Risk FX improved early Monday, supported by the likely absence of concerns over Trump's tariff shots in his first 100 executive orders and a US holiday. Positive sentiment also came from last week’s US consumer data, the People's Bank of China holding rates steady, and expectations for slower rate cuts from major central banks outside the US.
On Friday, upbeat US industrial production and housing data helped the US Dollar Index (DXY) post a small gain, though it still had its first weekly loss in seven. That said, hawkish comments from Cleveland Fed President Beth Hammack and mixed news from US-China talks kept US Dollar sellers cautious, especially with fewer rate cut expectations for 2025.
The US Dollar's retreat and cautious optimism boosted mild gains in commodity-linked currencies and Gold, while major currencies held onto their weekly gains against the Greenback. Cryptocurrencies also saw a slight rise ahead of Trump’s inauguration, and Asia-Pacific markets recovered earlier losses. Meanwhile, crude oil remains under pressure after forming a Doji candlestick on the weekly chart.
EURUSD rises after breaking a six-week downtrend, supported by European Central Bank officials’ cautious stance on further rate cuts. GBPUSD rebounds following a solid rise in UK home prices and the Bank of England’s reluctance to cut rates further. Meanwhile, USDJPY remains under pressure amid positive sentiment and expectations of a potential Bank of Japan rate hike this Friday.
AUDUSD rebounds from a two-day losing streak, supported by the US Dollar's retreat, China concerns, and a lack of tariff war news, starting the week on a positive note after a weekly gain. However, the lack of major Aussie data and a dovish outlook for the Reserve Bank of Australia (RBA) pose challenges for buyers in a quiet session.
Like the Australian Dollar, the New Zealand and Canadian Dollars also recovered against the US Dollar, driven by cautious optimism and the US Dollar's pullback. Notably, USDCAD retreats from its highest level since March 2020, despite lower crude oil prices, Canada’s key export, while NZDUSD ends a two-day losing streak.
Gold rebounds, reversing the previous day's decline, supported by stronger sentiment, a softer US Dollar, and China-related news, following a three-week uptrend. Meanwhile, Crude Oil stays under pressure after two days of losses, with limited geopolitical updates following the Gaza ceasefire deal.
Optimism for a more industry-friendly approach under Donald Trump boosts Bitcoin (BTCUSD) and Ethereum (ETHUSD), with both posting nearly 7% intraday gains early Monday. Substantial ETF inflows also support the rally. While BTCUSD secured weekly gains, ETHUSD lagged, failing to close the week on a positive note.
Donald Trump’s inauguration captures global focus as he signals plans for 100 executive orders, though a US market holiday may limit immediate reactions. Tariff discussions could spark volatility, boosting the US Dollar while pressuring commodities and risk-sensitive currencies like AUD, CAD, and NZD. Early signs suggest Trump may initially hold off on heavy tariffs targeting Canada, Mexico, and China.
Additionally, updates from US-China talks and the World Economic Forum (WEF) could influence sentiment amid a light economic calendar.
This week, markets will closely watch the Bank of Japan's monetary policy meeting, UK employment data, and January’s preliminary economic readings. The US Dollar may recover recent losses, potentially weighing on EURUSD, GBPUSD, and AUDUSD, while Gold is likely to edge higher.
May the trading luck be with you!
