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In focus today

Today the French Prime Minister faces two motions of no confidence for the first time since October. The far-right RN and far-left LFI has filed to separate motions over the government's failure to derail the EU's Mercosur trade agreement, which was adopted on Friday. The motions are unlikely to pass, with the left-wing refusing to back the RN's motion and the Socialists rejecting the LFI's motion. While the risk of a government censure is small the impact in the event of no-confidence is higher than usual as Macron has said it would likely lead to snap elections. These could take place together with the municipal elections in March.

In the US, the Producer Price Index (PPI) and retail sales will be released for November after a lengthy delay caused by the government shutdown. November CPI was distorted by delayed data collection, and similar issues could affect the PPI figures. Retail sales will be interesting to follow given that US economic growth increasingly relies on private consumption. NY Fed's Williams is scheduled to speak this evening.

The US Supreme Court rescheduled its opinion day, initially planned for last week, to today. This could include its first ruling on President Trump's global tariffs.

Economic and market news

What happened overnight

China's December trade data exceeded expectations, with exports rising 6.6% y/y, significantly above the expected 3%. This robust performance drove China's annual trade surplus to a record high, highlighting resilient external demand despite renewed tariff tensions in 2025. Strong export growth has helped offset weak domestic demand. Shipments to the US fell sharply in December, dropping 30% y/y, while imports declined 29%, signalling a significant reduction in US-China trade throughout 2025. Amid these tensions, China's exports fell 20%, as Chinese exporters increasingly redirected trade routes and increased shipments to non-US markets.

What happened yesterday

In the US, December CPI surprised to the downside. Headline inflation rose +0.3% m/m SA, while core CPI grew at a slower pace of +0.2% m/m (cons: +0.3% m/m). The downside surprise was largely attributed to weaker core goods prices, while services inflation rebounded modestly across shelter, health care and other services, largely in line with expectations. Energy and food inflation surprised slightly to the upside, resulting in a mixed inflation picture for December. Markets reacted dovishly, with UST yields declining and EUR/USD edging higher. As the Fed is focused on services inflation, policymakers may await January data before reassessing trends.

The US small business confidence index increased by 0.5 points to 99.5 in December. The NFIB's December survey indicated that US small business optimism improved towards the end of 2025. Both realised and expected price changes, which historically correlate well with CPI, have remained relatively steady in recent months. Hiring plans also showed little change, although they remain below pre-pandemic levels. Overall, the survey suggests that firms perceive a stabilising business environment following a volatile year.

Equities: Equities grinded lower yesterday, in our view despite and not because of the inflation figures. The retreat was undramatic, with the S&P 500 down 0.2% and the Stoxx 600 down 0.1%. The strong cyclical run since the start of the year took a breather. Most cyclical sectors traded lower, primarily banks following Q4 reporting. The rotation out of US tech and into value cyclicals continued, albeit mildly, with industrials and materials outperforming the broader market. US futures point to a similar opening today.

FI and FX: EUR/USD consolidated in the mid-1.16-1.17 range as the broad USD modestly firmed across G10 FX in yesterday's session, following an initial dip after the slightly softer-than-expected US December core CPI print. The IEEPA Supreme Court ruling could emerge today and represents a far more significant catalyst for near-term USD direction. USD/JPY continues to rise as speculation over a snap election grows, which would likely open the door for a pro-stimulus agenda from PM Takaichi. Global swap yields ended yesterday's session largely unchanged. In Sweden, the first SGB auction for the year will be held today, with the auction size having been increased from SEK6bn last year to SEK8bn. We remain negative 10y SGB ASW. EUR/SEK edged higher yesterday after failing to breach the 10.70 level, while EUR/NOK is slightly lower overnight.

Key Highlights

• GBP/USD found support near 1.3400 and recovered some losses.
• It cleared a key bearish trend line with resistance at 1.3430 on the 4-hour chart.
• EUR/USD is facing heavy resistance near 1.1700.
• Gold remains elevated and might rise further above $4,620.

GBP/USD Technical Analysis

The British Pound dipped below 1.3450 and tested 1.3400 against the US Dollar. GBP/USD traded as low as 1.3391 and recently started a fresh increase.

Looking at the 4-hour chart, the pair cleared a key bearish trend line with resistance at 1.3430. There was a move above the 50% Fib retracement level of the downward move from the 1.3567 swing high to the 1.3391 low.

The pair remained well above the 200 simple moving average (green, 4-hour) and surpassed the 100 simple moving average (red, 4-hour). Immediate resistance sits near 1.3500 or the 61.8% Fib retracement.

The first key hurdle is seen near 1.3525. A close above 1.3525 could open the doors for a move toward 1.3565. Any more gains could set the pace for a steady increase toward 1.3700.

If there is no move above 1.3500, there could be a bearish reaction. On the downside, immediate support is near the 1.3450 level. The first major area for the bulls might be near 1.3400. A close below 1.3400 might spark heavy bearish moves. The next support could be 1.3380, below which the bears might aim for a move toward 1.3320.

