Week of March 24, 2025

For the upcoming week, I believe that the most important thing to pay attention to, as per usual, is going to be inflation. Monday is going to be an interesting session, as we get the Flash PMI numbers coming from the United States, United Kingdom, and several European economies.

Because of this, I think that there is a high probability of some volatility during the session, as the February US Service PMI number came out at 49.7, which is a sign of contraction. That being said, it's probably worth noting that the number has been revised higher since then. This led to a major concern about growth in the United States over the course of the month, and as of last week's close, the S&P 500 is down 7.4%, although it should be noted that the Friday session had a very strong balance through options expiration.

At this point, economists believe that the US Services PMI will come in at 50.8, which is still in the realm of economic growth. That being said, one of the most important things to pay attention to when it comes to these numbers is the overall trajectory. For what it is worth, January had seen 52.9 as the Services PMI number, so we are definitely seeing a bit of a slowdown.

EU Services and Manufacturing PMI numbers are expected to rise slightly from last month, while the United Kingdom is expected to see a decrease for these numbers in February. In other words, we are starting to see the European Union possibly outperform both the United States and the United Kingdom, albeit from very low levels.

CPI in Australia and the United Kingdom

Wednesday will have Australia and UK CPI (Consumer Price Index) numbers coming out, followed by the annual budgetary release from the UK. This is a day that will more likely than not focus on these 2 currencies.

Australian CPI inflation rose by 2.5% on a year-on-year basis in January, matching the prints for December 2024. Estimates at the moment suggest that inflation could remain unchanged again in February, despite the fact that the Reserve Bank of Australia cut interest rates by 25 basis points to 4.10% during its February meeting. This leads me to ask serious questions of the Australian dollar, because quite frankly it just is not performing well. Australia is not expected to cut rates at the next meeting, but May and July are still in play.

The United Kingdom released its CPI inflation number at 3.0% in January year over year, which is its highest rate in several months. February is expected to come in at 2.9%, as the Bank of England had maintained its interest rate at 4.50% with an 8 to 1 vote count. Both of these central banks have warned that global trade has a certain amount of uncertainty mixed in, mainly due to the potential of the United States levying tariffs against multiple economies. That being said, it's probably worth noting that there are concerns of stagflation in the United Kingdom, but it's also worth noting that the British pound has outperformed most other major currencies recently.

US Core PCE Released on Friday

On Friday, the United States will release the Core Personal Consumption Expenditures announcement for February, which is the Federal Reserve's favorite measure of inflation. The Federal Reserve sets a target of 2.0%, and this is a major component of what they use to make decisions. Month-on-month PCE numbers are expected to be unchanged at 0.3%, while year-on-year PCE numbers are expected to be 2.5%. There is an estimate for readings as high as 2.7%, so it'll be interesting to see who wins this argument.

The Federal Reserve met last week and kept its Fed Funds target range on hold. This was anticipated, although the central bank did note that "uncertainty around the economic outlook has increased.” It's also worth noting that they removed the sentence: “The economic outlook is uncertain.” This suggests that perhaps they are more certain that there is going to be some negativity.

What I find truly ironic is that we are starting to see deflationary concerns, meaning that it is very likely that we will see several banks around the world cutting rates over the course of the next year. Tariffs are being blamed for a lot of potential economic woes in the United States, which is quite interesting considering they haven't even been levied yet. In other words, there is a lot of noise out there that you have to deal with, so reading headlines will be much less useful than watching data like the readings mentioned in this newsletter.

USD/JPY

This is a pair that I'll be watching very closely this week. This can give us a snapshot on what risk appetite is going to be, mainly because the Japanese yen is considered to be a "safety currency"” and it can give us a snapshot on what might happen with the US dollar. Remember, if you get the US dollar correct, you get most things correct.

A move above the ¥150 level, specifically on a daily close, I would take that candlestick and use the top of it as a potential entry during the next session. On the other hand, if we see the market break back down below the ¥148 level, then we could see further weakness in not only this pair but the US dollar overall.

Oil Slowly Getting Interesting

The Light Sweet Crude, or the CL futures contract, or US Oil CFD, looks very interesting at the moment. For the benefit of analysis here, I will use the futures contract, and you should keep in mind that pricing can be slightly different depending on how your broker calculates the CFD.

That being said, the price action over the last couple of weeks has been very grinding, but it continues to find plenty of buyers each time it drops. I find this interesting because the area between $67 and $65 is a major support level over the last 3 years, and so far it looks like it's holding again. Furthermore, you should keep in mind that cyclically speaking, this time of year is typically good for crude oil. After all, you start to see more travel and movement once the temperatures warm up, thereby demanding more crude in the northern hemisphere.

From a technical standpoint, I'd be watching a break above the $69 level. If that were to happen, I think you would start to see more momentum come into this market, but I also think you have to be aware of the fact that this will be a very choppy recovery. The 50-Day EMA is racing toward that area, so some technical resistance could be found, but I think longer-term swing traders are starting to notice that the crude oil market may be ready to make a move toward the $72.50 level, possibly even as high as the $78.50 level over the next several months. This is a market that you should not be sleeping on.

NASDAQ 100 Looks Interesting

The NASDAQ 100 is getting very interesting to me, and if we can get a daily close above the 20,000 level, that might be something I start shifting my focus toward. That being said, we have a lot of work to do here, and it'll be interesting to see how things play out. After all, we had seen a massive rise at the close on Friday due to options expiration. The question is whether or not traders have any true belief here. I'll be waiting to see a daily close above that 20,000 level, whether or not we have any follow-through. If we do, the worst part of the selling in the NASDAQ 100 might be finished.

Unfortunately, if we are heading into a recession, these "bear market bounces" are short-term trades only, as the fundamentals do not line up, and larger traders will eventually start shorting again. I think the inflation numbers will be very telling, so while I may not trade the NASDAQ 100 this week, you can bet your bottom dollar that I will be watching how it closes on Friday.

A Few Thoughts

I'd say there are several things you need to pay close attention to this week, beyond what's mentioned in this newsletter. The first thing, of course, is going to be that we are rapidly approaching the April 2 tariffs deadline between the United States and Canada, so expect the tweets to start flying. One thing that you can count on from President Donald Trump is that he does not like being out of the spotlight. This is a good and a bad thing, depending on the situation. Unfortunately, this will be a chaotic thing, I would guess. Understand that there will be tweets this week that make the market move a bit.

However, keep in mind that we've been through a Donald Trump administration previously, and after a while the market simply started to ignore him. However, I don't think we’re quite to that point yet, so you still have to keep that in mind.

Bond markets in Germany have been selling off quite drastically, increasing yields. Currently, the 10-year Bund is trading at a 2.758% yield. We had seen a massive move to the upside as far as yields are concerned due to the massive amounts of spending that Germany is about to embark on. You should keep an eye on the symbol “DE10Y” on TradingView, in order to get an idea as to how the euro may be moving. Remember, the higher the yields, the better off the euro will do in general. However, if the yields were suddenly to spike again, it would eventually become an issue, perhaps later this year.

Get a lot of emails from traders around the world, and that one generic answer I have for most of them is going to be the following: “Cut down your position size.” In times like this, the volatility is not your friend. Yes, you can make massive gains, but you can turn around and lose those massive gains quite quickly, or worse yet, just go straight to massive losses. Take your time; the markets will be there after the chaos. The question will be whether or not you have any money to take advantage of opportunities when stability returns.

Trade well, and don’t do anything stupid this week. Life is too short.

Chris