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Home.forex news reportPremium Watchlist Recap: January 27 – 29, 2025

Premium Watchlist Recap: January 27 – 29, 2025

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This week our currency strategists focused on the Australian Q4 2024 CPI report and FOMC monetary policy statement for potential high-quality setups in the Kiwi and U.S. Dollar.

Out of the eight scenario/price outlook discussions this week, two discussions arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay.

Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.

If you’d like to follow our “Watchlist” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.

AUD/JPY: Monday – January 27, 2025

AUD/JPY 1-Hour Forex Chart by TradingView

AUD/JPY 1-Hour Forex Chart by TradingView

On Monday, our strategists had their sights set on Australia’s Q4 2024 CPI update and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for inflation to ease from 2.3% y/y to 2.5% y/y, while quarterly inflation was expected to tick down from 0.3% q/q to 0.2% q/q.


With those expectations in mind, here’s what we were thinking:

The “Aussie Advance” Scenario:

If the CPI data came in hotter than expected, we anticipated this could push RBA rate cut expectations further into the future. We focused on AUD/USD for potential long strategies if risk sentiment was positive, particularly given reduced expectations of aggressive Fed rate cuts. In a risk-off environment, EUR/AUD shorts made sense given the ECB’s general dovish stance ahead of their expected rate cut.

The “Aussie Avalanche” Scenario:

If Australian inflation figures disappointed, showing significant cooling in price pressures, we thought this could fuel RBA rate cut expectations. We considered AUD/NZD for potential short strategies in a risk-on environment, especially given New Zealand’s recent uptick in inflation expectations. If risk sentiment leaned negative, AUD/JPY short looked promising given the BOJ’s recent hawkish turn and rising safe-haven demand.

What Actually Happened:

The Q4 2024 CPI report showed notably net weaker price pressures:

  • Quarterly CPI came in at 0.2% vs 0.3% expected
  • Annual headline CPI ticked up to 2.5% as expected from 2.3%
  • Trimmed mean CPI (core) eased to 0.5% q/q from 0.8% previous
  • Services inflation remained elevated but eased to 4.3% annually
  • Non-discretionary inflation fell to 1.8%, lowest since March 2021

Key drivers included:

  • Electricity prices fell 9.9% q/q due to Energy Bill Relief Fund rebates
  • Housing and transport costs both declined 0.7%
  • Without rebates, electricity prices would have risen 0.2% q/q

Market Reaction:

This outcome fundamentally triggered our AUD bearish scenarios, and with risk sentiment leaning negative following Trump’s tariff threats and China’s AI breakthrough news, AUD/JPY became our focus.

Looking at the AUD/JPY chart, we saw immediate selling pressure after the weaker CPI data, with the pair breaking below the minor support area around 97.00 on Monday and Tuesday.

The bearish momentum gained additional fuel from BOJ Deputy Governor Himino’s comments about potential further rate hikes, driving AUD/JPY toward the S2 pivot support area (95.88) near January’s lows. That’s where we saw the intraweek bottom and reversal, likely driven by broad risk-on vibes and BOJ Governor Ueda tempering rate hike expectations a bit on Friday.

The Verdict:

So, how’d we do? Our fundamental analysis correctly anticipated AUD weakness on disappointing CPI data, which materialized in weaker-than-expected numbers. Our technical analysis accurately identified the rising trendline break as a potential trigger for shorts, which actually played out well before the Australian CPI event.

We think this discussion was “highly likely” supportive of a net positive outcome as both fundamental and technical triggers aligned well.  The move after the data was a strong momentum move to the downside, which meant that active risk management was likely not needed.  And with a post event move of 100 pips (right around its daily ATR), there was plenty of profit to grab for short sellers. Overall, a great potential setup as everything lined up well and market developments was favorable for our bias.

USD/JPY: Wednesday – January 29, 2025

USD/JPY 1-Hour Forex Chart by TradingView

USD/JPY 1-Hour Forex Chart by TradingView

On Wednesday, our strategists had their sights set on the FOMC Statement and its potential impact on the U.S. dollar. Based on our Event Guide, expectations were for the Fed to keep rates steady at 4.25%-4.50%, with markets looking for signals on future policy direction and any changes to the committee’s economic outlook. With those expectations in mind, here’s what we were thinking:

The “Dollar Dominance” Scenario:

If the Fed maintained a less dovish stance or pushed back against aggressive rate cut expectations, we anticipated this could boost USD. We focused on USD/JPY for potential long strategies if risk sentiment was positive, and the wide interest rate divergence, even with the rising interest rate environment in Japan. In a risk-off environment, USD/CAD long made sense given the BOC’s recent dovish shift, potential tariff influences, and the recent dovish rate cut from the BOC.

The “Dollar Decline” Scenario:

If the Fed signaled openness to earlier rate cuts or expressed increased growth concerns, we thought this could weigh on USD. We considered EUR/USD for potential long strategies if risk sentiment stayed positive, particularly given the ECB’s less dovish stance on gradual policy easing. If risk sentiment leaned negative, USD/CHF short looked promising given the pair’s downtrend and position near key resistance levels and the franc’s status as a safe haven currency.

What Actually Happened:

The Fed kept Fed Funds range steady at 4.25%-4.50% as expected, but made several notable adjustments to their outlook:

  • Dropped previous language about inflation having “made progress”
    Modified labor market assessment to note conditions “remain solid” versus previous “eased”
  • Maintained commitment to data dependency for future policy decisions
    Decision was unanimous among voting members
  • Most importantly, Fed Chair Powell struck a notably less dovish tone in the press conference, emphasizing they’re “not in a hurry” to cut rates and need to see more evidence that inflation is moving sustainably toward their 2% target.

Market Reaction:

This outcome fundamentally triggered our USD bullish scenarios, and with risk sentiment improving from earlier bearishness sparked by Chinese AI developments and tariff concerns, we thought USD/JPY was arguably the best pair to watch.

Looking at the USD/JPY chart, we saw an initial pop after the FOMC event, but the pair continued its strong downtrend, failing to break above the falling ‘highs’ pattern, the main technical scenario to watch.

It’s likely that with the FOMC not really being a major market mover, USD/JPY traders turned their focus to hawkish comments from BOJ Deputy Governor Himino about potential further rate hikes. The pair continued lower to eventually test the S2 Pivot area, where buyers took back control, like both profit taking and a reaction to BOJ Governor Ueda’s comments that monetary policy is still very accommodative and will likely remain so to support Japanese economic activity.

The Verdict:

So, how’d we do? Our fundamental analysis anticipated USD strength on a hawkish Fed stance, but the event didn’t seem to be bullish enough to sustain USD bullishness for long, at least against news headlines surrounding members of the Bank of Japan.

This failed to lead to a sustained upside break of the falling ‘highs’ pattern, the behavior that we were watching for to make a high quality long trade setup.

Without the expected price reaction discussed in our original watch post, we think this discussion did not support a net positive outcome as no quality trade opportunity developed.

This outcome is a great reminder that having multiple game plans is key, as well as staying nimble when the market doesn’t follow our playbook!



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