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Daily Pivots: (S1) 182.73; (P) 183.40; (R1) 183.99; More...

EUR/JPY consolidations from 184.89 is still extending and intraday bias stays neutral. Further rally is still expected as long as 181.98 resistance turned support holds. On the upside, firm break of 184.89 will resume larger up trend to 186.31 long term projection level. However, decisive break of 181.98 will turn bias to the downside for deeper pullback.

In the bigger picture, up trend from 114.42 (2020 low) is in progress and should target 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. Considering bearish divergence condition in D MACD, upside could be capped by 186.31 on first attempt. Still, outlook will stay bullish as long as 55 W EMA (now at 172.16) holds, even in case of deep pullback. Sustained break of 186.31 will pave the way to 100% projection at 205.81 next.

Key takeaways

Macro tailwinds favour AUD: Improving China growth signals and still-elevated Australian inflation tilt the RBA toward a less dovish stance in early 2026, underpinning medium-term AUD/USD upside.

Medium-term uptrend firmly established: AUD/USD has broken its long-term downtrend, is holding above the rising 20-day MA, and remains supported by a widening AU–US 2Y yield differential, with 0.6590 as the key medium-term support.

Short-term bullish momentum constructive: A minor bullish breakout above 0.6720 opens scope for a push toward 0.6760–0.6800, as long as 0.6685 holds over the next 1–3 trading days.

Fig. 1: Annual performance of the US dollar against major currencies as of 31 Dec 2025 (Source: TradingView)

The Australian dollar delivered a strong performance in 2025, finishing the year with a 7.2% gain against the US dollar. This placed it among the top-performing major currencies, trailing only the euro (+11.8%) and the Swiss franc (+12.5%) versus the greenback (see Fig. 1).

Since the 21 November 2025 low of 0.6421, the AUD/USD recorded a gain of close to 5% as of Tuesday, 6 January 2025, at the time of writing, to print an intraday value of 0.6730.

Twin drivers: China’s improving economic prospects and Australia’s rising inflation trend

The macro factors that are supporting the ongoing medium-term (multi-week) bullish momentum in the AUD/USD are, firstly, an improving economic backdrop in China, where the official NBS Manufacturing PMI unexpectedly rose to 50.1 in December 2025, surpassing both November’s reading and expectations of 49.2. It marked the first expansion in factory activity in China since March 2025

Secondly, Australia’s inflation trend has started to accelerate since June 2025, as the trimmed mean CPI jumped to 3.3% y/y in October 2025 from June’s print of 2.8% y/y and September’s print of 3.2%. Even though, the consensus for December 2025’s trimmed mean CPI that is released on Wednesday, 7 January, is expected to cool down slightly to 3.1% y/y but it is still higher that RBA’s desired long-term inflation target of 2%-3%.

Hence, an improving macro backdrop from China, which is Australia’s major trading partner and domestic inflation trend remains elevated, the odds are skewed towards a less dovish RBA’s monetary policy stance at least in the first quarter of 2026, which is likely going to be supportive for the AUD/USD to springboard to higher highs.

Let’s now dissect the directional bias of the AUD/USD from a technical analysis perspective.

AUD/USD medium-term uptrend supported by a bullish reversal from 20-day MA

Fig. 2: AUD/USD medium-term & major trends as of 6 Jan 2026 (Source: TradingView)

The AUD/USD has staged a major bullish breakout on 5 December 2025 from its former long-term secular descending trendline that capped previous rallies since the 25 February 2021 high.

The positive developments have indicated that the medium-term range configuration from 24 April 2025 to 21 November 2025 is likely to have ended, and the AUD/USD’s trend has now transited to a medium-term up trend phase since the 21 November 2025’s key inflection low of 0.6421 (see Fig. 2).

The latest price actions of the AUD/USD have managed to trade above its rising 20-day moving average, which is acting as a key intermediate support at around 0.6660, where it staged a rebound on 2 January 2026 and on Monday, 5 January 2026.

