US President Donald Trump and incoming Treasury Secretary Scott Bessent kept tariff talk in focus, dampening market sentiment. The risk-off mood was worsened by reports of a White House halt on federal loans and grants, concerns over Russia, and a slump in semiconductor stocks, particularly Nvidia. The risk aversion joined upbeat US regional activity data and housing market numbers to underpin the US Dollar Index (DXY) recovery from a five-week low as traders brace for this week’s top-tier catalysts including monetary policy meetings from the US Federal Reserve (Fed), European Central Bank (ECB) and Bank of Canada (BoC), as well as inflation data from the US and Australia.
The US Dollar’s recovery and risk-off mood weighed on Gold, cryptocurrencies, equities, and major currencies. Gold grabbed the spotlight with its largest daily drop in over a month. Meanwhile, USDJPY defied the trend with a three-day losing streak before rebounding today. EURUSD, AUDUSD, and NZDUSD saw pullbacks, while GBPUSD held firm. USDCAD resumed its climb, reflecting the Dollar’s strength.
Monday’s positive German IFO data and upbeat comments from ECB President Christine Lagarde supported EURUSD buyers but couldn’t outweigh the stronger US Dollar and expectations of lower ECB rates. Meanwhile, GBPUSD reversed its three-day rally, pressured by a drop in UK shop prices and the Dollar’s broad strength.
USDJPY rebounds from a five-week low, marking its first daily gain in four, as the US Dollar strengthens despite downbeat sentiment and Japan's upbeat service inflation data, which supports Bank of Japan (BoJ) rate hike prospects. The pair’s recovery also reflects market positioning for this week’s anticipated Fed “hawkish pause,” ahead of key events like the BoJ Meeting Minutes, US Durable Goods Orders, and inflation updates from the US and Australia.
Commodity-linked currencies like Australia, New Zealand and Canadian Dollars bear the burden of downbeat sentiment, especially amid the dovish central bank outlooks, and China-related concerns. With this, AUDUSD and NZDUSD extend the previous day’s pullback, while USDCAD stays strong, supported by a weaker Crude Oil market lingering near monthly lows.
Gold prices saw their biggest drop in five weeks as a stronger US Dollar and concerns over China’s economic recovery, amid looming US tariff threats, weighed on the metal. However, support from a month-long bullish chart pattern, China’s heavy gold stockpiling, and broader market uncertainty have helped pause the decline early Tuesday.
Crude Oil bounces off the 100-day EMA as bears pause after breaking a seven-week support line. Supportive news from Bloomberg about OPEC+ maintaining its current supply plan aids the rebound, but Trump’s call for increased production and concerns over China’s oil demand keep buyers cautious ahead of the API Weekly Crude Oil Inventories report.
Despite a broad risk-off mood pressuring Bitcoin (BTCUSD) and Ethereum (ETHUSD) earlier, optimism about industry-friendly measures from the Trump administration and strong ETF inflows keep crypto buyers optimistic. As a result, BTCUSD and ETHUSD manage modest gains after three and two days of losses, respectively.
Markets witnessed movement on Monday despite a quiet calendar, but today’s key events, including the ECB Bank Lending Survey, President Lagarde’s speech, and US Durable Goods Orders for December, are set to grab traders’ attention.
With a risk-off sentiment and stronger US data, the US Dollar could recover the previous weekly losses, pressuring major currencies and commodities. However, USDJPY and Gold may defy this trend due to technical setups and their safe-haven appeal.
May the trading luck be with you!
