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Markets

US tech stocks rebounded sharply with the likes of Nvidia surging 9% after losing market capitalization +/- the size of Belgium’s economy. The Nasdaq’s 2% gain almost wiped out Monday’s 3% drop. US Treasuries marginally outperformed Bunds with rates closing slightly lower in the former and about 2-3 bps higher in the latter. The risk-on nor UST outperformance hindered a USD comeback. Trump’s hawkish trade comments that downplayed the gradual tariff approached favoured by UST Secretary Bessent jolted the greenback against all G10 peers. EUR/USD retreated to 1.043 while USD/JPY and the DXY reclaimed the 155 and attacked the 108 respectively.

Yesterday’s moves were more of a (technical) countermove than they were inspired by major news. Today, though, there’s a lot more in store for markets, Bloomberg’s article this morning covering an interview with the European Commissioner for financial services Albuquerque to name just one. She’s open to the idea of a coalition of the willing to move forward with a capital markets union in an attempt to break the long-running deadlock at the EU-wide level. Draghi’s report of last September appears to have put something in motion. Trump’s return to the White House has expedited things further. The EU faces a massive financing gap to fund defense spending as well as the green transition. The Financial Times end last year reported a similar coalition of the willing initiative for the former. Regarding the latter, EC president von der Leyen is expected to announce major legislative changes today to cut red tape (mostly ESG reporting rules) dramatically. The eco calendar is really heating up today with policy meetings in Sweden, Canada end the US. The Fed will hold rates steady against the backdrop of a healthy economy and still-above target inflation. Economic data since the Fed’s and chair Powell’s hawkish pivot in December has been outright strong and offered no reason to scale down the rhetoric. That should place a bottom below US yields and the dollar. Trump is a wildcard. Powell will probably keep his cards close to his chest in terms of what the central bank expects of his (yet-to-be-announced) policies going forward. Given the state of the economy the Fed has and will use the time at the sidelines. But POTUS will surely have a say on the Fed’s decision not to cut rates after doing so three times straight, triggering perhaps more market volatility than the decision itself. US tech remains at the center stage as well with Microsoft, Tesla and Meta all reporting, be it after-market. Belgium and Spain are among the first to report Q4 GDP numbers ahead of the euro area figure tomorrow.

News & Views

In an interview with the Financial Times (FT) this morning, Ales Michl, head of the Czech National Bank (CNB) said that he will present to the Bank board on Thursday a plan to invest in Bitcoin as a way of asset diversification. If approved, it could lead the bank to hold 5% of its reserves (approx. €140 bln) in Bitcoin. Michl acknowledges the extreme volatility and limited record of the Bitcoin but also pointed at growing investor interest since the launch of several ETFs. He also refers to US president Trump’s pledges on deregulation with respect to Bitcoin and growing influence of cryptocurrency executives in the US administration. Michl ‘defends’ his different approach compared to peers, who are more reluctant towards crypto, as he takes more of an approach similar to running an investment fund. The CNB’s €140 bln currency reserves are equivalent to about 45 % of GDP. Some 22% is already invested in equities. Michl also aims the raise the part of US stocks to about 50% from 30% currently in a three year horizon. On monetary policy, he indicated that its very likely the CNB will cut rates by 25 bps at the February meeting.

Australian inflation in the final quarter of last year slowed to 0.2% Q/Q and 2.4% Y/Y. The 0.2% quarterly rise matched the September quarter, which was the lowest since June 2020. The Y/Y measure declined from 2.8% in Q3. The underlying trimmed mean (ex. volatile components such as electricity) also slowed to 0.5% M/M to 3.2% (from 3.6%). Electricity prices fell by 9.9% in the December 2024 quarter, following a fall of 17.3% 2024Q3. Without the rebates, electricity prices would have risen 0.2% this quarter, the Australian Bureau of Statistics indicated. Annual goods inflation was 0.8%, down from 1.4% in Q3. Annual services inflation was 4.3% down from 4.6%. The slowdown of inflation dynamics in the second half of last year is seen opening the door for the Reserve Bank of Australia staring its easing cycle as soon as the February 18 meeting (policy rate currently 4.35%). The Aussie dollar this morning is ceding modest ground to trade near AUD/USD 0.625.

