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Fundamental Analysis & Market Sentiment

I wrote on 14^th September that the best trades for the week would be:

1. Long of the S&P 500 Index. The Index rose by 1.22% over the week.
2. Long of the NASDAQ 100 Index. The Index rose by 2.32% over the week.
3. Long of Gold. Gold rose by 1.11% over the week.
4. Long of Silver. Silver rose by 2.15% over the week.

These trades produced an overall gain of 6.80%, equal to 1.70% per asset.

A summary of last week’s most important data:

1. Federal Reserve Policy Meeting – the Fed cut rates by 0.25%, as was almost universally expected, and markets firmly expect two more such cuts by the end of 2025. However, only one cut is now expected in 2026 and Powell talked up inflation somewhat, so this could be seen as a minor hawkish tilt. The US Dollar gained firmly since the Fed meeting on Wednesday.
2. Bank of Japan Policy Meeting – rates were left unchanged as expected, but two dissenting votes in favour of rate hikes made this a hawkish tilt, resulting in the Japanese Yen making some gains after the meeting.
3. Bank of England Policy Meeting – rates were left unchanged as expected, there was a tiny hawkish tilt in the vote on whether to cut rates, but that didn’t help the Pound to advance.
4. Reserve Bank of Canada Policy Meeting – rates were cut by 0.25% as expected, there were not any real surprises here.
5. US Retail Sales – this was much better than expected, coming in at a month-on-month increase of 0.6% while only 0.2% was expected, which helped send US stock markets higher.
6. UK CPI – this was as expected, showing a relatively high annualized rate of 3.8%.
7. Canadian CPI – this was a fraction lower than expected, showing a month-on-month decrease of 0.1% while no change was expected.
8. US Unemployment Claims – there were fewer than expected, which may have helped boost positive sentiment on the US stock market.
9. New Zealand GDP – this was expected to contract by 0.3%, but fell by 0.9%, which is a bad number. It helped sink the Kiwi over the week, which was the worst-performing major currency.
10. Australian Unemployment Rate – this came in as expected at 4.2%.

The major takeaway from the week was continuing strength in the US economy, which was a bit of a turnaround from the previous week. An impending recession in New Zealand is also on the cards, although globally speaking this isn’t a big deal, but it certainly is making an impact on the New Zealand Dollar.

There was again directional volatility than has been usual over recent weeks. Maybe the Forex market is starting to wake up.

There were record highs in Gold and in the major US stock market indices the S&P 500 and the NASDAQ 100, and a 14-year high in Silver. Markets now see a 78% chance of two further rate cuts, but the significance of last week’s Fed meeting was the hawkish tilt and the new expectation of only one further rate cut in 2026, so the US interest rate is still seen as likely to be 3.50% more than one year from now, and this may prop up the US Dollar despite its long-term bearish trend

This is likely to be a good time to trade or invest, with US stock markets and Gold and Silver really taking off.

The Week Ahead: 22^nd – 26^th September

The coming week will probably be quieter, as there are notable fewer high-impact data releases scheduled. It is likely that volatility will remain relatively low in the Forex market, with more action taking place in bullish stock markets. The VIX is at a low level, which suggests that the stock market’s bullish trend is likely to continue.

This week’s important data points, in order of likely importance, are:

1. US Core PCE Price Index
2. US Final GDP
3. Flash Services & Manufacturing PMI in the USA, Germany, and the UK.
4. Australian CPI (inflation)
5. Swiss National Bank Monetary Policy Rate & Monetary Policy Assessment
6. US Unemployment Claims
7. Canadian GDP

It is a public holiday in Japan on Monday.

Monthly Forecast September 2025

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For the month of September 2025, I forecasted that the EUR/USD currency pair would rise in value if we got a daily close above $1.1806.

This set up on Tuesday, but the price has been falling since then.

Weekly Forecast 21^st September 2025

I made no weekly forecast last week.

There were no unusually large price movements in currency crosses last week, so I have no weekly forecast this week.

The Canadian Dollar was the strongest major currency last week, while the New Zealand Dollar was the weakest. Volatility was unchanged from last week, with 26% of the most important Forex currency pairs and crosses changing in value by more than 1%. Next week’s volatility is likely to decrease as we have only one major central bank policy meetings but little else scheduled of high importance.

Technical Analysis

Key Support/Resistance Levels for Popular Pairs

US Dollar Index

Last week, the US Dollar Index printed a bullish pin bar after printing four consecutive bearish ones. Also, the price is now above where it was 13 weeks ago, so by my preferred metric, I can declare the long-term bearish trend is over. This places the US Dollar in an interesting position.

We can account for the new firmness in the US Dollar by what happened at the Fed’s policy meeting last Wednesday – if you drill down to a shorter-term price chart, you can see the strong bullish reversal from the low happened just as that meeting started to announce its results. The Fed has now led the market to expect fewer rate cuts in 2026 – only one is now widely forecasted – so we have seen a hawkish tilt, which was given a further tailwind by Jerome Powell’s talk about inflation remaining somewhat high.

