Key takeaways
- FX markets will wait for clarity on US President Trump’s trade policy, possibly experiencing heightened volatility over the coming weeks…
- … but markets should look through the noise, with the USD probably retaining its allure
- The EUR and GBP may languish, while the CAD could be exposed to US tariff threat
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
USD sentiment is still waiting for clarity on the depth and intensity of US President Trump’s tariff strategy over the near term. The USD has strengthened beyond levels implied by its rate expectations, but the premium may persist for now. The Federal Reserve is likely to keep its policy rate unchanged at its 28-29 January meeting, and the next 25bp cut is not fully priced in by markets until its 17-18 June meeting (Bloomberg, 24January 2025). Volatility may rise amid the headline chasing, but ultimately we expect the optimal growth/inflation mix in the US to foster a grind higher in the USD. Indeed, recent US activity indicators point to renewed upside surprises, and so markets will still eye US data releases, like PCE price index (31 January), non-farm payrolls (7 February) and CPI (12 February).
Short-term direction : DXY^
Current
▲ Appreciate
Previous
▶ Track Sideways
EUR
EUR-USD has tracked its 2-year rate differentials, but its recent mini-bounce looks misplaced. Economic data paints an increasingly challenging picture of stagflation in the Eurozone. The European Central Bank (ECB) is almost fully priced by markets for a 25bp cut at its 30 January meeting and a follow-up 25bp cut in March, so the EUR’s reaction to the ECB meeting will likely be determined by how clear the guidance is around further successive easing, and also how open the door is to a 50bp cut. The EUR may be exposed to political developments, with the possibility of the EU facing additional US tariffs and the developments in the run-up to Germany’s federal election on 23 February. Fiscal policy could be a focus too.
Short-term direction : EUR-USD
Current
▼ Depreciate
Previous
▶ Track Sideways
GBP
GBP-USD is likely to face downside risks over the coming weeks as the domestic economy struggles. The Bank of England (BoE) is widely expected to deliver a 25bp cut at its 6 February meeting, but the meeting may prove more dovish than current market pricing (with c45bp of successive easing in 2025, Bloomberg, 24 January 2025). US tariffs may pose an ongoing risk to the GBP, as do the UK’s twin deficits.
Short-term direction : GBP-USD
Current
▼ Depreciate
Previous
▶ Track Sideways
JPY
We look for a resumption of the grind higher in USD-JPY over the coming weeks, unless we get a “risk off” mood, lower US Treasuries, or dovish Fed shocks. Now that the Bank of Japan (BoJ) delivered a widely expected hike of 25bp on 24 January, and with positioning not stretched, the impact should be modest. Meanwhile, Japanese authorities’ tolerance for a weak JPY is likely low, putting a cap to USD-JPY, while investment capital flow outlook remains unclear for now. Japan’s Government Pension Investment Fund’s (GPIF) five-year asset allocation plan will be announced in the coming months.
Short-term direction : USD-JPY
Current
▲ Appreciate
Previous
▶ Track Sideways
CHF
The Swiss National Bank’s (SNB) dovishness appears well-priced, with markets expecting its policy rate to be c0.2% by end-2025. The bar, for now, appears high for markets to begin pricing in negative rates, given the SNB’s clear preference against negative rates. The next meeting (20 March) is still distant, but inflation (13 February) and GDP data (27 February) could still be influential for the CHF. USD-CHF is likely to grind higher, following broader USD moves.
Short-term direction : USD-CHF
Current
▲ Appreciate
Previous
▶ Track Sideways
CAD
Macro, FX, and rates forecasts suggest the consensus is assuming the best when it comes to US-Canada trade relations. But a 25% import tariff levied by the US could bring a 1.8% hit to the Canadian economy, and the hit could be as high as 2.6% if Canada retaliated in full (Canadian Chamber of Commerce, 28 November 2024). Risk-reward consequently favours a weaker CAD, given the looming tariff threat on 1 February. A 25bp cut by the Bank of Canada at the 29 January meeting is fully priced in, and this will bring the policy rate to 3% (c1.3% below its US counterpart, Bloomberg, 24 January 2025).
Short-term direction : USD-CAD
Current
▲ Appreciate
Previous
▶ Track Sideways
AUD
With the lack of immediate US tariff threat on the Asia pacific region and more positive global risk sentiment, AUD-USD should enjoy a relief rally over the coming weeks. In addition, while communication from the Reserve Bank of Australia (RBA) has skewed dovishly since December 2024, risk-reward favours positioning for a higher end-2025 policy rate with three 25bp cuts already priced in. The RBA will meet on 18 February, with c75% chance of a 25bp cut in the price (Bloomberg, 24 January 2025). But it is worth noting that the overall US policy mix should be negative for the AUD in the medium term.
Short-term direction : AUD-USD
Current
▲ Appreciate
Previous
▶ Track Sideways
NZD
Like the AUD, we are also tactically optimistic for the NZD, given the recent external and domestic developments. In addition, New Zealand’s export destinations are more diversified than Australia’s while dairy prices are enjoying a cyclical upswing. A 50bp cut by the Reserve Bank of New Zealand (RBNZ) at the 19 February meeting is also mostly priced in (Bloomberg, 24 January 2025). However, this temporary relief does not change our medium-term bearish view on NZD-USD.
Short-term direction : NZD-USD
Current
▲ Appreciate
Previous
▶ Track Sideways
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP,CAD, SEK and CHF. Source: HSBC
FX Data Snapshot
(from close on 25 December to 24 January*)
FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY | 107.45 | 104.74 | -0.75% | 107.00 | 109.40 |
| EUR-USD |
1.0492 | 1.0770 | 0.89% | 1.0400 | 1.0600 |
| GBP-USD |
1.2425 | 1.2792 | -0.91% | 1.2200 | 1.2530 |
| USD-JPY |
155.68 | 152.86 | -0.95% | 154.94 | 156.75 |
| USD-CHF |
0.9045 | 0.8833 | 0.47% | 0.8864 | 0.9055 |
| USD CAD |
1.4325 | 1.3835 | -0.23% | 1.3980 | 1.4516 |
| AUD-USD |
0.6322 | 0.6577 | 1.36% | 0.6200 | 0.6350 |
| NZD-USD |
0.5712 | 0.5993 | 1.06% | 0.5600 | 0.5727 |
Note: * as at 18:08 HKT on 24 January 2025
Source: HSBC, Bloomberg
Explanation of terms
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
Note: Priced as of market close 23 January 2025
Source: HSBC, Bloomberg
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
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