China’s trade balance for December increased from CNY 792.57 billion to CNY 808.8 billion. This change indicates a positive trend in China’s trade activities for the month. In other news, the USD/CHF rose slightly above 0.8000 following US CPI inflation data that met expectations. Gold prices also went up in various regions, including Saudi Arabia, the Philippines, and the United Arab Emirates, as reported by FXStreet.

Foreign Exchange Market Activity

In the foreign exchange market, the EUR/USD was around 1.1650, showing signs of weakening based on the Relative Strength Index. The GBP/USD decreased to roughly 1.3425 due to higher demand for the US Dollar. Gold prices continued to rise, approaching previous highs. This increase is driven by expectations of Federal Reserve rate cuts and growing demand amid lower US inflation. The cryptocurrency market also saw movements, with meme coins like Dogecoin, Shiba Inu, and Pepe increasing by 7% to 14%. Additionally, Ripple (XRP) stayed steady above $2.00, though it faced challenges in the broader recovery. Even with ongoing inflows into ETFs, Ripple did not show strong upward momentum.

Trade Surplus and Impact on Markets

China’s trade surplus expanded in December, outpacing expectations and highlighting strong export performance. This follows the economic recovery that began in 2025 after the post-pandemic reopening. The robust export activity suggests potential upward pressure on Yuan derivatives like CNH futures. However, the outlook for the US Dollar is less clear due to new Department of Justice scrutiny of the Federal Reserve. This uncertainty regarding the Fed’s independence is pushing traders toward safe options like gold, which is currently priced above $4,600 an ounce. Market anxiety is reflected in the VIX, which has recently risen above 25, making volatility-based options strategies more appealing. In this environment, both the Euro and the British Pound are weakening against the Dollar. The declining momentum in EUR/USD, with the RSI below 50, indicates that this pair may struggle to find support. This trend, seen since the last quarter of 2025, could prompt traders to buy put options on EUR/USD and GBP/USD to safeguard against further declines. Meanwhile, the surge in high-risk meme coins indicates a strong speculative interest in the market. This creates a mixed scenario, with some investors seeking safety while others chase high returns. Such divergence suggests that the broader market lacks a clear direction, posing challenges for straightforward trend-following strategies. Given these mixed signals, traders should consider strategies to manage this uncertainty. The strong data from China contrasted with a volatile US outlook could make a pairs trade, such as going long on CNH and short on EUR, an appealing option using currency futures. With implied volatility now high, selling premium through defined-risk options on major indices may also be a viable strategy for those expecting the market to stay within a certain range. Create your live VT Markets account and start trading now.

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