Looking at Gold, the bulls remain in action and might soon aim for more gains above $4,640 and $4,650 in the near term.

Upcoming Key Economic Events:

• US Retail Sales for Nov 2025 (MoM) – Forecast +0.4%, versus 0% previous.
• Fed's Miran speech.
• BoE's Ramsden speech.

Brent Crude oil ⬆️ Buy

• Brent Crude oil rising inside impulse wave c
• Likely to rise to resistance level 68.00

Brent Crude oil recently broke the resistance area between the resistance level 62.00, resistance trendline of the daily down channel from October and the 38.2% Fibonacci correction of the downward impulse from September.

The breakout of this resistance area accelerated the active impulse wave c – which belongs to the short-term ABC correction ii from December.

Brent Crude oil can be expected to rise to the next resistance level 68.00 (target for the completion of the active impulse wave c).

USDJPY ⬆️ Buy

• USDJPY broke resistance area
• Likely to rise to resistance level 160.00

USDJPY currency pair recently broke the resistance area between the long-term resistance level 158.70 (which started the sharp downtrend in January) and the resistance trendline of the weekly up channel from April.

The breakout of this resistance area accelerated the active impulse waves v and 3 – which belong to the extended impulse wave (3) from April.

Given the clear daily uptrend, USDJPY currency pair can be expected to rise to the next resistance level 160.00 (target for the completion of the active impulse waves v and 3).

Oil prices accelerated higher today, with WTI decisively breaking above 60 level as markets rebuilt geopolitical risk premium. Traders are factoring in a cluster of geopolitical risks, including potential exclusion of Iranian exports, renewed supply uncertainty around Venezuela, ongoing talks surrounding the Russia-Ukraine war, and broader strategic tensions linked to Greenland.

In particular, Iran is central to the current repricing. As one of the top producers within OPEC, Iran has been hit by its largest anti-government protests in years. Economists estimate that unrest in Iran has already added roughly USD 3–4 per barrel in geopolitical risk premium.

Additionally, the forceful government crackdown has drawn sharp warnings the US, including the threat of possible military action. The late upleg in oil prices appeared to be triggered right after President Donald Trump warned any country doing business with Iran would face a 25% tariff on all trade conducted with the US, a move that risks tightening Iran’s effective export channels.

Technically, WTI is clearly in near-term upside acceleration as the rebound from 54.98 extends. It's now targeting 161.8% projection of 54.98 to 58.96 from 55.79 at 62.21. If the move is corrective as currently seen, that 62.21 area should act as a natural cap.

However, sustained break above 62.21 would argue the rally is impulsive rather than corrective, opening the case for a broader bullish trend reversal. Such a development would mark a significant shift in market structure.

Indeed, the daily chart signals support that possibility. WTI has successfully defended key support at 55.20 (2025 low), formed bullish convergence on D MACD, and reclaimed the 55 D EMA decisively. A confirmed break above 62.21 would raise the probability that the entire decline from 78.87 (2025 high) is reversing. That would open up further rise through 38.2% retracement of 78.87 to 54.98 at 64.10.

St. Louis Fed President Alberto Musalem said he sees little justification for further near-term easing, arguing that the Fed’s policy rate is already “right around neutral.” Excluding inflation, Musalem estimates the real policy rate at roughly 1%, and warned it would be "inadvisable" to push policy into an accommodative stance at this stage.

Musalem said he supported the December rate cut due to a slightly elevated risk to the labor market alongside moderating concerns about accelerating inflation. However, he emphasized that additional easing would only be warranted if the labor market weakens more than expected and inflation falls below 2%, allowing policy to be eased without becoming stimulative.

Looking ahead, Musalem expects the US economy to grow at or above potential in 2026, supported by "robust tailwinds" from fiscal stimulus and the lagged effects of prior rate cuts. He said the labor market as cooling in an orderly fashion and remaining resilient, with unemployment near its neutral level and job growth around breakeven rates of roughly 30k to 80k per month.

WTI Oil price extends steep rally into fourth consecutive day, as growing tensions over Iran fuel fears of potential supply disruptions. Adding to strong uncertainty was the latest threat from President Trump that he will impose a 25% tax to all countries that buy oil from Iran.

Slight optimism from Venezuela, where the situation is calmer and outlook for normalization of oil supply, did not make significant counter effect that kept oil prices rising.

Today’s rally (oil was up around 2.7% for the day) broke important barriers at $60 (psychological), 60.25 (100DMA) $60.76 (Fibo 76.4% of $62.58/$54.87 descend) and $61.00 (round figure) and probed above the top of descending daily Ichimoku cloud ($61.18).

Improving daily studies support the action, though stretched indicators suggest that bulls may take a breather.

Limited dips are likely to mark positioning for fresh push higher, as geopolitical situation is fragile with serious risk of further escalation, which would spark stronger rally of oil prices.

