The first week of February felt like "Groundhog Day" for the US Dollar and a trial by fire for crypto enthusiasts. While central banks (ECB, Bank of England) maintained a wait-and-see approach by holding rates steady, the market is already pricing in their underlying weakness. The week's main event is today’s inflation data report. Given the historical track record of analyst "misses" and ongoing suspicions of data manipulation, volatility is expected to be off the charts.
The US dollar is holding steady near two-week highs.
Driver: Markets reacted optimistically to Kevin Warsh’s nomination for Fed Chair. His reputation as a proponent of a smaller balance sheet and a cautious approach to easing has bolstered the USD.
Risk: With inflation expectations out today, expect a surge in volatility. Avoid trying to predict the numbers. Trade the reaction instead.
💡 Tip for Trader: It is best to remain sidelined until after the inflation data release. The dollar could see sharp swings in either direction, likely triggering stop-loss orders across all major pairs.
The pound has come under significant pressure following the BoE meeting.
Meeting Outcomes: While rates remained unchanged, the 5–4 vote split and soft rhetoric suggest a potential cut as early as March.
Political Factor: Questions regarding Keir Starmer’s leadership and a possible leftward policy shift are unsettling Gilt holders. 30-year Gilt yields are rising as the Pound slides.
💡 Tip for Trader: EUR/GBP has found support at 0.8670, with a potential move toward 0.8800. Long positions with this pair may be worth considering.
The Japanese currency is idling near 156.8 per dollar and is on track for a weekly loss of over 1%.
Key Factor: Markets are anticipating a victory for Sanae Takaichi in the upcoming elections. Her focus on increased spending and a weak Yen to support exporters is a direct sell signal for the JPY.
Outlook: Japan's GDP data is due next week. If readings turn out to be weaker-than-expected, the Yen could rapidly slide toward the 160.0 level.
The Aussie has corrected below 0.70 against the backdrop of a broader sell-off in global stocks and the US tech sector.
Context: Despite the RBA hiking rates to 3.85% earlier this week, risk appetite has evaporated. The market is currently pricing in a 70% chance of another hike in May.
💡 Tip for Trader: While the AUD remains fundamentally strong, it is currently a hostage to US stock market sentiment. Consider going long only after the indices stabilize.
The European regulator kept interest rates unchanged, with the deposit rate at 2.0%.
The Essence: Christine Lagarde acknowledged the risks of a trade war with the US but pointed to low Eurozone unemployment as a stabilizing factor. No explicit promises were made regarding rate cuts, as future decisions hinge on macroeconomic data.
Cryptocurrency is facing its toughest stretch since Donald Trump’s election victory. Bitcoin didn't just dip; it tested the psychological $60,000 support level, returning to 16-month lows.
Market Scale: The crypto market has lost over $1 trillion in capitalization in just a month, shrinking nearly in half from its $4.3 trillion peak in October. Ethereum (ETH) hit a 10-month low at $1,751, while Solana (SOL) plummeted 11%, barely holding above $80.
Michael Burry’s Take: The Scion Capital founder warns that a sustained drop in BTC could trigger a chain reaction, devaluing altcoins and potentially hitting precious metals through the liquidation of tokenized assets.
Bottom Line: The entire "Trump Trade" pump, built on expectations of crypto-friendly policies, has been completely erased.
💡 Tip for Trader: Bitcoin is currently the primary "fear index." If the $60,000 level is broken out, a broader market collapse could become reality. Keep a close watch on the total market cap. Until it stabilizes, any new long positions are a gamble.
Crude oil has recovered early losses, trading above $68 (Brent) and $64 (WTI).
Geopolitics: US-Iran negotiations have hit a stalemate. The US Embassy has urged citizens to leave Iran immediately, sparking market fears of potential infrastructure strikes.
Supply: Saudi Arabia has slashed prices for Asia to levels not seen since 2020. This means there is a persistent supply surplus.
Weekly Summary: The market is overheated and extremely edgy. Expect potential price gaps on Monday due to the situation in Iran. We are closing out positions to end the week and waiting for trend confirmation following the USA inflation statistics.
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