This week our forex strategists centered on the U.S. CPI Report (January 2025) for potential high-quality setups in U.S. greenback pairs.
Out of the 4 situation/worth outlook discussions this week, one dialogue arguably noticed each fundie & technical arguments triggered to turn out to be potential candidates for a commerce & threat administration overlay.
Watchlists are worth outlook & technique discussions supported by each elementary & technical evaluation, an important step in direction of making a top quality discretionary commerce concept earlier than engaged on a threat & commerce administration plan.
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GBP/USD: Tuesday – February 11, 2025
GBP/USD 1-Hour Foreign exchange Chart by TradingView
On Tuesday, our strategists had their sights set on the U.S. CPI report and its potential influence on the greenback. Based mostly on our Occasion Information, expectations had been for headline CPI to rise 0.2% m/m (vs. 0.4% earlier) and core CPI to extend 0.3% m/m (vs. 0.2% earlier). The annual headline charge was forecast to carry regular at 2.9%.
With these expectations in thoughts, right here’s what we had been considering:
The “Greenback Dominance” Situation:
If CPI got here in hotter than anticipated, we anticipated this might dampen Fed charge reduce expectations. We centered on USD/CHF for potential lengthy methods if threat sentiment was optimistic, notably given the SNB’s latest openness to damaging rates of interest if wanted. In a risk-off surroundings, NZD/USD brief made sense given the Kiwi’s risk-on traits and a latest failure to interrupt above vary highs.
The “Greenback Descent” Situation:
If inflation knowledge confirmed vital cooling, aligning with latest PPI traits, we thought this might gasoline Fed charge reduce expectations. We thought-about GBP/USD for potential lengthy methods in a risk-on surroundings, particularly given the bounce in 2025 and its comparatively excessive rate of interest in comparison with the remainder of the majors. If threat sentiment leaned damaging, USD/JPY shorts seemed promising given JPY’s secure haven standing and the BOJ’s much less dovish stance in 2025 to this point.
What Truly Occurred:
The January CPI report confirmed combined however typically hotter-than-expected outcomes:
- Headline CPI rose 0.5% m/m (vs. 0.3% forecast)
- Core CPI elevated 0.4% m/m (vs. 0.3% forecast
- Annual headline CPI climbed to three.0% y/y (vs. 2.9% forecast)
These outcomes had been scorching, however market rhetoric was fast to play off the numbers on condition that January’s reads are typically hotter as exercise picks up from the vacation season.
Not too lengthy after the CPI occasion, Fed Chair Powell testified concerning the Semi-Annual Financial Coverage Report earlier than the Home Monetary Providers Committee, which appears to have been a market mover and must be thought-about when growing a bias on the Buck on the session. A number of the predominant takeaways had been:
- Fed Chair Powell emphasised they’re not in a rush to regulate coverage
- Powell reiterated they’re watching core PCE extra intently
Market Response:
Provided that the market shortly swapped biases again to bearish on USD regardless of the new CPI learn, and Powell’s tempered feedback on rate of interest expectations, we thought a bearish greenback bias was acceptable. And with the markets swinging from internet damaging broad sentiment from earlier within the week in direction of optimistic as tariff fears ebbed, we thought our GBP/USD watch submit had the perfect odds of a possible optimistic end result.
Trying on the GBP/USD chart, we noticed preliminary promoting stress after the warmer CPI print, with the pair dropping from round 1.2450 to check the pivot level (1.2396). Nevertheless, the bearish momentum was short-lived as merchants appeared to look previous the headline numbers.
The pair discovered sturdy assist on the pivot level stage, which coincided with the 20-period transferring common. Powell’s subsequent dovish remarks throughout his Congressional testimony helped gasoline a rally, pushing GBP/USD by the R1 (1.2544) resistance stage.
Sterling’s advance was additional supported by optimistic U.Okay. knowledge, together with better-than-expected December GDP (0.4% m/m vs 0.1% forecast) and industrial manufacturing figures (0.5% m/m vs 0.2% forecast). By Friday’s shut, weaker U.S. retail gross sales knowledge (-0.9% vs 0.0% forecast) had helped drive GBP/USD to check the rising ‘highs’ sample, the place the rally was halted forward of the weekend.
The Verdict:
So, how’d we do? In our opinion, we thought our authentic dialogue was “extremely possible” supportive of a internet optimistic end result. Whereas the preliminary elementary set off (scorching CPI) supported USD power, the market typically dismissed it because of seasonality and switched focus shortly to Powell’s testimony, which was arguably impartial rhetoric. Gotta adapt to what the market offers ya, proper?
For merchants who waited for affirmation of assist on the pivot level stage after the CPI-induced dip, they may have captured a considerable transfer greater as each elementary catalysts (Fed communicate, weak U.S. knowledge) and technical elements (transferring common assist, pivot level ranges) aligned properly and resulted in bullish momentum.
For individuals who had been a bit late to the social gathering and waited for a break of 1.2450 resistance to precise an extended bias, they nonetheless possible had a optimistic end result given the bearish sentiment on the Buck on the finish of the week.