I was clearly not alone thinking that Monday’s AI selloff triggered by DeepSeek news was overdone. Investors rushed back to the market to buy Nvidia shares at a discount – there was strong dip buying below the $120 per share, and the stock price closed the session 9% up. The afterhours was calm. The Magnificent 7 stocks rebounded 3%, Nasdaq jumped 1.60%, Apple – which was among rare tech stocks that was cheering the cheaper AI news – rallied more than 3% on Monday and on Tuesday, while the Global X Uranium ETF recovered 1.77%.

The DeepSeek shock is probably behind without further damage until investors and the Big Tech leaders get more clarity on if and how DeepSeek managed to create a model *this* cheap. But no matter if DeepSeek’s claims are true or not, Monday’s tech rout will taint the earnings season, and investors will be peakier about the AI spending announcements. Together, Amazon, Meta, Alphabet and Microsoft are expected to spend up to $300bn in AI this year, while the earnings growth is expected to slow to less than 20% in 2025.

Zooming into the Q4, the Magnificent 7 are expected to print a 20% earnings growth last quarter. That’s down from nearly 60% printed the same time last year. And the combination of robust spending and slowing earnings doesn’t bode well with investors. The narrative this earnings season is shifting from how much the big Tech should spend to get to the place they want to be to how little they could spend to get there.

This being said, I still strongly believe that compromising quality for lower cost is not the best way to remain a leader in such a fast evolving tech environment, but investors will say the last word.

Speaking of earnings, ASML—another victim of the DeepSeek-triggered tech rally this week—couldn’t rebound as successfully as its US peers on Tuesday. But the company just printed a set of better-than-expected Q4 results before the bell in Europe, which should help shrug off some of the DeepSeek dust.

Today, after the bell, Tesla, Meta and Microsoft will reveal their own Q4 results. Hopefully, they will come with encouraging news regarding the return on their AI investment to help soothing investors’ nerves about further, massive AI spending announcements... Strong results could help improving appetite after a difficult start to the week, while any misstep will likely be hardly punished. Expect volatility.
Rate decisions

US yields remained under pressure yesterday as capital continued to flow into the safer US treasuries as many investors preferred to stay on the safe side of the game. The US dollar, however, gained on the back of Donald Trump’s renewed tariff threats. The Tariff Man reacted to Treasury Secretary Bessent’s proposal of imposing a 2.5% universal tariff by saying that the tariffs should be ‘much bigger than that’.

But of course, the higher the tariffs, the higher the price pressures will be. And it’s up to Federal Reserve to deal with the consequences. So yes, the Fed members have been scratching their heads since yesterday and will announce their latest policy verdict later today. The Fed is broadly and highly expected to maintain rates unchanged at today’s announcement. The US job market remains healthy, US growth robust, earnings encouraging, consumer spending strong and inflation is giving signs of heating up. US headline inflation hit the 2.9% in the latest reading, up from 2.4% printed earlier in fall, while core inflation has slightly come down but proves to be very sticky above the 3% mark. But, the latest consumer survey showed that Americans are losing confidence in the economy, they say that the jobs are harder to get, that the income is expected to improve less and that business conditions don’t look as encouraging as they did a few months ago. Therefore, the Fed is stuck between a rock and Donald Trump. What Powell will say matters more than what the Fed announces today. Before the Fed announcement, investors bet that the Fed won’t announce the next rate cut before May. A dovish tone from the Fed should further ease the US yields, while a cautious tone could revive the bond sell off. The US dollar could give back a part of Trump-led gains with a supportive Fed statement, but the fundamentals compared to the other major economies will likely remain supportive of the US dollar. And the Trump tariff risks remain tilted to the upside.

Speaking of other countries, the Bank of Canada (BoC) is expected to announce a 25bp cut to its policy rate today and the European Central Bank (ECB) will likely do the same when it meets tomorrow. The USDCAD is consolidating a few pips below the 1.44 mark this morning. While the divergence between the BoC and the Fed is already priced in, any dovish comments from the BoC could revive the selling pressure in the Loonie and support a further advance in USDCAD toward the 1.45 mark. In Europe, the euro appetite is losing strength after the failure to pursue gains above the 1.05 psychological mark. Technically, there is an evening star formation that hints that the weakness could extend into the next few sessions. The eurozone’s growth outlook is less than ideal and the ECB has solid reason to sound supportive and act.