It may not be wise to focus on short USD trades right now, although there are strong bullish trends in some assets which are priced in USD which are gaining very strongly. I think it is not so much about the Dollar, but more about funds flowing into the USA.

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EUR/USD

The EUR/USD currency pair finally made a long-awaited bullish breakout last week, rising strongly to reach a new 4-year high. This would have been a signal for a lot of trend traders, including me, to go long. However, the price has declined since that signal was given, but that doesn’t necessarily mean much for this currency pair, which typically sees deep retracement within its long-term trends, which it tends to follow relatively reliably.

Worrying for bulls though, the weekly chart below shows that the weekly candlestick was a bearish pin bar, rejecting an area just above a major consolidation zone, which is a bearish sign.

The Euro was one of the strongest major currencies over the past week, despite its decline during the second half of the week.

I remain long of this currency pair, and I see a potential new long trade entry if get a daily (New York) close above $1.1867. However, if you are going to buy on the dips, this is one of the best currency pairs to do that with. A bounce off $1.1735 would be the logical entry signal for a dip buy here.

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NZD/USD

The NZD/USD currency pair was one of the biggest movers last week, printing a large bearish engulfing candlestick which closed very near to its low. These are bearish signs, but it is worth noting that the price is approaching an area which has been pivotal in recent months, and which could be supportive. Also, the price has not truly exited its recent consolidation zone. Another cautionary note can come from the fact that the New Zealand Dollar does not have a great track record of respecting trends and tends to reverse very easily.

Having said all that, there is a good fundamental reason behind the Kiwi’s decline last week – New Zealand quarterly GDP came in at a much worse than expected level, showing a decline of 0.9% when the consensus forecast was a decline of about 0.3%. This raises fear of a recession which would likely prompt a series of hasty rate cuts.

It will be interesting to see what will happen next week. A further decline in the Kiwi would not be surprising. Possibly it would be a good component for a short basket.

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S&P 500 Index

The S&P 500 Index had a great week, rising strongly and closing not far from the top of its range well into blue sky at a new record high, almost reaching 6,700. The way the price was able to overcome the big round number at 6,500 was another bullish sign.

US stock markets are rising strongly despite the recent strength in the US Dollar.

The index has risen by about 10% since the start of 2025 and by 36% since the April low caused by the Trump tariff panic. It is an open question how much further the current bull run will go, but betting against new record highs in the US stock market is a brave and probably foolish move, unless it’s a cautious play in individual underperforming stocks.

I am bullish on the S&P 500 Index.

(Click on image to enlarge)

NASDAQ 100 Index

The NASDAQ 100 Index had a great week, rising strongly and closing very near the top of its range well into blue sky at a new record high, above 24,500. This was an outperformance over the broader S&P 500 Index.

US stock markets are rising strongly due to the increasing feeling that the US economy is stronger than was expected last week.

The index has risen by more than 15% since the start of 2025 and by nearly 50% since the April low caused by the Trump tariff panic. These are above-average numbers, even in a bull market, especially the increase from April. It is an open question how much further the current bull run will go, but betting against new record highs in the US stock market is a brave and probably foolish move, unless it’s a cautious play in individual underperforming stocks.

I am very bullish on the NASDAQ 100 Index.

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XAG/USD

Silver had another stunning week, showing yet another outsize rise in value, again closing near the top of its weekly range, and powering up to a new 14-year high. It also outperformed Gold and all other precious metals. These are bullish signs, as is the breakout from the linear regression analysis shown within the price chart below.

With Silver’s outperformance against Gold, it is probably worth being bold on the long side here.

Having said, if you are only just entering a new long trade here, as the move is quite extended, a smaller position size might be wise.

I am very bullish on Silver.

(Click on image to enlarge)

XAU/USD

Gold rose last week to rise to print a new all-time high, but closed a bit below that high and the round number at $3,700. It is worth noting that Gold underperformed Silver, and left a bit of an upper wick on the weekly candlestick, as can be seen in the price chart below.

The long-term bullish trend and break to new record highs are bullish factors, as is the strong US stock market, as the US stock market has tended to be positively correlated with Gold, to the surprise of many who see it as a hedge against inflation.

For anyone who is only entering a long trade now, it might be wise to use a smaller position size to account for any sudden high-volatility snapback towards lower prices. Just like the stock market, you have to wonder how much further this bull run will last – but it is backed by a very strong long-term bullish trend, and you trade against that at your peril unless you start to see clear signs of a reversal in the price action – which is not showing here yet.

I am bullish on Gold, but it might be wise to take a smaller long position here than with Silver, which looks more bullish. I would wait for a daily (New York) close above $3,700 before entering any new long trade here.

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Bottom Line

I see the best trades this week as:

1. Long of the S&P 500 Index.
2. Long of the NASDAQ 100 Index.
3. Long of Silver.
4. Long of Gold after a daily (New York) close above $3,700.

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