In addition, the 2-year yield premium between Australian sovereign bonds and US Treasury notes has continued to widen to 0.60% at the time of writing from 0.10% printed on 19 November 2025.

These positive observations on the Australian dollar reinforce the ongoing medium-term uptrend phase for the AUD/USD with its key medium-term pivotal support at 0.6590.

AUD/USD minor bullish acceleration towards 0.6760 and 0.6800

Fig. 3: AUD/USD minor trend as of 6 Jan 2026 (Source: TradingView)

We now turn to the key technical levels and short-term intraday signals to define the prevailing trend bias over the next one to three trading days.

Based on the hourly chart, the AUD/USD has just staged a bullish breakout from a former minor range resistance of 0.6718/0.6727 in place since 29 December 2025.

This minor bullish breakout is likely to have solidified the start of another potential leg of an impulsive up move sequence for the AUD/USD (see Fig. 3).

Watch the 0.6685 key short-term pivotal support (also the minor ascending channel support from 21 November 2025 low) to maintain the bullish bias on the AUD/USD for the next intermediate resistances to come in at 0.6760 and 0.6800 in the first step.

However, failure to hold at 0.6685 negates the bullish tone for a minor corrective slide to retest the 20-day moving average that is acting as the second-level key short-term support at 0.6660.

Daily Pivots: (S1) 210.93; (P) 211.39; (R1) 212.27; More...

GBP/JPY's rally resumed by breaking through 211.57 temporary top and intraday bias is back on the upside. Decisive break of 61.8% projection of 184.35 to 205.30 from 199.04 at 211.98 will extend current up trend to 100% projection at 219.99 next. On the downside, break of 210.48 support will argue that a short term top is already formed, and turn bias back to the downside for deeper pullback.

In the bigger picture, up trend from 123.94 (2020 low) is in progress. Next target is 61.8% projection of 148.93 to 208.09 from 184.35 at 220.90. On the downside, break of 205.30 resistance turned support is needed to indicate medium term topping. Otherwise, outlook will stay bullish even in case of deep pullback.

Risk sentiment turned decisively positive overnight and carried through the Asian session as traders looked past Venezuela-related geopolitical risks. The shift marked a clear return to risk-on positioning, and prompted a broad reversal in the Dollar, which broke lower after firming earlier on Monday. With haven demand fading, the greenback slipped to the bottom of the FX performance table as investors rotated toward higher-beta and commodity-linked currencies.

Australian Dollar emerged as a clear beneficiary, jumping broadly across the board, with strength reinforced by a renewed rally in metals, led by Copper pushing further into record territory. Support from commodities helped lift AUD/USD to its highest level since late 2024.

In contrast, traditional havens came under pressure. Both Yen and Swiss Franc weakened as risk appetite improved, with Yen facing additional headwinds from domestic fiscal concerns in Japan. Japanese government bonds sold off after soft demand at a 10-year auction. The bid-to-cover ratio fell to 3.30 from 3.59 at the previous sale, while the auction tail widened to 0.05 yen, signaling weaker investor appetite. As a result, the 10-year JGB yield climbed to its highest level since February 1999.

Across markets, Dollar is currently the weakest major currency, followed by Swiss Franc and Yen. Aussie and Kiwi lead gains, with Euro also firmer. Sterling and Loonie trade in the middle.

Overnight, US equities surged — DOW rose 1.23%, S&P 500 gained 0.64%, and NASDAQ Composite advanced 0.69%. In Asia, Nikkei rose 1.32%. Hong Kong HSI is up 1.39%. China Shanghai SSE rose 1.50%. Singapore Strait Times is up 1.18%. Japan 10-year JGB yield rose 0.015 to 2.134.

