Week of March 3, 2025

This week should be fairly interesting on a number of levels. Over the weekend, we have seen Donald Trump talk about the upcoming "US Strategic Crypto Reserve” and announce an incoming summit on how to get the United States involved in digital assets as part of a larger attempt to build a sovereign wealth fund.

As I write this, the coins that Donald Trump mentioned directly are all going skyhigh. This includes Cardano, Solana, and Ripple. It also has sent Bitcoin rather parabolic, so I think this sets up for a very strong week in the entire cryptocurrency markets. This does make a certain amount of sense, because we have seen a massive pullback in several assets in that world, so I think you should keep an eye on cryptocurrency in general. It will almost certianly be a wild ride.

The week has a handful of announcements that I think a lot of people will be paying attention to. We get the ISM Manufacturing PMI numbers coming out of the United States on Monday, as well as the ISM Services PMI number on Wednesday. At the end of the week, we also get the employment numbers coming out of both Canada and the United States, so I do think that there are a lot of different things that could come in and move the markets. There is a very real possibility of the market being noisy Monday through Wednesday and quiet on Thursday until we get the employment announcement on Friday. This is typically how things play out on a Non-Farm Payroll week, and I don't see that this will be any different.

I do believe at this point in time we are going to see a lot of questions asked about the inflation situation in the United States. This is why I believe both Monday and Wednesday will be pivotal days for multiple markets. That being said, I do recognize that a reading above expected will probably cause a bit of turmoil in US indices. It will also cause the US dollar to strengthen, which we did start to see toward the end of last week. For what it is worth, the ISM Manufacturing PMI number due at 3 PM GMT on Monday is expected to be 50.6 for the previous month. For Wednesday, the ISM Services PMI number is expected to be 53.0 for the previous month.

USD/JPY

One currency pair that I will be watching very closely this week is going to be the USD/JPY pair. We are currently sitting just above the ¥150 level, and this is an area that's been important more than once. It is worth noting that Friday was very positive, and now that we are going to get inflation numbers coming out of the United States, that could send the US dollar higher against multiple currencies. However, it's the Japanese yen that has been especially strong against the US dollar, so if we were to see a significant gain here, one can only imagine what would happen to other currencies such as the Swiss franc, Euro, New Zealand dollar, etc. against the greenback. This, for me, is going to be one of the biggest "tells" of the week.

Bonds Suggest Rate Cut in 2 Year

Despite the fact that I do believe that inflation and growth are coming back to the United States in the next month or so, the reality is that the 2-year yield has fallen enough to suggest that the Federal Reserve is likely to cut interest rates sooner rather than later. That being said, we are in a very noisy time to be in the market, so therefore you should get used to the idea of taking several small losses. You will notice that the 2-year note has now broken out of a massive bottoming pattern, signaling that rates are about to go lower. This is the part of the yield curve that the Federal Reserve focuses on. This is where they set the target rate; this is where they go into action, not the long end of the yield curve. In other words, if this doesn't calm down quickly, we could see an interest rate coming out of the United States.

This is why the inflation numbers coming out this week will be so crucial, not to mention the employment figures. Generally speaking, if you get more employment, you will eventually get more inflation because Americans have jobs and they like to spend. It's a bit of a strange economy at the moment, and I suspect it is probably more regional than anything else. As somebody who lives in Columbus, Ohio, I can assure you that nothing is slowing down here. However, being a city with one of the world's largest educational universities certainly helps Columbus shield itself from some of the harm that other places will feel.

It'll be interesting to see how this plays out, but according to the bond market, we should see an interest rate cut. However, make sure to pull up this chart several times during the week to see what's going on. If the two-year drops below 103, that means something, and quite frankly, I think it means that we are nowhere near a rate cut. Fortunately, most retail forex traders don't pay attention to these markets, which quite frankly drive most of what's going on.

I would anticipate a very choppy week, as we are paying attention to multiple moving parts. However, this is going to be a very US-centric week, and therefore the market that matters the most by far is going to be the US dollar. Pay close attention to the bond market, and the rest will just fall into line.

Keep it Tight this Week

I'd suggest keeping your position size somewhat small still, because quite frankly there are still a lot of uncertainties out there. I suspect that the entire first half of 2025 is going to be very messy, and you're just going to have to get used to it.

As a general rule, when things get messy like this, I tend to cut my position size in half. Unfortunately, my email inbox is about to be flooded with people who have blown up. With that being said, I wish you all the best of luck, but I also recognize that you need to be very cautious with your position sizing, which of course is one of the most difficult things for retail traders to get through their heads. Remember, this is a marathon, not a sprint. The next couple of months could very well determine whether or not you are trading by the end of the year. Be careful.

Trade well,

Chris