Intro
For the first time in a while, JPY wasn’t the strongest among the major currencies. Instead, the US dollar took the cup thanks largely to influential moves by Mr. Trump.
So, it’s one of the currencies to watch for bullish opportunities. Meanwhile, the Aussie and New Zealand dollar are being hammered, partly because of developments in the US.
Peep at our latest sentiment report – many of our biases in the forex market have changed from the previous week!
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bullish
The U.S. Dollar has recently strengthened, underpinned by its safe-haven appeal as trade tensions escalate. Uncertainty in the markets has been fueled by President Trump’s decision to impose tariffs – 25% on Mexican and Canadian goods and an additional 10% on Chinese imports.
This has led investors to find refuge in the USD. However, downside pressure could be exerted by weaker-than-expected U.S. economic data and prospects for Federal Reserve rate cuts.
Key news to watch: Initial Jobless Claims on Thursday and Nonfarm Payrolls/unemployment rate on Friday.
Euro (EUR): Bearish
The Euro has been under pressure on vague threats of U.S. tariffs on European goods, adding to economic uncertainties within the Eurozone. All these have generated a cautious market sentiment, keeping the Euro steady after a recent drop from a one-month peak. The uncertainty regarding potential U.S. tariffs has assisted in leaving the Euro vulnerable to weakness.
Key news to watch: ECB interest rate decision on Thursday (95% probability of a cut)
British Pound (GBP): Neutral
After the UK announced increased military spending, the British Pound has edged lower against the strengthening U.S. Dollar. Prime Minister Keir Starmer’s commitment to raising annual defense spending to 2.5% of GDP by 2027 has introduced fiscal considerations that may influence economic growth and inflation.
Japanese Yen (JPY): Bullish
The yen is firmer, following recent highs after a sharp jump in Japanese inflation. January’s inflation in its core measure was its quickest in 19 months.
The inflation rally fueled expectations of rate increases by the Bank of Japan, making the yen more desirable. The safe-haven appeal of the yen keeps drawing funds too on the back of global uncertainty.
In the long term, we should also keep an eye on US Treasury yields – rising yields = lower JPY, while lower yields = higher JPY.
Australian dollar (AUD): Bearish
The Australian Dollar has hit a three-week low, dragged down by global trade tensions and their impact on risk-sensitive currencies. The announcement of the U.S. tariffs has triggered a sell-off in risk assets, which has hurt the AUD.
Additionally, concerns over the health of China’s economy, given Australia’s tight trade links, have added to the downward pressure.
Key news to watch: GDP Growth Rate QoQ on Wednesday.
New Zealand dollar (NZD): Bearish
Like the AUD, the New Zealand Dollar has declined sharply due to its sensitivity to global risk sentiment. The threatened U.S. tariffs have triggered a sell-off in risk-sensitive currencies, and the NZD has been especially affected. The currency is closely linked to global trade flows, so it is vulnerable in the current environment.
The Reserve Bank of New Zealand also dropped the interest rate recently by 50 basis points, further adding to the bearish bias.
Canadian dollar (CAD): Neutral to Bullish
The Canadian Dollar has been hurt following the U.S.’s announcement of tariffs on Canadian goods, which has increased uncertainty and weighed on the currency. The potential impact on trade and the economy as a whole has also contributed to the CAD’s recent weak performance.
On the plus side, there is a favourable correlation between oil prices and the loonie which can support the currency.
Swiss Franc (CHF): Bullish
Uncertainty in the global economy continues to propel demand for the franc. The Swiss franc is still a safe-haven currency. However, the Swiss National Bank wants to keep interest rates in the negative.
The new SNB chairman is more keen to cut rates than the last chairman, with the SNB aiming for neutral rates between 0 and 0.5% (currently at 0.5%).