UD/USD breaks higher decisively, risk appetite returns as markets look past Venezuela

Risk appetite has returned decisively, pushing DOW to fresh record highs overnight and drawing Asian markets higher in its wake. The improved tone has spilled into FX, with Australian Dollar emerging as the strongest performer amid renewed risk-on sentiment.

The US deposition of Venezuelan President Nicolás Maduro initially injected caution into markets. However, investor hesitation proved short-lived as participants reassessed the broader implications and found little reason to sustain defensive positioning.

A growing consensus has emerged that events in Venezuela are unlikely to disrupt global or Latin American financial markets. Crucially, investors see limited risk of spillovers into energy markets, removing a key channel through which geopolitical shocks typically feed into broader macro pricing.

Oil’s muted reaction has been central to the shift back toward risk. With crude prices steady, markets are increasingly confident that the Venezuela developments will not materially affect US inflation dynamics, keeping the Fed’s easing path intact. That backdrop supports expectations for at least one further rate cut this year.

Technically, AUD/USD has resumed its uptrend after firm break above the 38.2% retracement of 0.8006 to 0.5913 at 0.6713. The move strengthens the case that the rebound from 0.5913 is evolving into a broader trend reversal of the decline from the 2021 high at 0.8006. The next near-term target is seen at 61.8% projection of 0.5913 to 0.6706 from 0.6420 at 0.6910.

Japan monetary base drops below JPY 600T, as BoJ presses ahead with normalization

Japan’s monetary base contracted in 2025 for the first time since 2007, underlining the Bank of Japan’s decisive shift away from decades of ultra-loose policy. Data released today showed the average balance of the monetary base fell -4.9% year-on-year, echoing the period when the BoJ last embarked on a rate-hike cycle.

The contraction accelerated toward year-end. The average balance in December stood at JPY 594.19 trillion, down -9.8% yoy and falling below the JPY 600 trillion mark for the first time since September 2020.

The decline reflects the BoJ’s ongoing exit from its decade-long stimulus, which began in 2024. Since then, the central bank has raised interest rates, slowed purchases of JGBs and wound down funding schemes designed to encourage bank lending. With policy normalization still underway, Japan’s monetary base is expected to continue shrinking as bond tapering and further rate hikes proceed.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 210.93; (P) 211.39; (R1) 212.27; More...

GBP/JPY's rally resumed by breaking through 211.57 temporary top and intraday bias is back on the upside. Decisive break of 61.8% projection of 184.35 to 205.30 from 199.04 at 211.98 will extend current up trend to 100% projection at 219.99 next. On the downside, break of 210.48 support will argue that a short term top is already formed, and turn bias back to the downside for deeper pullback.

In the bigger picture, up trend from 123.94 (2020 low) is in progress. Next target is 61.8% projection of 148.93 to 208.09 from 184.35 at 220.90. On the downside, break of 205.30 resistance turned support is needed to indicate medium term topping. Otherwise, outlook will stay bullish even in case of deep pullback.

Markets

European stocks extended gains in 2026, pushing the EuroStoxx50 to new record highs yesterday as investors squarely ignored the sudden flare up of geopolitical risk – as they usually do. Wall Street found a better bid after missing its start to the new year on Friday. The most important indices rose between 0.6% (S&P500) to 1.2%. The strong European and US performance followed an even more impressive one in Asia, where tech in particular pushed the likes of Japan’s Nikkei to within striking distance of its October record high. That bullish momentum continues this morning, led by a hunger for (Chinese) technology shares. Gold joins the club (+0.34%) while oil steadies after staging a comeback to the $61.7 area yesterday. The bear steepening in core bond curves took a breather. A sub-par manufacturing ISM in the US helped Treasuries extend earlier gains, resulting in net daily yield losses varying between 2 and 3.9 bps across the curve. The headline number unexpectedly dropped from 48.2 to 47.9, driven by a pullback in production (51 from 51.4) and especially inventories (45.2 from 48.9). Employment and new orders improved somewhat but remain in contraction territory. The German curve bull flattened, showing declines of 1.2 (2-yr) to 3.4 (30-yr) bps. We wouldn’t call time on the 2025 steepening trend at all. Fiscal policy remains expansionary in virtually all corners of the (advanced) world, resulting in huge financing needs to be covered and potentially pressuring the long end of the curve (risk premia). Central banks meanwhile are either sidelined (ECB, BoE) or have skewed buying to shorter maturities for operational (not monetary) purposes only (Fed). Front end yields are more or less stuck in the European case with the ECB holding steady for months to come. French and German inflation numbers today, ahead of the euro area print tomorrow, won’t change that. The case for the Fed will get shaped by this week’s eco numbers. Yesterday’s manufacturing ISM was merely an appetizer to the more dominant releases starting tomorrow. The next Fed cut is not fully priced in before June.

