- The US dollar started 2025 strong, reaching a two-year high, while US equities were disappointing due to a lackluster Santa Rally.
- Global equity funds saw an 86% drop in inflows compared to the previous week, attributed to rising bond yields and potential portfolio rebalancing.
- The week ahead focuses on the US NFP jobs report and its potential impact on USD dominance.
- Australia’s CPI, retail sales, and trade balance data will provide insights into its economy.
Read More: Brent Crude – Oil Eyes Break of Key Confluence Level on Chinese Optimism
Week in Review: King Dollar Starts 2025 on the Offensive… More to Come?
A week that started in 2024 and ended in 2025 showed glimpses of what many had been expecting from the year ahead.
The main one being that the US Dollar is set to remain king in 2025 as the Dollar Index started 2025 on the front foot. The DXY has hit a two year high above the 109.50 handle. A sign of things to come?
US Equities disappointed with regards to the Santa Rally this year. The S&P 500 index suffered 5 successive days of losses beginning on December 26. However, as discussed in my Thursday article titled (S&P 500, Nasdaq 100 Update – Are Wall Street Indexes Set for a January Jump?), January or at least the first half of January has historically been a positive month for US stocks.
Looking at fund flows, data from LSEG Lipper showed that investors added a net $4.93 billion worth of global equity funds, an 86% drop in inflows compared with about $35.1 billion worth of net purchases in the prior week. This has been attributed to rising bond yields as the US 10Y yield rose to 4.64%, the highest since May 2, but it could be down to portfolio rebalancing as well.
Source: LSEG
Gold prices edged higher this week but remain largely rangebound. The reason for Gold’s malaise can be summed up by looking at all the competing narratives at play. Donald Trump’s proposed tariffs are likely to lead to a stronger US Dollar but the uncertainty surrounding the global economy, geopolitics and the impact of tariffs are likely to keep safe haven demand in play.
This makes the precious metal an intriguing proposition in 2025 and it will be interesting to see how prices and policy from the incoming US administration develops.
Brent crude oil enjoyed an excellent week following 7 or 8 weeks of consolidation. Brent is up around 4% for the week as US stockpiles continue to decline. The 2025 Oil outlook is not positive however as a recent Reuters poll indicated. Analysts are eyeing around $70 a barrel for Brent in 2025 after losses of around 3% in 2024 and a closing price of $ 75.19 a barrel.
The Week Ahead: NFP to Pose a Test for USD Dominance
Asia Pacific Markets
The week ahead in the Asia Pacific region still remains light on the data front.
The highlights include the Caixin Service PMI due on Monday from China. Markets will be keeping a close watch on China and developments this past week around the Yuan and Chinese Bonds are echoing Japan in the 90s.
Deflationary worries have risen while the Yuan hit fresh lows to the US Dollar. However, it may not be all doom and gloom as this past week’s manufacturing data remained on the positive end with a slight improvement. While a weaker Yuan might be a play by Chinese authorities in anticipation of proposed trade tariffs led by incoming US President Donald Trump
Such weakness in the Yuan is usually met by intervention of some sort, however the lack of action may suggest that this is a ploy in anticipation of tariffs.
Wednesday and Thursday the focus will shift to Australia where we have three high impact data releases this week. Monthly CPI data will be joined by retail sales and trade balance data. The data should provide further insights into the Australian economy which has been on a rollercoaster in 2024. This was largely down to the Australian Dollars commodity currency tag as well as concerns around China, a major trading partner.
Europe + UK + US
In developed markets, the US will steal the headlines next week with the NFP jobs report due. Given the US Dollars rocking start to 2025 markets will be paying close attention to the data as well as any adjustments to prior prints.
The initial prediction is that December’s non-farm payrolls will increase by 153,000, with estimates ranging from 125,000 to 200,000. These expectations will be updated throughout the week as more data, like job openings, ADP private payrolls, and ISM employment figures, are released.
The unemployment rate is expected to stay at 4.2%, and wage growth is anticipated to remain at 4% compared to last year. This aligns with a general slowdown in the job market. After the Fed cut rates by 100 basis points in 2024, market participants are pricing in around 50 bps of cuts for the year ahead.
In Europe, Inflation data will be due as the Euro reached two-year lows against the greenback. Market participants have been looking at the possibility of parity for EUR/USD. A drop in inflation could ramp up rate cut bets as the ECB continues to struggle from lackluster growth. Such a move could lead to further divergence in policy with the US Federal Reserve and thus drag EUR/USD closer to parity.
For all market-moving economic releases and events, see the MarketPulse Economic Calendar.
Chart of the Week
This week’s focus is back to the US Dollar index (DXY).
The DXY broke out of consolidation on January 2 to start the New Year with a bang. The Index rose toward the 109.50 resistance level which was also a two-year high.
However Fridays daily candle close is set to close as an inside bar bearish candle which would hint at a pullback in the week ahead. However, looking at recent history and pullback have tnded to be short-lived since the DXY rally began around the back end of September.
There is an ascending trendline which may come into play if we do get a deeper pullback. As things stand, immediate support rests at 108.50 before the 108.00 and 107.50 handles come into focus.
A push higher from current price will first need to break this weeks highs at 109.53 before the 110.00 and 110.50 handles come into focus.
US Dollar Index (DXY) Daily Chart – January 3, 2025
Source:TradingView.Com (click to enlarge)
Key Levels to Consider:
Support
- 108.50
- 108.01
- 107.50
Resistance
- 109.52
- 110.00
- 110.50
Follow Zain on Twitter/X for Additional Market News and Insights @zvawda
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Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
