Fed Rate Decision Impact on Forex Markets – 29 January 2025

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As we head into Wednesday, January 29, 2025, global markets remain on high alert, with traders closely monitoring key economic releases that could drive volatility. The U.S. dollar is in focus as investors prepare for the U.S. GDP report and the Federal Reserve’s rate decision, both of which are expected to shape market sentiment. Additionally, the Bank of Canada (BoC) rate decision and Eurozone GDP figures will contribute to significant price movements across major currency pairs.

In the currency markets, EUR/USD experienced a sharp sell-off amid weak Eurozone data and a strengthening dollar. The USD/CAD pair saw heightened volatility as traders positioned ahead of the BoC’s interest rate decision and Canadian GDP data. Meanwhile, USD/JPY rebounded after an earlier decline, supported by a shift in risk sentiment.

EUR/USD

Technicals in Focus

The EUR/USD pair fell sharply, dropping towards the 1.0430 level after a failed attempt to break higher. The euro remains under pressure following weaker-than-expected Eurozone GDP data and concerns over ECB policy direction. The recent price action suggests strong bearish momentum, as the pair struggles to recover from its decline.

On the technical side:

  • The MACD is in negative territory, confirming bearish momentum.
  • The Stochastic Oscillator is oversold but not yet signaling a clear reversal.
  • The 14-day RSI remains weak, suggesting continued downside pressure.

Trading Strategy: Neutral to Sell

  • Sell below 1.0450-1.0430 with targets at 1.0400-1.0380, stop-loss above 1.0480.
  • Alternatively, buy above 1.0480 with targets at 1.0510-1.0530, stop-loss below 1.0450.

USD/CAD

Technicals in Focus

The USD/CAD pair exhibited heightened volatility, dropping to 1.4375 before rebounding slightly. The Canadian dollar strengthened after an initial sell-off, supported by higher crude oil prices and anticipation around the Bank of Canada’s interest rate decision.

On the technical side:

  • The MACD remains close to the zero line, indicating indecisiveness.
  • The Stochastic Oscillator is near oversold levels, hinting at a potential recovery.
  • The 14-day RSI suggests the pair is in a consolidation phase.

Trading Strategy: Neutral to Buy

  • Buy above 1.4380-1.4400 with targets at 1.4430-1.4450, stop-loss below 1.4350.
  • Alternatively, sell below 1.4350 with targets at 1.4320-1.4300, stop-loss above 1.4380.

USD/JPY

Technicals in Focus

The USD/JPY pair rebounded from 154.30, climbing back above 155.30, driven by improved risk sentiment and a stabilizing U.S. dollar. The yen initially strengthened on risk-off flows but later weakened as traders positioned ahead of key U.S. data releases.

On the technical side:

  • The MACD is approaching positive territory, signaling a potential continuation of the uptrend.
  • The Stochastic Oscillator is neutral, providing no clear directional bias.
  • The 14-day RSI is holding above 50, indicating moderate bullish momentum.

Trading Strategy: Neutral to Buy

  • Buy above 155.30-155.50 with targets at 155.80-156.00, stop-loss below 155.00.
  • Alternatively, sell below 155.00 with targets at 154.70-154.50, stop-loss above 155.30.

Market Outlook

Looking ahead, U.S. GDP data and the Federal Reserve’s rate decision will be the key drivers of market sentiment. A stronger-than-expected GDP reading could reinforce expectations of continued Fed tightening, supporting the dollar, while a weaker reading could lead to renewed risk-off flows and potential weakness in USD pairs.

Additionally, the Bank of Canada’s rate decision will be closely watched, with any hints of a policy shift impacting USD/CAD. The Eurozone GDP report will also influence EUR/USD, particularly if growth expectations fall short.

Overall, the market is expected to remain highly reactive to economic data, with potential for increased volatility across major forex pairs.

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