Potential dips should find firm ground above broken $60 level to keep bulls alive, with sustained break above daily cloud to unmask targets at $62.24 (200DMA) and $62.58/80 (tops of Oct 24 / Oct 9).

Res: 61.18; 61.40; 62.24; 62.58.
Sup: 60.76; 60.25; 60.00; 59.46.

Silver continues to trend higher despite warnings from overbought daily studies and hit new record high ($89.10) on Tuesday, following daily advance of nearly $6.

Precious metals continue to benefit from growing safe-haven demand, with silver being additionally supported by strong industrial demand and insufficient supply.

Bulls approach $90 level (round-figure), with psychological $100 barrier being unmasked.

Technical studies remain firmly bullish but overbought on all larger timeframes and traders should anticipate headwinds at $90 zone, but also to be aware of possible stronger dips on approach to $100 level, which marks very significant resistance.

Res: 89.10; 90.00; 91.30; 93.11
Sup: 87.22; 85.42; 83.40; 82.73

• Yen falls sharply on reports PM Takaichi is planning election.
• The slide triggers fresh intervention warnings.
• Investors push back their BoJ rate hike bets.
• Intervention alone may not be enough to save the day.

Yen accelerates downtrend amid Japan election jitters

Bank of Japan policymakers left 2025 wearing their hawkish suits after they raised interest rates to the highest level in three decades and signaled willingness to take them even higher. However, the Japanese yen was not able to capitalize on the Bank’s hawkish decision, perhaps as traders wanted more specific clues as to when officials were planning to hit the hike button next.

To make things even worse, the yen accelerated its downfall to territories last seen back in July 2024 after Kyodo News reported that Prime Minister Sanae Takaichi has told a senior member of the Liberal Democratic Party that she is thinking about calling a snap election in February.

With an approval rating of around 70%, she may be confident about a victory that will allow her to proceed more freely with her spending plans, which would add to the already ballooned government debt. That’s maybe why the yen is tumbling, while equities and Japanese Government Bond (JGB) yields are skyrocketing. This is the so-called “Takaichi trade” and may be intensified should the scenario of the LDP securing a single-party majority becomes even more likely.

Besides the prospect of a piling debt, what is also driving the yen lower may be expectations that the BoJ’s hands will be tied ahead of the election. The next interest rate hike may be delivered after the spring wage negotiations, and only if the negotiations result in satisfying salary increases.

Yen tumble reignites intervention talk

However, with dollar/yen headed towards the psychological zone of 160.00 again, the intervention discussion is back on the table. Finance Minister Satsuki Katayama said at a meeting with US Treasury Secretary Scott Bessent that she remains concerned about the “one-way weakening of the yen,” with Bessent sharing those concerns and calling for the BoJ to raise interest rates.

Katayama warned about intervention back in December, when dollar/yen emerged above 157.00, noting that Japan has a “free hand” to take action. Maybe she met with Bessent to get the green light, which means that an intervention episode near the 160.00 zone is more likely than previously thought.

However, even the new warning was not enough to stop the yen’s bleeding, which raises the question whether actual action could do the work. In 2024, Japanese authorities stepped into the market to prop up the yen four times, twice in April and twice in July. In April, the impact was temporary, with the yen soon resuming its slide. In July, the effect was more meaningful, with dollar/yen falling from around 162.00 to below 140.00 by September. The difference is that in the second case, the intervention actions were followed by a BoJ rate hike.

Will a possible election delay BoJ rate hikes?

Therefore, with Takaichi planning to increase spending and thereby pile up more debt, any intervention episode could also have limited and short-lived impact. A BoJ rate hike may also be needed, as a weaker yen could fuel inflation through higher export costs; and this could eventually weigh on economic growth.

Currently, according to Japan’s Overnight Index Swaps market (OIS), a 25bps rate hike is not fully pencilled in until September and if the Bank is indeed not planning to act soon, the yen is likely to continue suffering, with intervention not being able to change its fate. Yields are likely to continue rallying, as fewer investors will be willing to finance Japan’s ballooning debt. However, equities are unlikely to continue cheering Takaichi’s spending plans indefinitely. At some point, worries about inflation and economic slowdown could prompt investors to abandon Japanese stocks as well, in a so-called “Sell Japan” episode.

Therefore, unless the Finance Ministry decides to intervene and the BoJ to hike interest rates soon, the yen may be destined to extend its downtrend, and dollar yen may easily find itself trading above 160.00 soon.

Dollar/Yen may extend uptrend even after intervention

From a technical standpoint, dollar/yen is currently flirting with the 158.90 resistance, marked by the peak of January 10, 2025, where a clear close higher could encourage a test at the round figure of 160.00. The prevailing uptrend remains intact as marked by the uptrend line drawn from the low of September 17. A break above 160.00 could pave the way towards the high of July 3, 2024, at around 162.00. For a bearish reversal to start being considered, a decisive break below the 154.55 zone may be needed.