January was a month of high volatility without a clear direction. Trump’s tariff comments, the resilient US economy, DeepSeek, decisions by the Bank of Japan, and the ceasefire in Gaza were some of the key headlines of the month. 

As February begins—a month in which the Dollar Index has posted a positive return in 9 of the last 10 years, the effects of the US tariff decision and the ongoing impact of DeepSeek will remain significant. 

Macro View 

Trump’s second term has officially begun. Markets are still bracing for incoming tariffs, but most of the pricing should already be reflected, as the Dollar Index’s trend appears to have slowed. However, a breakout above the 107-108 zone might be a signal further strength ahead. 

Trump ended January with a bang! He announced that tariffs are coming and will stack on top of existing levies. Canada and Mexico will face 25% tariffs, while China will be hit with 10% tariffs. He also mentioned the possibility of reducing tariffs on oil and stated that the U.S. will “be doing something very substantial” regarding tariffs on the European Union. While ongoing tariff discussions could further boost the Dollar Index, the effect may be more limited due to earlier market pricing. 

Stock markets posted solid returns in January, but uncertainties are piling up. The news of OpenAI’s $500 billion investment plan fueled optimism, but later, concerns over China’s AI project, DeepSeek, triggered panic in U.S. markets, which spilled over to global markets due to high correlations. Despite lingering questions about DeepSeek’s origins and safety, its cost efficiency has put pressure on high-cost U.S. AI firms and chipmakers, which have been the biggest beneficiaries of AI-driven spending. 

Adding to the risks, a strong Dollar Index, prolonged high interest rates, and tariffs could make global markets increasingly volatile. A bumpy road may lie ahead. 

In the U.S., economic growth remained strong in the fourth quarter, coming in at 2.3%, in line with the 25-year average. Although this was below market expectations, the impact of incoming tariffs was one of the key reasons for the lower-than-expected figure. 

Overall, the data was solid, with further increases in consumer spending. The job market also demonstrated the resilience of the U.S. economy. In December, seasonally adjusted nonfarm payrolls increased by 223K, supported by a decline in the unemployment rate to 4.1% from 4.2%. 

Personal income and spending continued to rise at a steady pace, outpacing inflation. Additionally, ISM Manufacturing and Services data indicated that economic activity is expanding overall. 

The cost of a high-activity and resilient economy, however, is stickier-than-expected inflation. The FOMC signaled that it will be “patient” with rate cuts going forward. Inflation has converged around 3%, rather than the Fed’s 2% target. The disinflation process appears to have stalled, and the downtrend has ended. 

The Fed now faces a challenging environment, where inflation remains sticky, the labor market has become more balanced, and tariffs exert inflationary pressure, all while there is political pressure to lower rates. 

“DOGE” could provide long-term support in easing inflationary pressures, but in the short term, its effects might be slightly negative on employment and growth. 

As of January, PMIs in the Eurozone, China, the UK, the US, and Japan are all above 50, indicating economic expansion. However, the Eurozone continues to diverge negatively, and it remains unclear whether the economy is on a genuine recovery path. 

The UK’s PMI is in a downtrend, signaling that while economic activity is still rising, the pace has slowed significantly. Additionally, there could be a hidden risk for the UK economy—gas storage levels have fallen to 27.81%, which is exceptionally low compared to historical averages. Over the last ten years, the average for this time of year has been 69.75%, with the lowest recorded level at 47.05%. Since February typically sees the steepest seasonal drop, traders should closely monitor the situation for a potential gas crisis, depending on weather conditions and storage fluctuations. 

In China, stimulus measures initially boosted PMI, but with the start of the new year, PMI fell to 50.1, indicating near-stagnation in economic activity. 

The Bank of Japan (BOJ) raised rates by 25 basis points to 0.50%, initiating one of the most significant quantitative tightening (QT) moves in its history. The BOJ has decided to end a bank lending stimulus program by July, a program that currently accounts for 10.4% of the BOJ’s balance sheet. It is scheduled to be fully phased out by 2028, representing a QT reduction worth $496 billion. 

