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Fundamental Analysis & Market Sentiment

I previously wrote on Sunday, March 9, 2025 that the best trades for the week would be the following:

1. Long of natural gas futures, which fell by 8.13%.
2. Short of the EUR/JPY and EUR/NZD currency crosses. The former rose by 0.82%, while the latter fell by 0.26%.

The overall result was a loss of 8.69%, which is 2.90% per asset. Meanwhile, last week saw several important data releases that affected the Forex market. These releases were as follows:

1. US CPI (inflation)
2. US PPI
3. US Preliminary UoM Inflation Expectations
4. Bank of Canada Overnight Rate & Rate Statement
5. US Preliminary UoM Consumer Sentiment
6. US JOLTS Job Openings
7. UK GDP

Additionally, last week’s key takeaways were the following:

1. The data outlined above was not very consequential for the markets, which are much more concerned with the US-centered trade war that seems to be underway without a clear end.
2. The ongoing trade war between the US on one side and Canada, Mexico, China and potentially the European Union on the other is what has really been driving market movements over the past week. There is no deal in sight and the new tariffs remain in place, causing economic harm to all three countries.
3. It was a bad week for stock markets, especially in the US, where major indices dropped sharply enough to shake out more trend followers from long positions, with many institutions either reducing or eliminating their exposure. Friday saw strong gains, however. This was possibly triggered or boosted by lower-than-expected US PPI data released on Thursday, following the lower-than-expected CPI (inflation) data which had been released on Wednesday.
4. The clear trends in the markets are falling stock markets, especially in the US, while two metals – gold and copper – have been breaking to new long-term highs.

The Week Ahead: March 17-21, 2025

The coming week has a lighter schedule of important releases, so we are likely to see less volatility in the Forex market during this time. This week’s important data points, in order of likely importance, are as follows:

1. US Federal Funds Rate, Rate Statement, and Economic Projections
2. Bank of Japan Policy Rate & Monetary Policy Statement
3. US Retail Sales
4. Bank of England Official Bank Rate & Votes, Monetary Policy Summary
5. SNB Policy Rate and Monetary Policy Assessment
6. Canadian CPI (inflation)
7. New Zealand GDP
8. US Unemployment Claims
9. Canada Retail Sales
10. Australia Unemployment Rate

Monthly Forecast for March 2025

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For March 2025, I provided no forecast, as there were no clear trends to be found at the start of the month.

Weekly Forecast for Sunday, March 16, 2025

Last week, I forecasted that the following currency crosses would fall in value over the week:

• EUR/NZD – this fell in value by 0.26%.
• EUR/JPY – this rose in value by 0.82%.

This was not a profitable call overall. This week, I will not provide a forecast, as there were no unusually large price movements in any currency crosses.

The euro was once again the strongest major currency last week, while the Swiss franc was the weakest. Volatility decreased during this time, as only 11% of the most important Forex currency pairs and crosses changed in value by more than 1%. Volatility is likely to increase over the coming week, as there is a much bigger agenda ahead, with four major central banks due to hold policy meetings.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis - US Dollar Index

Last week, the US Dollar Index printed a small bearish candlestick. The candlestick looks like a bit of a pin bar, or maybe even a doji candlestick. So, while it is a bearish weekly candle, the bearish momentum seems to have slowed down.

The price is well below its level of three months ago, invalidating its former long-term bullish trend. At one point, the price reached a new four-month low. However, the long-term trend appears to be mixed and unclear.

The US dollar is getting hit due to the ongoing tariff/trade war, which has no resolution in sight. This is hurting the US dollar. Trades taken over the coming week will probably be best positioned against the US dollar, at least until a deal is announced replacing reciprocal import tariffs involving the US.

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Gold

Gold rose strongly at the end of the week to reach a new record high above the big, round number at $3,000. The precious metal closed the week just a few dollars below that round number, at the $2,984 mark.

The price closed not far from the high of its range, and it has recently been seen trading in blue sky territory. It could be a little more bullish, but not by much.

Some analysts think that gold is being boosted by safe haven flow, with the Japanese yen less attractive due to high volatility, while the US dollar is unattractive due to the effects of the ongoing US-centered trade war. I see gold as a buy right now.

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USD/JPY

The USD/JPY currency pair fell early last week to trade at a new five-month low, but it has been rising slowly and steadily ever since. Trend traders would have received signals to go short here last week if the price had made a daily close at a new low, as the 50-day moving average finally crossed below the 100-day moving average.

There are tailwinds forcing a weaker dollar (the trade war affecting America) and a stronger Japanese yen (rising wages forcing a more hawkish monetary policy by the Bank of Japan), but the yen seems to have weakened as analysts increasingly expect the Bank of Japan will keep rates on hold until late 2025.

This could change with any unusual rhetoric or policy changes from the Bank of Japan or the Japanese government, so if that happens and we get a daily close in New York below the JPY147.26 mark, it could be a good new short trade entry signal.

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The S&P 500 Index

The S&P 500 Index fell strongly last week and reached a level nearly 10% below its record high, which was made barely more than three weeks ago. However, it did rise strongly on the final day of the week. Yet it is significant that every day last week saw a close below the 200-day simple moving average, which is typically a bearish sign for this stock market index.

The main reason for the strong drop in most global stock markets, and the major US indices in particular, is, of course, the large tariffs President Trump has imposed on US imports from Canada and Mexico, and the fact that neither country seems close to capitulating or to making the kind of deal President Trump would want to call off the tariffs. The US tariffs are just a form of negotiation by other means.

Personally, as a trend trader, I will not be entering any new long trades until we see the price make a new record high, and that might not happen for quite a long time. Short trades are still possible here, although the Nasdaq 100 Index might be an even better vehicle for that as it is dropping with stronger momentum. Still, shorting stock market indices can be challenging for new traders.

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Natural Gas Futures

It was a poor week for commodities generally. One of the very few exceptions is natural gas. The nearest futures contract of Henry Hub natural gas rose during last week to make a new two-year high. However, the price chart below shows a large bearish pin bar rejecting the round number at $4.60. The price has sold off quite a bit from there, although it has not broken below the $4.10 mark, which would probably trigger a lot of long trend traders exiting their trade.

So, what is driving natural gas higher? Most analysts see it as a combination of extreme cold weather, seasonality, and strong demand plus weak supply. March can be a pretty cold month in the Northern hemisphere, and the cold can even stretch into April, so there is reason to believe this long-term bullish trend might continue for a while longer yet.

I do not have much hope that we will see a new high here, but a daily close above the $4.60 mark would be an interesting signal to enter a new long trade.

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Copper Futures

Copper futures reached a new nine-month high last week, including on Friday, before it turned a little bearish on the last day of the week and closed lower. Most commodities are not performing very well, but copper is one of the few exceptions, just like gold and natural gas.

So, what is driving copper higher? To some extent there are issues with supply, but it is accelerating demand that is a much more important factor. The booms in renewable energy, electric vehicles, and the AI sector are increasing demand for copper, pushing up the price.

I see copper as a buy right now.

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Bottom Line

I see the best trades this week as the following:

1. Long of gold.
2. Short of the USD/JPY currency pair following a daily close below the JPY147.26 mark.
3. Long of natural gas futures following a daily close above $4.60.
4. Long of copper futures.

More By This Author:

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