In focus today

We expect the Federal Reserve to pause its cutting cycle tonight and maintain the policy rate target range at 4.25-4.50%, in line with wide consensus and market pricing. We still forecast the next 25bp already in the following March meeting, but doubt Powell will provide strong forward guidance amid the high fiscal and trade policy uncertainty, read more from Fed preview - Not stealing the spotlight, 23 January.

Today, we receive the first estimate of GDP growth in Spain for Q4 2024, ahead of the euro area aggregate data tomorrow. Recently, growth in Spain has been robust, with GDP increasing by 0.8% q/q in both Q2 and Q3 2024. It is anticipated that this strong growth persisted in Q4 at 0.6% q/q. The EU Commission's proposal for a "competitiveness compass" is also released. This compass is intended to establish the economic strategy guiding the Commission's efforts until 2029 and simplify regulation to achieve higher economic growth.

In Sweden, the GDP indicator is released at 08:00 CET, and we growth of 0.3% q/q in Q4, which if true would entail 2024 full-year growth at 0.6% y/y. The Riksbank convenes at 09:30 CET, where we expect a 25bp rate cut, bringing the policy rate to 2.25%. While the rate path from December assigned an equal weight for the next cut coming in January or March, the communication in the Minutes, the lower-than-anticipated CPI data and indeed weak demand suggest another back-to-back rate cut. As this is a small meeting, the key thing to watch for markets is the forward guidance in the press release and at the press conference.

At 15:45 CET, BoC announces its rate decision. Continued excessive supply, uncertainty about US trade policy and firms expecting further cuts ahead point toward a 25bp cut, which would bring the policy rate to 3.00%. Consensus and markets also anticipate a 25bp cut. We also get new economic projections as the BoC releases its quarterly Monetary Policy Report.

Economic and market news

What happened overnight

In Japan, minutes from the BoJ's December meeting revealed that the board discussed monetary policy conduct, focusing on how to use estimates based on the neutral interest rate and Japan's prolonged deflation period. BoJ staff have estimated the neutral range to be between 1% and 2.5%, while Governor Ueda has mentioned it is hard to estimate on a real-time basis. The BoJ kept the policy rate steady in December but hiked the rate from 0.25% to 0.5% at the January meeting. Looking ahead, we expect the BoJ to raise the policy rate to 1% through two additional hikes this year.

In Australia, inflation for Q4 2024 came in weaker than expected, with core inflation slowing to 3.2% q/q (cons: 3.3%, prior: 3.5%), supporting the notion of a rate cut from RBA in February - which would be the first policy change in more than a year.

What happened yesterday

In the US, according to Conference Board data, the consumer confidence ticked lower in January - with sentiment weakening across both current situation and expectations components. Notably intentions to take vacation were also lower, while inflation expectations were little changed. The widely followed "jobs plentiful"-index declined to the lowest level since last September. While data overall was to the weaker side, the figures could be affected by respondents' perception of Trump - the similar Michigan survey has shown a clear divergence between more optimistic Republican respondents and pessimistic Democrats. The market reaction was rather muted.

In the euro area, the bank lending survey was not favourable news for the ECB. Credit standards tightened for firms in Q4 2024 amid higher perceived risk and lower risk tolerance, while demand for firm loans remained weak. In the current quarter, banks expect to tighten credit standards for both households and firms, suggesting that lending growth will remain weak. In general, the data clearly suggests that the ECB's policy stance is still restrictive.

In Norway, retail sales declined 0.1% m/m in December, confirming that Christmas shopping was very moderate. As underlying growth remained muted at 0.4% 3M/3M, retail sales is improving. However, the release was still a bit disappointing as real wage growth is around 2% and the headwinds from higher rates have faded. Without any signs of an immediate turnaround in rate-sensitive sectors, this supports the signal of a rate cut in March.

In Hungary, the central bank kept the policy rate unchanged at 6.50%, as widely expected.

