Euro Rebounds Above $1.03, Yen Strengthens (01.20.2025)

The euro rebounded to $1.03 against the US dollar, fueled by a weaker dollar following soft inflation and retail sales data, which raised expectations of Federal Reserve rate cuts.

Meanwhile, the yen strengthened amid speculation of a Bank of Japan interest rate hike and strong economic data. Gold and silver prices rose, supported by safe-haven demand and weaker US inflation while easing Middle East tensions moderated gold’s rally. The British pound fell to 1.22 due to stagflation fears, and silver hit $30.40, driven by expectations of further US rate cuts despite concerns over industrial demand.

Euro Rebounds to $1.03 on Trump Tariff Reports

The EUR/USD is trading around 1.0300 on Monday, as the US dollar weakened against major currencies. Traders are bracing for a series of policy announcements following Donald Trump’s inauguration, with attention on his proposed plans to raise tariffs, tighten immigration, cut taxes, and intensify deregulation. These measures are predicted to have inflationary consequences.

Market activity is expected to be light due to the US markets being closed for the Martin Luther King Jr. holiday. Last week, the dollar index saw its six-week winning streak come to an end after a surprising slowdown in US core inflation, alongside underperforming data on producer prices and retail sales, which fueled speculation about possible Federal Reserve interest rate cuts this year.

From a technical perspective, the first resistance level is at 1.0350, with further resistance levels at 1.0460 and 1.0500 if the price breaks above. On the downside, the initial support is at 1.0270, followed by additional support levels at 1.0125 and 1.0100. 

Yen Rises as BoJ Boosts Confidence

The Japanese yen strengthened past 156 per dollar on Monday, building on last week’s gains as investors looked ahead to the Bank of Japan’s upcoming policy meeting. Both BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino hinted at the possibility of an interest rate hike, citing strong inflation and wage growth as supportive factors. Furthermore, Japan’s Finance Minister Katsunobu Kato reaffirmed the government’s commitment to taking "appropriate action" to support the yen, providing additional support for the currency. On the economic front, Japan’s machinery orders surged by 3.4% month-on-month in November, surpassing market expectations of a 0.4% decline and marking the highest growth in nine months. Meanwhile, the yen also gained as the US dollar retreated ahead of Donald Trump’s inauguration, with traders awaiting further details on his proposed policies.

The key resistance level appears to be 158.60, with a break above it potentially targeting 160.00 and 161.00. On the downside, 154.90 is the first major support, followed by 153.40 and 152.40 if the price moves lower.  

Gold Gains Tempered, but Bullish Trend Continues

Gold traded above $2,700 per ounce, recovering from early losses as investors prepared for Trump’s inauguration later in the day. His proposed trade tariffs are expected to drive inflation and could potentially lead to trade wars, making gold more attractive as a hedge against inflation. Last week, a soft reading on U.S. core inflation, along with weaker producer price inflation and retail sales data, reignited expectations of additional interest rate cuts by the Federal Reserve this year. Lower rates reduce the opportunity cost of holding non-interest-bearing gold, increasing its appeal. However, easing tensions in the Middle East dampened demand for safe-haven assets following Israel’s release of 90 Palestinian prisoners on Sunday in exchange for three hostages freed from Gaza, marking the start of a ceasefire after 15 months of conflict.

Technically, the first resistance level will be 2725 level. In case of this level’s breach, the next levels to watch would be 2750 and 2790. On the downside, 2660 will be the first support level. 2630 and 2600 are the next levels to monitor if the first support level is breached. 

British Pound Drops on Stagflation Concerns

The pound currently trades around 1.22, and GBP/USD is likely to be influenced by the market volatility with Donald Trump's official inauguration today. The currency faces pressure from ongoing fiscal uncertainty, rising interest rates, and economic challenges.

The first resistance level for the pair will be 1.2265. In the event of this level's breach, the next levels to watch would be 1.2350 and 1.2460. On the downside 1.2100 will be the first support level. 1.2080 and 1.2000 are the next levels to monitor if the first support level is breached.

Silver Hits One-Month High on Fed Expectations

Silver trades around $30.40 per ounce, supported by weaker inflation in the U.S., which raised expectations of further interest rate cuts by the Federal Reserve this year. Fed Governor Christopher Waller indicated last Thursday that the central bank could potentially reduce rates by three or four times if economic data continues to show weakness. The possibility of lower U.S. rates could drive demand for commodities by fostering economic growth and putting pressure on the dollar. 

Despite the positive momentum, silver prices remained below the 12-year high of $35 reached in October, as concerns persisted over uncertain industrial demand. Specifically, overcapacity in China’s solar panel industry has led photovoltaic companies to participate in a government-backed self-discipline program to regulate supply, potentially limiting silver demand from this key industrial sector.

The first resistance level will be 31.00 level. In case of this level’s breach, the next levels to watch would be 31.80 and 32.50. On the downside 29.85 will be the first support level. 28.80 and 28.50 are the next levels to monitor if the first support level is breached.