As we head into Friday, January 3, 2025, the forex markets are adapting to the post-holiday season, marked by returning liquidity and a stream of critical data releases. The New Year transition has brought renewed focus on key economic indicators, especially in light of mixed global manufacturing data and significant shifts in speculative positions reported earlier in the week. Traders are closely watching the U.S. dollar, which continues to dominate market sentiment amid uncertainty surrounding Federal Reserve policy signals and a weakening labor market.
In the currency markets, the EUR/USD pair reflected cautious sentiment as weaker-than-expected Eurozone Manufacturing PMI (45.1) weighed on the euro. Meanwhile, the USD/JPY experienced sharp intraday volatility, influenced by shifts in risk sentiment and speculative positioning. On the other hand, the GBP/USD saw mild recovery attempts, driven by surprisingly strong UK housing data but remained under pressure from broader dollar strength.
EUR/USD
Technicals in Focus
The EUR/USD pair displayed a bearish bias, closing near the 1.0390 level after a session marked by steady declines. The disappointing Eurozone Manufacturing PMI (45.1) added to concerns about the region’s economic resilience, pressuring the euro. On the technical front, the MACD shows increasing bearish momentum as it dives below the zero line. The Stochastic Oscillator has entered oversold territory, hinting at potential short-term consolidation. However, the 14-day RSI remains firmly bearish, reinforcing the downward trend.
Trading Strategy: Neutral to Sell
- Sell: Below 1.0400 with targets at 1.0370-1.0350 and 1.0300, with stops above 1.0430.
- Buy: Above 1.0430 with targets at 1.0460-1.0480 and stops below 1.0390.
USD/JPY
Technicals in Focus
The USD/JPY pair witnessed sharp volatility, closing near the 156.90 level after an extended bearish session. Risk-off sentiment and speculative net positioning shifts (-3.7K) weighed on the dollar against the yen. The MACD has turned bearish, while the Stochastic Oscillator is hovering near oversold territory, suggesting a potential technical bounce. The 14-day RSI is trending downward, supporting further downside.
Trading Strategy: Neutral to Sell
- Sell: Below 157.00 with targets at 156.50-156.20 and stops above 157.30.
- Buy: Above 157.30 with targets at 157.70-158.00 and stops below 156.90.
GBP/USD
Technicals in Focus
The GBP/USD pair showed signs of resilience, trading near 1.2540, buoyed by better-than-expected Nationwide HPI data (4.7% YoY). However, broader dollar strength kept the pound under pressure. Technically, the MACD indicates neutral momentum, while the Stochastic Oscillator shows the pair hovering near oversold territory, signaling possible short-term upside. The 14-day RSI remains in a consolidation phase, reflecting the pair’s range-bound behavior.
Trading Strategy: Neutral to Buy
- Buy: Above 1.2550 with targets at 1.2580-1.2600 and stops below 1.2520.
- Sell: Below 1.2520 with targets at 1.2490-1.2470 and stops above 1.2550.
Market Outlook
Looking ahead, Friday’s key U.S. ISM Manufacturing PMI (forecast: 48.3) and employment data will set the tone for the dollar’s performance. A weaker-than-expected PMI could reinforce concerns about U.S. economic resilience, prompting further risk-off sentiment. Meanwhile, traders will monitor oil inventory reports and the Fed’s balance sheet for clues on energy prices and monetary policy trends.
In Europe, the euro remains vulnerable amid ongoing manufacturing contraction, while the British pound will depend on developments in risk sentiment and follow-through from housing market data. The yen is poised to extend gains if risk-off sentiment persists. Overall, the market is expected to remain volatile as traders adjust their positions for the first trading week of the year.