Equities: Global equities rose yesterday, with risk appetite gradually improving throughout the day. A lot of macro and micro data influenced financial markets. However, focusing on the US, it is clear that reconsideration of DeepSeek's impact on future outlooks was the dominant force. Consequently, we observed a reversal of Monday's performance, with tech stocks leading the gains and most other industries declining. As today is set to be a busy day with numerous company earnings reports and two major central bank meetings, the focus and impact of DeepSeek should begin to diminish. In the US yesterday, the Dow rose by 0.3%, the S&P 500 increased by 0.9%, the Nasdaq gained 2.0%, and the Russell 2000 went up by 0.2%. Several markets in Asia are closed due to the Lunar New Year. Those that are open, including Japan, are mostly higher this morning. Most futures in Europe and the US are marginally higher as well this morning.

FI: Global yields reversed some of its Monday gains as rates sold off yesterday. About half of Monday's risk-off rally was reversed. The French-German yield spread tightened 1bp to 72bp which is the tightest since October. BTPs came under slight pressure towards the end of the trading session following news that PM Meloni is being investigated. Until then, BTPs were on route to be the main outperformer yesterday. ECB's Bank Lending Survey could have been a better read for the ECB as dynamics require vigilance. Tightening credit standards was reported in Q4, and set to further tighten in Q1, while demand for loans was still positive. The report clearly suggests that the ECB's policy stance is still restrictive.

FX: EUR/USD stabilised above 1.04 as the USD broadly strengthened, supported by new Trump headlines emphasizing his push for universal tariffs exceeding 2.5%. The broad USD index climbed 0.5%, marking its largest intraday gain in a week. Today, focus turns to the Fed. For CAD, BoC is on the agenda where markets and consensus favour a 25bp rate cut. While US-related development - in particular tariff-news- is currently the main driver of USD/CAD, a more hawkish BoC would act as CAD-positive. For SEK, all eyes will be on the Riksbank meeting.

Key Highlights

• GBP/USD started a decent increase above the 1.2320 resistance.
• A connecting bearish trend line is forming with resistance at 1.2500 on the 4-hour chart.
• EUR/USD started a downside correction from the 1.0520 zone.
• Gold could aim for a fresh move above the $2,770 level.

GBP/USD Technical Analysis

The British Pound found support and started a recovery wave above 1.2250 against the US Dollar. GBP/USD climbed above 1.2320 to move into a short-term positive zone.

Looking at the 4-hour chart, the pair was able to surpass 1.2420 and the 100 simple moving average (red, 4-hour). However, the bears were active near the 1.2500 zone and the 200 simple moving average (green, 4-hour).

A high was formed at 1.2523 and the pair is now consolidating gains. On the downside, immediate support sits near the 1.2360 level or the 38.2% Fib retracement level of the upward move from the 1.2099 swing low to the 1.2523 high.

The next key support sits near the 1.2320 level and the 50% Fib retracement level of the upward move from the 1.2099 swing low to the 1.2523 high. Any more losses could send the pair toward the 1.2200 level.

On the upside, the pair seems to be facing hurdles near the 1.2500 level. There is also a connecting bearish trend line forming with resistance at 1.2500 on the same chart.

The next major resistance is near the 1.2550 level. A close above the 1.2550 level could set the tone for another increase. In the stated case, the pair could even clear the 1.2620 resistance.

Looking at EUR/USD, the pair failed to gain pace above 1.0500 and recently started a downside correction.

Upcoming Economic Events:

• Fed Interest Rate Decision - Forecast 4.5%, versus 4.5% previous.
• BoC Interest Rate Decision - Forecast 3.0%, versus 3.25% previous.

• FOMC Rate Decision: Market expectations for a rate cut are low due to concerns about slower disinflation and tariff impacts. Traders will watch for Jerome Powell’s comments on tariffs and inflation.
• ECB Rate Decision: A rate cut is widely expected, with concerns about potential US tariffs on the EU weighing on the Euro.
• Tariff Threats and Market Uncertainty: Markets are volatile due to uncertainty surrounding potential US tariffs on Canada, Mexico, China, and the EU.
• EUR/USD Technical Analysis: The Euro is finding support after a recent decline, but faces resistance at higher levels.
• USD/JPY Technical Analysis: The US dollar has been volatile against the Yen, with a potential double top formation on the weekly chart.

