Market sentiment remains uncertain despite gains in risky assets, driven by softer US data, reduced fears of Trump tariffs, and hopes for Chinese stimulus. However, concerns about China persist as key institutions, including the NDRC, the People's Bank of China, and the Ministry of Finance, prepare for a meeting on Wednesday to address economic challenges.
In response, the US Dollar Index (DXY) extends its losing streak to a third day, supporting gains in EURUSD, GBPUSD, and other Antipodeans. Meanwhile, USDJPY holds mildly higher, retreating from recent highs, as Gold and Crude Oil recover some of their earlier losses. Cryptocurrencies soften, and equities trade mixed as traders await key data and events.
EURUSD gains momentum, supported by improved Eurozone Sentix Investor Confidence for January, upbeat December Services and Composite PMIs, and Germany's preliminary inflation data for December. Additional support comes from weaker US data, a retreating US Dollar, and hesitation among European Central Bank (ECB) officials to commit to further rate cuts.
Meanwhile, USDJPY diverges from the broader trend, holding its early-week rebound despite verbal intervention from Japan’s Finance Minister Katsunobu Kato, which briefly pulled the pair back from a 5.5-month high. Growing doubts over the Bank of Japan’s (BoJ) willingness to pursue additional rate hikes continue to favor USD/JPY bulls.
The GBPUSD continues its three-day recovery streak after hitting its lowest level since April last week. The rebound is supported by a nine-month high in UK Retail Sales growth, according to the British Retail Consortium (BRC), mixed UK PMI figures, and downbeat US data. The US Dollar’s retreat has also boosted the Cable pair’s upward momentum.
Australia’s ANZ-Roy Morgan Consumer Confidence rose by 3.6 points to 87.5 in the first week of 2025, marking a positive start for the year. However, disappointing November Building Permits and ongoing concerns over China challenged AUDUSD bulls during their four-day rally.
Similarly, NZDUSD follows its Australian counterpart, extending its gains for the fourth straight day despite a lack of domestic catalysts.
Meanwhile, USDCAD recorded its steepest daily drop in 15 weeks on Monday and remains under pressure, even as crude oil prices pause their advance. The decline also comes amid a weaker US Dollar and strong Canadian data, which counter the Bank of Canada’s dovish stance. Adding to the political backdrop, Canadian Prime Minister Justin Trudeau prorogued parliament and announced his intention to step down as leader of the Liberal Party.
Gold bounces off a seven-week-old ascending support line, snapping a two-day losing streak. The rebound is fueled by a weaker US Dollar and hopes for additional Chinese stimulus as top agencies prepare to meet on Wednesday. Further support comes from fears over Trump tariffs, increased gold buying in India, and a cautious mood surrounding US Treasury Secretary Janet Yellen’s meeting with China’s Vice Premier He Lifeng, boosting demand for the safe-haven asset.
WTI Crude Oil touched a three-month high before recording its first daily loss in six sessions amid rising concerns over China’s economic outlook. However, reports of reduced OPEC+ output in December, led by the UAE, coupled with the US Dollar’s pullback, helped crude oil regain ground early Monday.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) pull back from their two-week highs reached the previous day as traders temper crypto market optimism ahead of key US data this week. Monday’s surge to multi-day highs was driven by strong ETF inflows and a weaker US Dollar.
After a volatile Monday, markets brace for another busy day with multiple key data releases. The Swiss Consumer Price Index (CPI) and preliminary Eurozone inflation figures for December will set the tone early on. Later, the focus will shift to the Canadian Ivey PMI, US ISM Services PMI, and JOLTS Job Openings.
The US Dollar’s recent pullback, driven by softer data and Fed policymakers’ reluctance to confirm slower rate cuts, may deepen if today’s data disappoints or Trump tariff fears ease. Such outcomes could support further gains in EURUSD and GBPUSD, though USDJPY might see limited bearish pressure.
Antipodean currencies and oil prices may struggle to gain momentum, while equities and cryptocurrencies are expected to trade mixed. Gold, however, is likely to remain firm amid ongoing market indecision.
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