Asset Summary – Monday, 19 January
US DOLLAR is currently experiencing mixed signals. While technical analysis suggests an ongoing bullish trend with the dollar index moving within an ascending channel, recent geopolitical developments are creating downward pressure. President Trump’s threat of tariffs on several European countries has triggered concerns about potential retaliatory measures and the overall impact on the US economy, causing the dollar to weaken against safe-haven currencies like the yen and Swiss franc. The initial gains against the euro and sterling were short-lived as investors reassessed the situation.
BRITISH POUND is exhibiting signs of recovery, bolstered by better-than-expected UK economic growth data. The UK’s GDP surpassed forecasts, leading to a slight shift in market expectations regarding monetary easing by the Bank of England, though rate cuts are still anticipated. The pound is also benefiting from a weaker US dollar, influenced by President Trump’s trade actions. While US inflation data supported the dollar initially, continued pressure from the US President on the Federal Reserve, coupled with global central bank support for the Fed’s independence, adds uncertainty to the dollar’s strength, indirectly supporting the pound.
EURO is experiencing mixed signals. It initially gained ground against the US dollar due to weakened confidence in the dollar following tariff threats by the US president against several European nations. These threats, linked to the potential acquisition of Greenland, raised concerns about the ramifications for NATO and transatlantic relations, potentially impacting the GDP of countries like the UK and Germany. However, despite this initial boost, concerns about the potential political and geopolitical repercussions of the tariff threats and the EU’s retaliatory measures capped the euro’s gains, creating uncertainty for its future direction. The euro also benefitted from risk aversion gripping financial markets and a slight drop in the US dollar, although thin liquidity due to the US market holiday could amplify market reactions to fundamental headlines.
JAPANESE YEN is currently experiencing a complex interplay of factors influencing its value. Heightened geopolitical and trade concerns are bolstering its safe-haven appeal, while domestic political developments, specifically Prime Minister Takaichi’s call for a snap election focused on increased spending and a new security strategy, introduce uncertainty. Potential intervention by Japan’s Finance Minister to address Yen weakness, coupled with speculation about an earlier-than-expected interest rate hike by the Bank of Japan, provide further support. However, the US Dollar’s weakness and associated risk aversion related to potential tariffs on European goods are significant drivers. Traders are likely to remain cautious, closely monitoring upcoming economic data releases and the Bank of Japan’s monetary policy decision, which will play a role in establishing the currency’s near-term trajectory.
CANADIAN DOLLAR is experiencing a period of relative stability, supported by several factors. While headline inflation edged up, suggesting a potential pause in interest rate cuts, underlying inflation metrics offer a mixed picture. Oil prices are providing additional support due to consistent exports to the US and a balanced North American crude market, bolstering Canada’s trade outlook. Furthermore, weakness in the US dollar, driven by renewed trade tariff concerns, has contributed to the Canadian dollar’s strength, pushing the USD/CAD pair below the 1.3900 level.
AUSTRALIAN DOLLAR is gaining ground, fueled by a weaker US dollar and rising expectations of higher Australian interest rates. The US dollar’s decline stems from potential tariffs imposed on goods from several European countries. While Australian inflation remains above the Reserve Bank of Australia’s target range, adding pressure for monetary policy tightening, recent data indicates a potential easing of price pressures. The Reserve Bank of Australia is anticipated to maintain a patient approach, but the market is beginning to factor in a potential rate hike, providing support for the Australian dollar, particularly in the lead-up to the February meeting. In the US, data suggests the Federal Reserve may hold interest rates steady, further contributing to the Australian dollar’s relative strength.
DOW JONES is facing potential downward pressure following news of proposed US tariffs on several European countries. The threat of these tariffs, aimed at compelling the purchase of Greenland, has triggered concerns among investors and could lead to retaliatory measures from the EU. This uncertainty is reflected in the decline of Dow futures, suggesting a negative outlook for the index when trading resumes. While upcoming earnings reports from major companies like Netflix, Visa, and Intel may offer some support, the immediate impact of the tariff news appears to be weighing heavily on market sentiment.
FTSE 100 is demonstrating resilience despite downward pressure stemming from renewed trade concerns fueled by US tariff threats. While global risk sentiment is negatively impacting more cyclical sectors, the index’s defensive composition, particularly the strength of healthcare and consumer staples stocks like AstraZeneca and Unilever, is helping to mitigate losses. Precious metals miners and defense stocks are also contributing positively, offsetting weakness in banking shares which are more vulnerable to economic uncertainty.
DAX is facing downward pressure due to escalating trade tensions between the US and Europe, specifically concerning potential tariffs imposed by the US on imports from several European countries, including Germany. This has negatively impacted market sentiment and led to a decline in the index, with auto stocks experiencing significant losses. The prospect of retaliatory measures from the EU further exacerbates the uncertainty surrounding the DAX. However, some defense firms and Bayer experienced gains, offering a slight counterbalance to the overall negative trend.
NIKKEI experienced a decline, influenced by a confluence of factors including international trade tensions sparked by potential US tariffs on European nations. This, coupled with domestic anticipation surrounding the Bank of Japan’s upcoming policy decision and speculation about a possible snap election, contributed to investor uncertainty. Declines in major stocks such as Mitsubishi UFJ, Fujikura, SoftBank Group, Advantest, and Toyota Motor further pressured the index downwards. The market is showing sensitivity to geopolitical developments and domestic political and economic policy expectations.
GOLD is exhibiting significant upward momentum, driven by a confluence of factors. Political uncertainty stemming from potential US tariffs on European goods and ongoing geopolitical tensions in the Middle East are fueling safe-haven demand for the precious metal. Despite strong US economic data, including positive retail sales and a robust labor market, concerns over sticky inflation and delayed expectations for Federal Reserve rate cuts are also contributing to gold’s appeal. A weakening US Dollar further supports gold’s price, offsetting some of the pressure from positive economic indicators that would typically diminish its attractiveness. These combined factors suggest a continued bullish outlook for gold in the near term.
OIL is exhibiting volatility, influenced by a complex interplay of geopolitical factors and trade dynamics. Easing tensions with Iran initially relieved upward pressure on prices, yet the possibility of renewed conflict keeps a risk premium embedded in the market. Simultaneously, renewed trade disputes with Europe are creating headwinds as they threaten to weaken global demand. While potential oversupply is a concern, supply chain disruptions in regions like the Black Sea provide some support, creating a mixed outlook for oil prices.