This week, we have three of the world’s most significant central bank’s interest rate and monetary policy decisions: the Federal Reserve, the European Central Bank, and the Bank of Canada. The central bank’s decisions follow President Trump’s executive orders and additional tariff threats to Canada, Mexico, China, and other countries.

FOMC Rate Decision and Market Expectations Amid Tariff Concerns

The Federal Open Market Committee (FOMC) interest rate decision is scheduled for Wednesday, January 29th, 2025. It is the FED’s first meeting in 2025 and the third after Trump’s election victory. The latest FOMC minutes showed that policymakers were concerned about a slower disinflation process than previously anticipated and about the impact of tariffs on inflation. According to the CME FedWatch tool and Bloomberg’s analyst surveys, the expectations for a 25 basis point cut for the January 29th FOMC meeting currently stands at 0.5%, compared to 70% just before the elections. (Chart). The surveys also reflected that traders share the FED’s official view of two x 25 bps interest rate cuts in 2025. Before the US elections, the surveys showed that participants looked at 3 – 4 interest rate cuts of 25 bps each in 2025 by the FOMC. Traders will pay attention to Jerome Powell’s comments on how tariffs may impact inflation and how the FED would react.

ECB Rate Decision and Tariff Concerns Weigh on Euro

This week, markets are looking forward to the European Central Bank’s interest rate and monetary policy decision, scheduled for January 30th, 2025. According to Bloomberg analysts’ surveys, 97.2% of participants expect the ECB to cut interest rates by 25 basis points. The surveys also suggest that participants anticipate somewhere between 3 – 4, 25 bps cut in 2025. The EU inflation rate (Eurozone HICP) Y/Y remained at nearly 2.4% throughout 2024 but dropped to 1.72% in September. However, it rose to its 2024 average of 2.7% and has remained there since then.

Last week, President Trump vowed to impose tariffs on the EU; Trump said, “We have a $350 Billion deficit with the European Union, the EU, and other countries also had troubling trade surpluses with the United States”. “The European Union is very bad to us; they are going to be in for tariffs. It’s the only way you’re going to be in for tariffs.” On Wednesday of last week, ECB president Christine Lagard said, “Europe must be prepared and anticipate the potential trade tariffs of newly inaugurated US President Donald Trump.” Lagarde also said she “Expects Trump’s tariffs to be more selective and focused.”

Following Trump’s EU tariff comments, the EUR/USD exchange rate retreated below the resistance level of 1.0445 to 1.0390; however, it remained at this level as traders continued to digest the tariff’s impact on the exchange rate. The divergence between the EU and US plans for interest rate cuts in 2025 may add more pressure on the Euro; however, this remains subject to further details on how the tariff plans develop and its details.

Tariff Threats and Market Uncertainty 

Markets remain on high alert, and volatility is higher than usual as traders react to mixed messages about tariffs. During his election campaign, President Trump proposed a 25% tariff on Canada and Mexico, the USA’s largest trading partners, and a 10% tariff on China and the EU. So far, no formal tariff decisions have been made. The president mentioned multiple times that the primary purpose of tariffs is for the US to have fairer trade agreements with its partners, additional border security, and to block the flow of the Fentanyl drug from China.

Although Trump didn’t impose tariffs on day one as promised during the election campaign on Monday, hours after the inauguration speech, Trump renewed his tariff threats to Canada, Mexico, and China. Market reaction was short-lived as traders continued to wait for more details on how the Trump administration would impose tariffs and which products could be affected. Canada and Mexico have reassured the Trump administration that they will work harder to ensure the US borders are secure per Trump’s request; however, the two nations and China have prepared a list of American goods on which they may impose retaliatory tariffs.

Tariffs are considered an additional cost, impacting goods and services prices and leading to higher inflation. The first mention of tariffs pushed the US dollar higher against most major currencies. EUR/USD dropped to the 1.0180 range, almost to parity. USD/CAD rose above 1.4500, breaking out and closing above critical resistance levels, which held firm in 2015 and again in 2020. However, the price moves didn’t last long as markets continued to wait for more details. EUR/USD rose back above 1.0420, and USD/CAD fell to 1.4360.

