On Wednesday, markets expect potential fluctuations due to significant economic data releases. Eurostat will provide December inflation numbers, while the US will share the ADP Employment Change for December, JOLTS Job Openings for November, and the ISM Services PMI for December. The US Dollar Index rose on Tuesday after a decline on Monday, settling around 98.50 early Wednesday. In Germany, December’s annual inflation decreased to 1.8% from November’s 2.3%, causing the Euro to lose nearly 0.3% against the US Dollar.

Australia’s Economic Performance

Australia reported a yearly CPI rise of 3.4% for November, which is lower than the expected 3.7%. This keeps AUD/USD strong near 0.6750. GBP/USD slipped after reaching a September high and now stabilizes near 1.3500. USD/JPY remains steady at about 156.50, with Japan’s Labor Cash Earnings data set for release on Thursday. Gold gained 1%, staying above $4,450, while Silver’s two-day rally increased by over 10%, trading above $80. Employment levels affect currencies—higher employment boosts a local currency’s value, while inflation influences monetary policy. Wage growth impacts consumer spending and inflation, guiding central banks’ decisions. Central banks view employment as a key indicator of economic health and its link to inflation. Last year, in January 2025, we prepared for volatility from key Eurozone inflation and US employment reports. The US Dollar was gaining strength around 98.50, and there was significant interest in how central banks would respond to the data. Many themes from that time have since evolved, creating new opportunities. Looking back, the US labor market began to cool throughout 2025, a crucial development we were monitoring. For example, the December 2025 Non-Farm Payrolls report showed job growth slowing to 155,000, falling short of expectations and confirming easing wage pressures. This shift changed the Federal Reserve’s outlook, suggesting that rate cuts are a matter of when, not if, leading the Dollar Index closer to 101.50.

Persistent Inflation in Europe

In Europe, the inflation situation has proven to be more stubborn than the 2% forecast from last year. The flash estimate for Eurozone core HICP in December 2025 was a steady 2.7%, putting pressure on the European Central Bank to keep a tight monetary policy. This divergence in policy has seen EUR/USD drop from around 1.1700 in early 2025 to the 1.0800 range today. Traders may want to consider strategies that can benefit from this ongoing tension. The impressive rally in precious metals in late 2024 and early 2025, with Gold exceeding $4,450, eventually faded as high interest rates impacted the market over the past year. However, with the possibility of declining US rates soon, these non-yielding assets are becoming appealing again. Derivative traders should consider buying call options on gold and silver in anticipation of a potential comeback in the first half of 2026. With shifts in central bank expectations, implied volatility in currency and bond markets is likely to increase in the coming weeks. We expect significant movements in pairs sensitive to US interest rates, such as USD/JPY, currently around 147.00. Traders may consider purchasing put options on USD/JPY as a strategy to prepare for the Fed indicating imminent rate cuts. Create your live VT Markets account and start trading now.

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