FX markets showed little direction on Monday. The dollar initially held the upper hand against most peers, including the euro. EUR/USD hit an intraday low of 1.1659 but then started to rebound. The slightly disappointing ISM supported the turnaround, bringing the pair eventually back to 1.172 opening levels. DXY broke a six-day winning streak to finish at 98.27. Sterling was the top performer but for unclear reasons. EUR/GBP’s attempt to claw back above 0.87 ended in tears. The 0.866 close was the lowest since mid-October. The duo broke below the lower bound of a downward sloping trend channel. The technical charts dictate a revisit of the 0.86 big figure.

News & Views

The UK Treasury and Debt Management Office yesterday released a consultation document on the UK Treasury bill market. It contains amongst others a questionnaire for market participants on expanding and deepening the T-bill market. The outcome may support the case for T-bills to play a larger role in the government’s debt financing programme. At the end of 2024, bills made up around 3% of central government GBP debt. In the US for example, the T-bill market accounts for more than 20% of US debt. Any decisions taken around the expansion and deepening of the T-bill market will be communicated in the 2026-27 financial year. Last year, the DMO already made a significant shift in UK Gilt issuance by cutting long-term bond sales in favor of shorter-dated ones.

The British Retail Consortium’s (BRC) shop price index showed retail prices rising by 0.7% Y/Y in December, up from 0.6% Y/Y in November. On a monthly basis, the overall price level was unchanged with falling non-food prices (-0.1% M/M) compensating for higher food costs (0.3% M/M) during the festive period. Compared to December 2024, UK food prices increased by 3.3% while the non-food segment remains in deflationary territory (-0.6% Y/Y). The CEO of the BRC said that falling energy prices and improved crop supply should help ease some cost pressures in the year ahead, but increased public policy costs and regulation will likely keep inflation sticky.

Crude Oil — which initially failed to convince bulls in Asia on the Venezuelan news — ended up rallying as Europe stepped in. The US session then pushed a barrel of US crude above the $58.50 level. Crude is again under pressure this morning in Asia, hovering just above the $58pb mark. As we discussed in detail yesterday, the hesitation comes from the fact that Venezuela’s vast oil fields suffer from years of underinvestment and ageing technology, which prevents the country from pumping and exporting oil at scale. Despite sitting on the world’s largest oil reserves, the country exports less than 1% of global supply.

But Trump has a plan. He wants to send American oil giants in to “spend billions of dollars, fix the badly broken infrastructure and start making money for the country” — and for themselves, of course — an idea that clearly pleased oil stock investors yesterday, sending the S&P 500’s energy sector up by 2.72% to a fresh record high. If you were not sufficiently convinced that softer Federal Reserve (Fed) rates, rising inflation risks and the rotation trade would benefit oil stocks, this may have done the trick.

And of course, there are worries that US ambitions wouldn’t stop at Venezuela. Trump is also looking at Denmark’s Greenland for example - for its strategic positioning and access to critical metals.

There is no doubt that moving into Greenland and taking control would be dramatic for the world order — it would signal the end of NATO as we know it and the beginning of a new, darker era for global geopolitics. While still extreme, it is a scenario that can no longer be completely ruled out.

That explains why European defence stocks kicked off the week on strong footing. The STOXX Aerospace & Defence ETF jumped more than 4% yesterday, at a time when gains were expected to stall after last year’s near-100% rally. Unfortunately, the outlook for global defence stocks has suddenly improved since last weekend.

Another big winner of the Venezuela incident is rare earth metals. That’s because China is watching Maduro’s capture with great concern. Beijing has provided loans for years to rebuild and upgrade Venezuela’s oil infrastructure and refineries in exchange for cheaper access to its oil. If the US takes hold of Venezuelan oil, China would effectively lose that privileged access. The expectation is therefore that China could retaliate — and one of the most effective tools, as we saw last year, is restricting rare earth exports to the US. That prospect pushed VanEck’s Rare Earth Metals ETF up 3.82%, to its highest level since last October.

The good news is that Venezuela also holds rare earth resources that the US could potentially exploit to reduce its dependence on China. The problem is that the US cannot turn its back on China overnight: China remains, by far, the world’s dominant exporter of rare earths, accounting for more than two-thirds of global production.

Why are rare earths so important to the US? Because they are critical inputs for technology — and no one wants avoidable supply constraints in the middle of a global tech war.

In summary, oil and defence stocks, along with rare earth metals, have been the biggest gainers from the Venezuela news. The UK’s energy- and mining-heavy FTSE 100 traded past the 10,000p mark for the second session in a row and closed above that level for the first time.

As for crude oil itself, if US oil companies step in and successfully raise production, the medium-term outlook for oil prices would likely turn more negative.

Beyond Venezuela, investors also watched economic data showing that US manufacturing activity contracted for a tenth straight month in December, while a rapid drawdown in inventories suggested companies are relying on existing stockpiles to meet softening demand. That raises an important question: what happens to inflation when inventories are rebuilt at tariff-boosted prices? For now, investors remain comfortable that inflation will stay in check — as reflected in falling US two-year yields.

As a result, the US dollar reversed early Asian gains on Monday and remains under decent selling pressure in Asia this morning. The EURUSD is better bid after rebounding from its 100-DMA. The next key resistance sits at the psychological 1.18 level, tested but not broken around Christmas. Traders will watch European inflation and PMI data today to shape European Central Bank (ECB) expectations. The ECB is not expected to change interest rates this year, as policymakers see actual rates as being in a relatively comfortable position to manage two-sided inflation and growth risks amid geopolitical uncertainty.

Let’s finish on a brighter note. Tech investors kicked off the new year with solid appetite. South Korea’s Kospi has already broken three records since the start of the year, while the Hang Seng is closing the gap with last October’s peak. In Europe, ASML gained nearly 15% in the first two trading sessions of the year on strong AI demand.

At his CES speech yesterday, Nvidia CEO Jensen Huang highlighted two key developments. First, he said the Rubin chip — Nvidia’s next-generation processor — delivers sharply higher performance than Blackwell in both training (x3.5 times) and inference (x5 times), while being cheaper to operate thanks to fewer components. He added that demand is “really high” and that major clients, including Microsoft, could begin using it in the second half of the year. Second, he unveiled a vehicle platform called Alpamayo aimed at improving autonomous driving reasoning capabilities, part of Nvidia’s push into physical AI.

Nvidia shares were testing the 50-DMA to the downside ahead of the speech. The question now is whether these announcements can bring investors back in, despite lingering concerns over elevated AI valuations, deal circularity and leveraged AI investment.

Risk appetite has returned decisively, pushing DOW to fresh record highs overnight and drawing Asian markets higher in its wake. The improved tone has spilled into FX, with Australian Dollar emerging as the strongest performer amid renewed risk-on sentiment.

The US deposition of Venezuelan President Nicolás Maduro initially injected caution into markets. However, investor hesitation proved short-lived as participants reassessed the broader implications and found little reason to sustain defensive positioning.

A growing consensus has emerged that events in Venezuela are unlikely to disrupt global or Latin American financial markets. Crucially, investors see limited risk of spillovers into energy markets, removing a key channel through which geopolitical shocks typically feed into broader macro pricing.

Oil’s muted reaction has been central to the shift back toward risk. With crude prices steady, markets are increasingly confident that the Venezuela developments will not materially affect US inflation dynamics, keeping the Fed’s easing path intact. That backdrop supports expectations for at least one further rate cut this year.

Technically, AUD/USD has resumed its uptrend after firm break above the 38.2% retracement of 0.8006 to 0.5913 at 0.6713. The move strengthens the case that the rebound from 0.5913 is evolving into a broader trend reversal of the decline from the 2021 high at 0.8006. The next near-term target is seen at 61.8% projection of 0.5913 to 0.6706 from 0.6420 at 0.6910.

In focus today

In the euro area, final December services and composite PMIs are released today, with the composite measure likely being revised down as the final manufacturing print was revised lower to 48.8 from 49.2. Focus also turns to the German and French December inflation data that we receive ahead of the euro area release. The Spanish HICP inflation revealed last week came in as expected falling to 3.0% y/y from 3.2% y/y so French and German inflation is also likely to come in as expected.

Economic and market news

What happened yesterday

In the US, December ISM manufacturing fell slightly to 47.9 (cons: 48.4) from 48.2 in November. While tariffs continue to weigh on trade, with weak export orders and imports, the order-inventory balance improved again, signalling positive prospects for future output. Price and employment indices remained largely unchanged.

Minneapolis Federal Reserve President Kashkari was on the wire saying inflation is slowly trending down, but risks remain of a sudden jump in the unemployment rate. Kashkari noted that while monetary policy is likely close to neutral, more data is needed to determine whether inflation or labour market trends will drive future policy adjustments. The comment comes ahead of the release of the US Jobs Report for December on Friday. Kashkari was among the more hawkish FOMC participants last year, and he is a new voter for 2026.

In geopolitics, markets reacted calmly on Monday to the US capture of Venezuelan President Maduro, with Asian stocks rising, oil prices gaining modestly, and gold benefiting from safe-haven flows. Maduro, who appeared in a US federal court on Monday, pleaded not guilty to charges of drug trafficking and other crimes, while Russia and China condemned the raid as a violation of international law. Venezuela's acting president, Delcy Rodríguez, initially denounced the US operation as a colonial oil-grab but later shifted her stance, signalling potential cooperation with Washington on oil production and regional stability. Global markets generally performed well on Monday, but President Trump's threats against Colombia and Mexico, along with renewed talk of annexing Greenland, underscore that geopolitical tensions remain elevated as the new year begins.

In pharma, Novo Nordisk appears to be launching a weight-loss pill price war with the introduction of its Wegovy pill. The pill is priced at USD 149 per month for self-paying patients, with insured patients paying as little as USD 25 per month. Higher doses are available at USD 299, offering a more flexible alternative to injectable treatments. Shares of Novo Nordisk rose 5% in Monday's trade as the company seeks to regain ground in the competitive obesity drug market. Rival Eli Lilly plans to launch its own weight-loss pill by March, further intensifying competition in the sector.

Equities: Global equities extended their gains yesterday, rounding off what has been a strong start to 2026, even though we are only a few trading days into the year. What stood out was a clear cyclical rotation, though once again not led by tech. Instead, leadership came from materials, industrials and financials. In contrast, several defensive sectors finished the day in negative territory, including utilities, healthcare and consumer staples. Taken together, this points to a pronounced risk-on tone and, from an equity investor perspective, virtually no fear premium linked to the latest geopolitical escalation around Venezuela. It goes without saying, the above fits our strategy extremely well. In the US yesterday, Dow +1.2%, S&P 500 +0.6%, Nasdaq +0.7%, and Russell 2000 +1.6%. Same pattern is visible this morning in Asia, where South Korea, Taiwan and Japan are all up more than 1%. Equity futures are marginally higher across both Europe and the US.

FI and FX: The USD initially among stronger currencies as the market was buying both US stocks and bonds but retraced that move on a weak ISM manufacturing print. Consequently, EUR/USD made a brief tour below 1.17, while the 10Y US yield fell to 4.16%. USD funding conditions in the XCCY basis market has eased significantly after the Fed started growing its balance sheet again and easier bank capital rules in the US kick in. The oil market was steady yesterday as the market digested the events in Venezuela over the weekend. Scandies benefitted from strong risk sentiment with EUR/SEK falling below 10.80 and EUR/NOK below 11.80.

Summary

Events in Venezuela are top of mind for market participants, and while developments are associated with an elevated degree of uncertainty, we are not making any changes to our markets or economic forecasts as a result of the deposition of Nicolás Maduro. The geopolitics may prove to be the most interesting aspect of U.S. intervention in Venezuela as fragmentation may be exacerbated and countries may shift strategic alignments to demonstrate support or opposition to the U.S. operation. We also believe Latin America's shift toward conservative political platforms will remain intact as Venezuela is unique in many ways; however, similar deposition-style actions in select countries could reverse the recent trend of softening regional political risk.

We do not believe the U.S. deposition of Nicolás Maduro will act as a catalyst to disrupt global or Latin American financial markets nor oil prices. Events in Venezuela this past weekend are top of mind for market participants, especially those with exposure to Latin America and oil. While the situation is very much riddled with uncertainty—particularly in regard to what the political regime in Venezuela will look like near term and who ultimately shapes the longer-term Venezuelan government (i.e., democratically held free and fair election, extended U.S. occupation, U.S. installed administration etc.)—we struggle to see how, as the situation currently stands, financial markets and oil prices are materially affected in the immediate term.

Venezuelan sovereign and PDVSA debt, both of which are currently in default, have been some of the best performing assets since the Trump administration took office in January 2025, essentially doubling in value over the past 12 months (Figure 1). Just about all EM assets rallied last year, but the degree of Venezuelan asset outperformance, in our view, stems from market participants pricing a rising degree of confidence in a Venezuela regime change scenario. This confidence seemingly grew as U.S. military activity in the region picked up pace late last year. The significant outperformance in Venezuela asset prices suggest market participants were unlikely to be caught off guard that a regime change scenario is now in motion, even if this scenario is in infant stages and the future remains far from certain.

In that sense, as things currently stand, we do not envisage material nor long-lasting financial market disruptions on the basis that markets may have been prepared for political turnover in Venezuela. This theory extends to macro asset classes across EM and Latin America, as well as oil prices, and we will not be making adjustments to any of our markets-related or global economic forecasts due to recent developments in Venezuela.

The geopolitical implications are just as paramount, if not more. An era of global fragmentation, heightened U.S.-China competition and a more interventionist approach to foreign affairs from the Trump administration all add a layer of geopolitical complexity to U.S.-Venezuela developments. From a geopolitical perspective, the U.S.-led deposition of Maduro should exacerbate the fragmenting of the global economy and also drive deeper wedges, and perhaps new alignments, across Latin America. We have argued that sovereign stances on geopolitical developments are a driving force of the global economy fracturing into distinct geopolitical and economic blocs: one led by the U.S. and another by China. Initial responses from the highest levels of foreign government seem to demonstrate clear divergences in the level of opposition or support for Maduro's forced exit, particularly across Latin America.

According to our fragmentation framework, Latin American nations are already split between strategic alignment with the U.S. or opting for an alliance with China (Figure 2). In our view, the U.S.-led deposition of Maduro will likely deepen those fissures and ingrain strategic alliances even more (e.g., Argentina digs in behind the U.S., Nicaragua remains unequivocally aligned with China). Perhaps more interesting is the idea that select countries may flip their strategic alliance away from the U.S. and toward China, and vice versa. Candidates to flip toward China are Colombia and Brazil, which have already encountered new tensions with the U.S. during the past 12 months, but have also seen President Petro and President Lula strongly condemn U.S. actions in Venezuela. On the other hand, Chile currently screens as aligned with China; however, president-elect Kast has exhibited strong words of support for deposing Maduro. Over time, Chile's alignment with the U.S. on Venezuela, and perhaps other notable geopolitical events going forward over the course of the Kast administration, could flip Chile into the U.S. bloc.

We believe it is worth noting, regardless of how countries align and how those alignments change, that the global economy likely will still experiences negative consequences of fragmentation and the forming of blocs. The magnitude of the negative impact will be determined by which countries are aligned, but in the aggregate, slower global GDP growth is a product of a fracturing global economy.

Latin America's broad decline in regional political risk should be uninterrupted? Over the past 12-18 months, general and congressional elections across Latin America have yielded broad support for right-leaning political platforms. This trend has been on display in traditional left-leaning strongholds such as Ecuador, Bolivia and Argentina, and most recently in Chile and Honduras where conservative politicians won their respective general elections. We have noted in multiple publications (See: Unwinding the Tide. Latin America's Shift to the Political Right 6/11/2025, Latin America Elections Outlook 8/1/2025, Latin America Elections Outlook. The Shift to the Political Right is in Motion 11/7/2025)  how Latin America is in the midst of a second "Conservative Wave" and how regional political risk is set to decline as a result of these latest election trends (Figure 3). In our view, while Venezuela-related uncertainty will likely linger for an extended period of time, the softening in political risk associated with Latin America is likely to continue going forward.

That is not to say Venezuela will also adopt a right-leaning political platform at some point, but more a way of saying that events in Venezuela are idiosyncratic and unique and, similar to our view on how Venezuela-related events should have little impact on broader financial markets, we do not see Venezuela as disrupting the overall improvement in the political risk environment across Latin America. We believe this would be true even if Venezuela fell into a domestic power struggle situation that resulted in a prolonged U.S. occupation or no functioning government.

For us, the bigger risk for the regional political risk environment would be similar deposition-style actions toward countries in the region that are unaligned with the U.S. (i.e., Cuba and Nicaragua) and/or if the U.S. administration pursues counter-narcotics or oil incentivized activity in more systemically important regional countries such as Colombia and Mexico. We will not speculate on U.S. actions, but we would note that Venezuela is unique in the sense that geopolitical and political philosophy of the Maduro administration ran counter to that of the U.S., Venezuela has been aligned with China closely for decades, it has been suspected of being involved in the illegal flow of narcotics to the U.S. and it has the largest proven oil reserves in the world. While other regional nations may have some similarities to Venezuela, finding an exact comparable is a challenge. So, while we expect the broader political risk environment to remain on an improving trajectory, risks around this newfound stability exist.

Japan’s monetary base contracted in 2025 for the first time since 2007, underlining the Bank of Japan’s decisive shift away from decades of ultra-loose policy. Data released today showed the average balance of the monetary base fell -4.9% year-on-year, echoing the period when the BoJ last embarked on a rate-hike cycle.

The contraction accelerated toward year-end. The average balance in December stood at JPY 594.19 trillion, down -9.8% yoy and falling below the JPY 600 trillion mark for the first time since September 2020.

The decline reflects the BoJ’s ongoing exit from its decade-long stimulus, which began in 2024. Since then, the central bank has raised interest rates, slowed purchases of JGBs and wound down funding schemes designed to encourage bank lending. With policy normalization still underway, Japan’s monetary base is expected to continue shrinking as bond tapering and further rate hikes proceed.