see the best trading opportunities this week as the following: