After a volatile Monday driven by Trump’s inauguration updates, traders await more clarity on his next steps, particularly on trade policies. While Trump mentioned tariffs, his lack of action kept markets uncertain, initially weighing on the USD. However, the Greenback rebounded after his plan to review trade relations with China, Mexico, and Canada. A cautious mood persists as traders return from the US holiday, eyeing upcoming data from the Eurozone and Canada. Concerns over Trump's inflationary policies challenge the recent risk-on sentiment.
The US Dollar's decline helped EURUSD post its biggest daily jump in 14 months, but downbeat German inflation data and updates from the EU finance ministers’ meeting brought sellers back. The bloc’s finance ministers agreed to strengthen ties to tackle trade war risks and boost EU competitiveness. German PPI showed contraction, while Eurozone construction output rose.
Meanwhile, USDJPY faces a two-day losing streak as Japan’s FX diplomat criticized Trump’s inflationary policies, and expectations of a BoJ rate hike on Friday grew.
GBPUSD saw its biggest daily jump since November 2023 on Monday, driven by a weaker US Dollar and rising UK house prices. However, a reassessment of risk factors and economic concerns surrounding Britain, especially after a disappointing UK jobs report, led to a pullback in the British Pound (GBP).
Monday’s risk-on mood and China’s economic efforts boosted the AUD, NZD, and CAD. However, Tuesday saw a pullback as mixed New Zealand data, a shift in risk sentiment, and the USD’s rebound pared those gains. USDCAD surged notably amid the USD rebound and falling crude oil prices, as Trump’s push for more energy output weighed on Canada’s key export item.
Gold stays firmer at an 11-week high, supported by market uncertainty and news from China. Meanwhile, oil prices fell amid expectations of a supply boost from Trump’s "drill baby drill" policy, before rebounding ahead of weekly inventories.
A sell-the-fact move caused a pullback in major cryptocurrencies after Trump’s executive orders left out any mention of crypto, disappointing Bitcoin (BTCUSD) and Ethereum (ETHUSD) buyers. That said, BTCUSD hit a new all-time high before pulling back, while ETHUSD ended the day in the green but resumed its decline on Tuesday.
With American traders returning from the holiday and Trump’s first full day as President, markets are expected to be volatile, particularly affecting risk assets. Key data to watch includes the EU/German ZEW Sentiment and Canada’s December inflation. The US Dollar may reverse losses, while crude oil could dip further. Gold is likely to stay firm as a haven. EURUSD and GBPUSD may remain under pressure, while USDJPY could recover. Commodity-linked currencies and equities may hold lower, but cryptocurrencies might bounce back amid hopes for industry-friendly actions from Trump.
May the trading luck be with you!
