China's mild response to US tariffs and easing geopolitical tensions in Gaza and Ukraine helped boost market sentiment on Tuesday. The same joined softer US Factory Orders and JOLTS Job Openings to exert pressure on the US Dollar. However, hawkish remarks from some Fed officials briefly challenged the Greenback’s decline.
On Wednesday, news of the US halting mail packages from China and Hong Kong, along with additional tariffs, reversed the risk-on mood, supporting the US Dollar ahead of key reports like the ISM Services PMI and ADP Jobs data, seen as early clues for Friday’s Nonfarm Payrolls.
Meanwhile, the US CIA offered buyouts to its staff, and Trump issued a tough memo on Iran, adding uncertainty and limited market movement. Further, mixed updates from China, Australia, New Zealand, and Japan also kept markets cautious.
As a result, the US Dollar Index remains under pressure, Gold hits a new all-time high, and EURUSD struggles to recover. GBPUSD pulls back, while USDJPY drops to its lowest level in over a month. The Antipodean currencies ease, Crude Oil stays under pressure, and Cryptocurrencies remain weak.
Despite a light economic calendar and the ECB's dovish stance, EURUSD ended a six-day losing streak on Tuesday. However, fresh EU-US trade tensions and cautious sentiment ahead of key data are putting pressure on the Euro early Wednesday, especially with Germany’s economic struggles and political jitters in the bloc.
Like the Euro, GBPUSD benefited from a softer US Dollar, marking a two-day uptrend before easing on Wednesday. The British Pound reflects expectations for a Bank of England rate cut ahead of Thursday’s policy meeting.
Meanwhile, USDJPY dropped for the third day in a row, hitting its lowest level since mid-December. The Yen's rise reflects a hawkish outlook for the Bank of Japan, supported by strong wage data and inflation concerns, along with the Japanese currency’s safe-haven appeal.
Commodity-linked currencies like the Australian, New Zealand, and Canadian Dollars are struggling to hold onto weekly gains as mixed data from home and China, along with pre-data anxiety, weigh on them early Wednesday. Easing trade tensions and a weaker US Dollar helped AUDUSD and NZDUSD, while USDCAD was pressured, despite Crude Oil staying under pressure. That said, early Wednesday’s statistics showed mixed China and Australia PMIs, while New Zealand's Unemployment Rate hit a four-year high, increasing expectations for further rate cuts by the Reserve Bank of New Zealand.
Gold buyers benefit from trade tensions, geopolitical concerns, uncertainty over central bank moves, and a weaker US Dollar, driving the precious metal to a five-day winning streak and a new all-time high near $2,860 heading into Wednesday’s European session. This rally is also supported by increased physical demand from China and India, two of the world’s largest gold buyers.
Meanwhile, Crude Oil is reversing its recent bounce from the monthly low, as higher-than-expected inventory builds from a private survey, fears of increased output due to Trump’s policies, and easing geopolitical tensions in the Middle East weigh on prices.
China’s response to Trump’s trade war, including probes into NVIDIA and Google, along with a reassessment of crypto buying and Bitcoin reserves, is putting downside pressure on Bitcoin (BTCUSD) and Ethereum (ETHUSD). However, the softer US Dollar is providing some support for these top cryptocurrencies early Wednesday.
Looking ahead, trade and geopolitical developments will be key drivers for market direction. However, the final January PMIs for the Eurozone, US ISM Services PMI, and ADP Employment data will be important for momentum traders, especially with mixed Fed signals ahead of Friday's NFP.
With tensions easing and limited strong US data, the US Dollar is likely to stay under pressure, supporting Gold and JPY, especially with mixed market sentiment. However, EURUSD, GBPUSD, and commodity-linked currencies may struggle to fully benefit from a weaker US Dollar due to domestic challenges and softer prices in riskier assets like equities, commodities, and cryptocurrencies.
May the trading luck be with you!