Tariffs remain a concern for FX traders as comments continue to impact exchange rates. On Monday, the dollar rose against all its peers. The Yen, the Euro, and the Canadian Dollar instantly weakened versus the dollar after comments from US President Donald Trump and Treasury Secretary Scott Bessent highlighted concerns about tariffs.

EUR/USD Technical Analysis

EUR/USD Weekly Chart

• The overall long-term chart context reflects a “Rising Wedge” formation for the downtrend, which began mid-2021 (Descending channel marked by red Lines to the left of the chart); price action attempted to break below the lower pattern border several times. The wedge pattern changed to a sideways price action, marked with black lines on the chart.
• The price continued its decline during December 2024, reaching new lows of 1.0230, where support was found, taking the price back up above the monthly PP of 1.0442. Price rose to R1 of 1.0541; however, following Trump’s administration’s renewed tariffs concerns, the price fell back to 1.0442.
• Multiple resistance levels lie above price action near monthly R1 of 1.0541 and a confluence of resistance at 1.0633 (Marked by a black circle), represented by the intersection of an intermediate declining trendline extending from July 2023 (Dotted red line), the SMA21 and the annual PP of 1.0633
• The Stochastic Indicator aligns with price action and has crossed above the %D line. The positive divergence previously seen has materialized; however, the indicator slightly reversed from its neutral level.

EUR/USD Daily Chart

• The overall context: Price action has been trading sideways within a wide horizontal range channel that goes back to January 2023, marked by green lines on the daily chart. The channel lies within the wide range of 1.0400 – 1.1200. The price retreated to the horizontal channel support (Green line – the lower channel borderline), broke, and remained below it for more than 3 weeks. Following multiple failed attempts and the previously discussed inverted triple bottom, price action was able to break back above the broken level (Circle), where it is currently finding support. The price also broke above the descending channel’s upper border, marked by the chart’s red lines. (Resistance turned Support).
• Price action broke above the SMA21, SMA9, and EMA9, the monthly PP of 1.0442, and the weekly PP of 1.0427. The three averages and the PPs intersect with the horizontal channel support (green line) and the declining channel lower borders (red line), representing a critical confluence of support below price action near the range of 1.0350 -1.0440.
• RSI is in line with price action, with a double top formation; however, it has remained above and supported by its MA so far.

USD/JPY Technical Analysis

USD/JPY Weekly Chart

• The overall context of the chart reflects that Price action has been trading in an uptrend since early 2022, when the FED began raising interest rates. The uptrends are marked on the chart, trendlines 1 and 2. Following the US elections, the US dollar rose against the Yen; however, in the following weeks, it failed against the JPY as it was met by resistance at the historical monthly R1 standard calculations of 158.37 and trendline 1 (Blue line). Price action has been volatile around the breakout level. The decline was erased in the following weeks as the price rose, reaching the extension for trendline 1 in mid-December, the 158.37 area, where resistance was found for the past few weeks.
• The weekly chart shows a double top formation (Red curves—baseline marked by ascending red line). The baseline intersects with the monthly PP of 154.64.
• Price action is currently trading above its fast-moving averages, EMA9 and SMA9, the intermediate moving average, SMA20, and its monthly pivot point of 154.64.
• Fast RSI7 aligns with price action, currently at its neutral level and reflecting a slight negative divergence, adding more weight to the double top formation. (marked by the dotted red lines)
• Stochastic is in line with price; the %K line crossed below the %D line, and both are below the overbought levels.

USD/JPY Daily Chart

• The recent price action on the daily chart reflects that the price was moving in an intermediate uptrend since mid-September of 2024, interrupted during the last few days of November 2024, as price action broke and closed below the uptrend. (Dashed black line).
• An exhaustion gap in late October 2024 has been filled, with price action breaking and closing below it. The support level represented by the gap formation has turned into a resistance level near 152.60. Following the decline in early December of 2024, price action found support above an intermediate trendline (Dashed red line) and rose back to the dashed black line, where it found resistance, which was followed by multiple daily spinning tops candles and a failure back down to its monthly PP of 154.64.
• Price action broke and closed below its weekly PP of 155.84, its fast and intermediate moving averages, EMA9, MA9, and MA21. The three averages and the weekly PP represent a confluence of resistance above the price.
• A second set of multiple spinning top candles formation for the past few days, highlighted in grey.
• Fast RSI5 aligns with price action, reflecting a potential positive divergence. The MACD line is below its signal line but remains close to it.

