Weekly Forex Forecast – February 23

I wrote on 16^th February that the best trade opportunities for the week were likely to be:

• Long of the NASDAQ 100 Index. This fell by 2.48% over the week.
• Long of the S&P 500 Index following a daily close above 6118.71. This fell by 1.77% over the week.
• Long of Gold in USD terms (also known as XAU/USD) following a daily close of spot Gold above $2,926. This set up on Tuesday, but the price ended the week practically unchanged from there.
• Long of Corn futures (CORN etf can also be used) following a daily close of the next ZC future at or above 498. This set up on Tuesday, but the price ended the week 2.19% lower.
• Long of Coffee futures (COFF etf can also be used) following a daily close of the next C future at or above 425.10. This did not set up.

The weekly loss of 6.44% equals 1.29% per asset. However, my weekly forecast of rising Yen crosses helped make up some of this loss (3.91%).

Last week saw several data releases affecting the Forex market:

1. US FOMC Meeting Minutes – this was slightly hawkish, with the Fed showing to be in no rush to lower rates, with further progress on inflation required before any further cuts to be made.
2. UK CPI (inflation) – this was higher than expected, showing an annualized rate of 3.0% compared to an expected 2.8%, which was hawkish for the British Pound.
3. Canadian CPI (inflation) – the headline rate showed a month-on-month increase of 0.1% which was expected, but other inflation metrics ticked a fraction higher.
4. Australian Wage Price Index – a fraction lower than forecast, which is very marginally dovish for the Aussie.
5. Reserve Bank of Australia Policy Meeting – cut rates by 0.25% as expected.
6. Reserve Bank of New Zealand Policy Meeting – cut rates by 0.50% as expected but also a slight dovish tilt as the Bank made clear the pace of any further cuts would be much slower.
7. UK Retail Sales – the month-on-month increase was much stronger than expected, rising by 1.7% rather than the forecasted 0.4%, suggesting there is still strong consumer demand, bolstering the higher rate view.
8. US, French & German Flash PMI Services & Manufacturing – nothing very notable here.
9. US Unemployment Claims – almost exactly as expected.
10. Canadian Retail Sales – this showed a considerably stronger increase than expected month-on-month, 2.5% instead of the forecasted 1.5%, suggesting there is still strong consumer demand, bolstering the higher rate view.

Last week’s key takeaways were:

1. Despite the hawkish tilt on US monetary policy, and the long-term bullish trend, the greenback declined over the week, while shows a kind of weakness in the USD right now.
2. US stock markets made record highs before dropping quite strongly at the end of last week.
3. The Japanese Yen saw strong gains last week on strong Japanese economic data, which boosted expectations of Bank of Japan rate hikes.
4. Rate cuts continue at many major central banks, even though global inflation seems to be mostly a bit stronger than expected, while the US Federal Reserve has essentially paused rate cuts and the Bank of Japan is positioned to make rate hikes, placing the JPY and USD as divergent currencies from the pack.
5. President Trump is taking a more conciliatory line on tariffs, stating that the EU is being “very nice” while also positioning to impose some reciprocal tariffs on other countries.
6. The Trump administration has continued talks with Russia over Ukraine, which triggered a boost in risk-on sentiment, although the sentiment is patchy as we saw at the end of last week.

It seems that any flow into safe havens is going to the Japanese Yen and maybe Gold.

A few commodities have been breaking to new record highs, although only Gold and Corn truly look strong.

The coming week has a lighter schedule of releases, so we are 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:

1. US Core PCE Price Index
2. US Preliminary GDP
3. German Preliminary CPI
4. German Federal Election Result
5. US CB Consumer Confidence
6. Australia CPI
7. Canadian GDP
8. US Unemployment Claims

Monday is a public holiday in Japan.

For February 2025, I forecasted that the EUR/USD currency pair would decline in value. The performance so far is shown below.

Last week, I forecasted that the following currency pairs would fall in value over the week:

This was a good and profitable call.

This week, I forecast that the following currency crosses will rise in value over the coming week:

The Japanese Yen was the strongest major currency last week, while the Euro was the weakest, putting the EUR/JPY currency cross and other Yen crosses in focus. Volatility decreased last week as expected, with only 26% of the most important Forex currency pairs and crosses changing in value by more than 1%. It is likely to decline again…