FX muted, Wall Street mixed on competing drivers

• Wall street ends mixed ahead of Nvidia results and inflation data
• Dollar little changed as euro sees some support from German election results
• US and Ukraine close to reaching deal on resources and minerals
• Trump says Putin will accept European peacekeepers in Ukraine

FX: USD sold off in the early hours during the Asian session after the German election result saw a bid to the euro. Those losses receded through the day, but the buck was relatively unchanged. There are numerous competing drivers this week – from data (US exceptionalism fading?) to tariffs (Mexico on Chinese imports?) to Ukraine (Zelensky to quit?) Prices are currently in a support zone on the Dollar Index. This includes the 100-day SMA, April 2024 highs and a major Fib retracement mark (38.2%) at 106.34.

EUR spiked up to a one-month top at 1.0527, just shy of the y-t-d high at 1.0532, after it was clear there would be a two-party government in Germany after its election. This makes decision-making easier though coalition talks could take a few weeks to resolve. Prices fell back as the “debt brake” question and its removal very much still remain.

GBP closed virtually unchanged after advancing to a high at 1.2690, a price last seen in mid-December. UK data is slim on the calendar this week with MPC speakers not moving the BoE dial on rates today. The 100-day SMA sits at 1.2653.

USD/JPY printed a fresh y-t-d low at 148.85 early on before the major finished in the green. US Treasury yields fell for a fourth straight day with 10-year yield below 4.40%. Japan enjoyed the Emperor’s holiday.

AUD struggled again to move above 0.64 with positivity around the Chinese property markets overnight not helping. Risk sentiment ore broadly remains subdued with stocks selling off again Stateside. USD/CAD has found support around 1.4150 and is pushing into 1.4268.

US stocks: The benchmark S&P 500 fell 0.5% to settle at 5,983. The tech-laden Nasdaq finished down 1.21% at 21,352. The Dow gained 0.08% to close at 43,461. Tech led the sell-off along with consumer discretionary and communication services, with investors wary of Nvidia’s earnings release after the US close on Wednesday. Stock valuations remain stretched Stateside with defensives benefitting from the mild risk-off mood. Real estate, financials and healthcare were the best performing sectors. Apple bucked the tech titan sell-off trend, settling 0.6% higher on news it will invest more than $500 billion over the next four years in the US.

Asian stocks: Futures are in the red. Stocks kicked off the week in mixed fashion with Japanese markets closed for a holiday and after a sharp sell-off on Friday Stateside. The ASX 200 was muted with losses in tech and commodities offset by gains in financials and defensives. The Hang Seng and Shanghai Comp were choppy with ongoing trade frictions and the US said to be pushing Mexico towards tariffs on Chinese imports.

Gold made another fresh record high at $2956 before pulling back modestly. Prices are overbought and are now consolidating just below the key psychological $3000 level.

Day Ahead – US Consumer Confidence

Today’s US Conference Board consumer sentiment indicator could be interesting after the softer than expected retail sales activity figures. The US exceptionalism theme is being questioned by some in the market as indications from both data and corporate earnings guidance hint that the consumption story has deteriorated at the start of 2025.

US fiscal spending is potentially tightening with the pullbacks in federal expenditures potentially outweighing any upcoming tax cuts. The budget deficit is ballooning and may be putting pressure on Washington to rein in spending. Higher-for-longer rates and a much reduced easing cycle from here could also slow consumer spending going forward, impacting housing, autos and discretionary sectors.

Chart of the Day – Nasdaq hits resistance

Nvidia’s release Q4 earnings on Wednesday after the US closing ball.  The giant chipmaker is seen as a bellwether for the AI theme just as the market leadership of the “Magnificent 7” megacaps has seen mixed performances so far in 2025, as other US stock sectors have picked up the slack. This have been due to rising concerns over elevated valuations among big tech, their growth prospects and plans for huge spending on data centres and other infrastructure to chase the AI boom. Instead, other sectors and stocks like banks, healthcare, European stocks and smaller tech have outperformed.

For the tech-dominated Nasdaq, prices hit resistance last week at the previous all-time high from mid-December at 22,133. The risk-off session on Friday especially was strong and yesterday’s trading took the index through the 50-day SMA at 21,519 as the index closed on its low. Below here is the 100-day SMA at 21,029 with the year’s low at 20,538.

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