In conclusion, this week’s central bank decisions and ongoing tariff threats have created a volatile and uncertain market environment. While the FOMC is expected to hold rates steady, the ECB is likely to cut rates amid concerns about US tariffs on the EU. The overall market sentiment remains cautious as investors await further clarity on the trade situation. The technical outlook for EUR/USD and USD/JPY suggests continued volatility, with potential support and resistance levels identified. Traders should closely monitor central bank announcements and news related to tariffs to navigate these uncertain times.

• The US Treasury is proposing a gradual increase in universal tariffs, causing uncertainty in the US Dollar and market expectations.
• The Federal Reserve meeting tomorrow is expected to result in an extended pause due to tariff uncertainties and potential inflation impact.
• Gold maintains a bullish bias due to uncertainties around tariffs and their impact, with safe-haven flows to support prices.

Gold prices dropped yesterday as markets digested a host of factors which included tariff threats and a market shock thanks to Chinese AI startup DeepSeek. The precious metal has edged its way higher since printing a low of $2730/oz to trade around $2750/oz at the time of writing.

Yesterday’s price drop in Gold may also have been down to some profit taking following an impressive rally last week. Given the US Federal Reserve interest rate meeting is tomorrow, market participants may have opted for some profit taking ahead of a potentially volatile Wednesday.

Tariff Threats Back in Focus – Bessent vs Trump?

The threats of tariffs came back to the fore yesterday as well. The Financial Times reported that new Treasury Secretary Scott Bessent is pushing for a gradual increase in universal tariffs, starting at 2.5% and possibly going up to 20%. President Trump later said he wants even higher tariffs and is considering specific taxes on products like steel, copper, and semiconductors.

This goes against market expectations that tariffs would be applied on a case-by-case basis, like with Colombia, rather than across the board. Since these plans are being actively developed by the Treasury and not just hinted at by Trump, the US Dollar has been making moves with a lot of whipsaw price action experienced by the Dollar Index (DXY).

FED Meeting Ahead –  Extended Pause?

The Federal Reserve meeting tomorrow should result in an extended pause given the ongoing uncertainties around tariffs. Despite Fed Chair Powell’s comments in the lead up to the December meeting that policymakers do not concern themselves with the political side of things, the meeting minutes showed that policymakers are concerned about tariffs.

The threat of tariffs continues to shake markets when mentioned, and strengthens the US dollar. The impact on inflation however, is where the concern lies for the Fed with Trump’s comments yesterday around specific taxes on products like steel, copper and semiconductors likely to lead to an increase in price pressures down the line.

Markets are now pricing in around 48 bps of rate cuts from the Fed through December 2025.

Source: LSEG (click to enlarge)

Final Thoughts

Personally I still maintain a bullish bias on Gold largely from the fact that the uncertainties around tariffs and their impact will keep safe haven flows elevated. As we saw yesterday, the US Dollars safe haven appeal may be waning with the JPY and CHF faring better during the DeepSeek inspired market rout.

Geopolitical and growth concerns may also factor in and thus lend a supporting hand to Gold prices in the days and weeks ahead.

Technical Analysis Gold (XAU/USD)

From a technical analysis standpoint, this analysis is a follow up from the technicals last week. Read: Gold (XAU/USD) Price Steady On Inauguration Day, the Calm Before the Storm?

Golds breakout after President Trumps inauguration fell short of the al time highs as the precious metal rejected at the 2785 handle.

Yesterday’s selloff has not resulted in a trend change with bulls coming back in to push prices above the 2750 handle.

Gold (XAU/USD) Daily Chart, January 28, 2025

Source: TradingView (click to enlarge)

Dropping down to a H4 chart and as you can see below, the trend has changed to bearish with a lower high followed by a lower low. However there is a descending trendline in play with the swing high resting at 2770.

A candle close above the descending trendline, could lead to a retest of the 2770 ahead of the FOMC meeting.