Central Bank Meeting Calendar 

Technical View 

The U.S. 10-year government bond yield attempted to reclaim the broken orange trendline, briefly re-entering it for a few days before falling back to 4.50%. The green shorter-term trendline will be key for bonds. If it breaks and yields remain consistently below 4.50%, bonds could see increased inflows. However, for now, support is still holding. 

Brent oil attempted to break above $80 with strong momentum in the first half of January, possibly as a “dead cat bounce.” The move was triggered by stricter sanctions on Russia and declining U.S. stockpiles. 

However, Trump remains determined to bring down oil prices and has vowed to take action, which is likely to keep negative pressure on oil in the medium term. The $70-$72 zone remains the key support level to watch. 

Precious metals rebounded after two months of moderate declines. In the first half of the month, silver led the rally, followed by gold catching up. Palladium surged more than 11%, while silver and platinum gained over 8%. 

Gold was stuck between the long-term uptrend and a shorter-term downtrend that began at the end of October. After breaking out of the downtrend, gold rallied to a new all-time high but remains close to the previous peak. 

Although there have been two daily closes above it, a clear breakout above 2790 has yet to be confirmed. The first week of February will be crucial for gold’s next move. 

Silver broke out of the falling wedge formation, retested the $30 support, and began moving upward. The $32-$33 zone is now the main resistance, while the $30.95-$30 levels serve as key support levels. 

The negative divergence between silver and gold has not yet closed, suggesting that silver may outperform gold in February. 

The Dollar Index broke out of the 107-108 resistance zone, which had been capping further upside since late 2022. After retesting this level as the new support, the dollar began moving higher again, following Trump’s confirmation of tariffs on Canada, Mexico, and China. 

The technical setup appears strong for a continued dollar rally, provided that the former resistance zone at 107-108 holds as support. If this level fails, the 100-day moving average, which is catching up to the sharp price increase, could act as the next support level. 

Stock markets were volatile amid increased news flow, as Trump’s second term appears set to bring more action to the markets. 

The new year optimism, Trump’s pro-business stance at the start of his term, and the $500 billion investment news for OpenAI fueled a strong start to the year. However, heightened tariff risks and the black swan event “DeepSeek” led to significant losses in U.S. markets, particularly the Nasdaq. 

Despite this, the Nasdaq still gained 1.91%, while the S&P 500 rose 2.52%. DAX and Dow Jones benefited more from a slight recovery in manufacturing activity and were less affected by the DeepSeek-driven selloff. 

The VIX Index was only slightly higher in January compared to the 2024 average, with the monthly average rising to 16.78 from 15.60. 

The AI selloff and trade war risks do not appear to be fully priced in, as the market currently perceives these risks as temporary. The slightly elevated VIX is likely due to the initial shock and the hawkish stance of the Fed. 

The S&P 500 remains in an uptrend, but upward momentum appears to be fading, with the short-term trend flattening. 

February will be a crucial month for stock markets, as the first round of tariffs takes effect, Nvidia reports earnings, and the impact of DeepSeek on the U.S. AI market becomes clearer. 

Despite these risks, investment flows continue, supporting the broader uptrend. A whipsaw-like move around the 34-day moving average seems more likely in the first half of the month. 

Despite a pullback during the month, the Dollar Index continues to dominate the FX market. 

EURUSD held up relatively well, retreating only 0.43%, while GBPUSD diverged negatively, declining 1.32%. JPY gained ground, with USDJPY falling more than 1.34% following the BOJ’s rate hike. 

AUD was the best performer against the USD for most of the month but fell into negative territory after a sharp decline on the final day of January. 

EURUSD managed to break the sharp downtrend, but upward momentum remains weak as the Dollar Index rebounds. 

The trend is about to be retested, and fundamentals still favor the dollar. However, after the 1.12 to 1.02 decline, EURUSD appears to be attempting to stabilize. 

The 1.046-1.048 zone remains a key level for long-term movements. 

USDJPY declined following a more hawkish Bank of Japan. The new QT move could support further downside in February, especially as the first round of Trump’s tariffs takes effect. 

If USDJPY falls below the 200-day moving average, it could drop below 150 once again, with a possible retreat toward 144.50.