A 4-hour candle close above the 2770 handle could be seen as a pre-cursor for fresh all-time high for the precious metal.

Keep an eye out for comments around tariffs or any other geopolitical comments from the Trump administration as this could have a knock on effect on global markets.

Gold (XAU/USD) Four-Hour H4 Chart, January 28, 2025

Source: TradingView (click to enlarge)

Support

• 2750
• 2739
• 2724

Resistance

• 2758
• 2770
• 2785

The dollar index was firmer on Tuesday and recovering from Monday’s turbulence, sparked by DeepSeek shockwave.

Today’s gap higher opening and (so far limited) bounce were sparked by Trump’s renewed tough tariff rhetoric.

The action is calmer compared to Monday’s wide swings and signal potential recovery (if talks about tariffs do not fade again) after Monday’s dip to five-week low was contained by the top of ascending daily Ichimoku cloud (106.75) that now offers solid support.

However, recovery so far did not show significant results, as initial barriers at 108.00 zone (Fibo 38.2% of 110.00/106.75 pullback /10DMA) is still intact.

Conflicting signals from daily chart (momentum remains negative / RSI is heading north, and MA’s are in mixed setup) do not provide adequate support, although dollar is still afloat.

All eyes are on Wednesday’s FOMC rate decision, which is widely expected to result in unchanged US interest rates, but markets want to hear more from Chief Powell, particularly about the central bank’s rate trajectory in 2025.

Most economists expect 50 basis points cut in total in 2025, with first 25 bps cut to possibly occur in the second half of the year.

Elevated inflation in the US and expectations for further price pressure on President Trump’s election promise about strongly boosting US economic growth, should further support the dollar.

Res: 108.00; 108.37; 108.75; 109.25
Sup: 107.50; 106.89; 106.75; 106.12

The US dollar rose on Tuesday, adding 0.65% against a basket of popular world currencies amid Donald Trump’s statements about his desire to increase the universal tariff on all imported goods above the current 2.5%.

News of the tariffs supports the US dollar as it suggests a reduction in the US trade deficit and an increase in demand for local goods. Currently, this represents a market reaction to plans that have yet to be implemented, but the information has supported the dollar from a technical analysis perspective.

Last week, the DXY index finished below its 50-day moving average, breaking a four-month uptrend. However, a quick return above that level this week allows the decline on Friday to be viewed as a temporary deviation.

With further growth of the dollar, the decline of the previous two weeks can be interpreted as corrective, which allowed to fix profits and clear the way for further growth with the renewal of the January highs. The Fibonacci extension points to a potential target for the DXY index around 116, which corresponds to a rise to 161.8% of the initial momentum. But in practice, the path may be less straightforward.

Later this week, the Fed meets, where no change in the key rate is expected. The focus will be on plans for 2025 and whether expectations of two rate cuts are confirmed.

Tariff threats may encourage the Fed to stick to tighter monetary policy, but this is at odds with Donald Trump’s recent demands for rate cuts to stimulate growth. In the currency market, low rates help weaken the dollar, offsetting the effect of higher tariffs, with the economy receiving an additional boost to inflation. This raises the question of the Fed’s tolerance for inflation. Both in Trump’s first term and immediately after the last election, the Fed tightened its rhetoric at the prospect of the effects from tariffs.

Higher inflation at healthy growth rates could help the US reduce its government debt-to-GDP ratio by depreciating the dollar’s real purchasing power. However, this is a complex process that requires a high level of international coordination. The United States succeeded in the 1980s with the Plaza Accord, but the question remains whether it can do so again.

US Conference Board Consumer Confidence Index dropped to 104.1 in January, down from 109.5 and falling short of expectations at 105.7. Present Situation Index saw steep decline by -9.7 points to 134.3. Expectations Index fell by -2.6 points to 83.9, but remained above the critical recession signal threshold of 80.

Dana Peterson, Chief Economist at The Conference Board, noted that consumer confidence has been fluctuating within a relatively stable range since 2022. While January marked the second consecutive monthly decline, the index still falls within that range, albeit closer to its lower boundary.

Peterson added that consumers’ optimism about future business conditions and income also declined. Notably, December’s growing pessimism about future employment prospects was confirmed in January.

Full US consumer confidence release here.