Unemployment insurance applications in the US rose to 200,000 last week, indicating an increase in claims
The number of Initial Jobless Claims in the US rose to 200,000 for the week ending January 17, slightly higher than the previous week’s adjusted figure of 199,000. This increase was below initial estimates, which expected claims to be 212,000, as noted by the US Department of Labor.
The 4-week moving average decreased by 3,750, lowering the figure to 201,500 from last week’s revised number of 205,250. Additionally, Continuing Jobless Claims fell by 26,000, bringing the total to 1.849 million for the week ending January 10.
Canadian New Housing Price Index decreased from -1.9% to -2% in December year-on-year
The Canada New Housing Price Index (NHPI) dropped from -1.9% to -2% in December. This decline highlights ongoing problems in the housing market, driven by rising interest rates and economic conditions.
The NHPI measures price changes in new residential properties. This recent drop may reflect changing buyer attitudes and market conditions. Economists and market observers may need to evaluate the future of Canada’s housing market closely.
Future Market Trends
Investors will likely watch upcoming economic signs and policies that could influence housing demand and prices. Staying informed about these trends is essential for understanding the changing market landscape. The New Housing Price Index’s drop to -2% confirms the cooling trend in Canada’s property market. This data signals that economic momentum is slowing as we enter 2026. Consequently, it increases the likelihood that the Bank of Canada may need to reduce interest rates sooner than previously anticipated. As a result, we should think about preparing for a weaker Canadian dollar, especially against the US dollar. With Canadian inflation last reported at 2.1%, slightly above the central bank’s target, and unemployment rising to 6.2%, the reasons for CAD weakness are growing. Buying call options on USD/CAD provides a clear way to benefit from this potential shift in the coming weeks.Impact on Financial Markets
In addition to currencies, the most direct impact is on interest rate expectations. In 2025, the market expected the Bank of Canada to maintain a long pause. However, this housing data changes that outlook. We can act on this view by trading in Bankers’ Acceptance futures (BAX), which will gain value as the likelihood of rate cuts becomes clearer. This housing weakness may also create challenges for certain sectors on the Toronto Stock Exchange. We are particularly cautious about major Canadian banks, as recent reports show mortgage delinquency rates have risen to 0.18%, up from historic lows in early 2025. Buying put options on a Canadian financial sector ETF could effectively hedge against this trend or serve as a speculative short position. Create your live VT Markets account and start trading now.The policy rate is expected to stay at 0.75%, focusing on economic growth and inflation analysis.
The Bank of Japan (BoJ) will likely keep its policy rate at 0.75%. The focus is on economic growth, inflation trends, and the yen’s impact, not on political issues. Japanese government bond yields and financial conditions are also being monitored, with a particular emphasis on short-term bonds.
The BoJ might increase its GDP forecast while addressing trade tensions with China and geopolitical risks. Governor Ueda is not expected to hint at more rate hikes but will likely emphasize how domestic inflation is related to the weak yen. For Japanese government bonds (JGB), rates will be determined by the market, with tools ready if needed.
Ministry Of Finance Bond Issuance
The Ministry of Finance can change bond issuance, focusing on shorter-term bonds as outlined in this year’s budget plan. Although changes in the pace of JGB purchases are unlikely, short-term bonds remain a priority. This is closely tied to mortgages, consumer loans, and corporate credit. Mortgage rates range between 2.5% and 5%, which affects the economy. The yen’s influence on rate decisions is recognized, but quick rate hikes could slow recovery. It’s important to monitor how financial conditions affect growth and inflation. Inflation is expected to decrease in early 2026, suggesting that the BoJ’s current approach will stay the same. With the BoJ likely to keep its policy rate at 0.75% tomorrow, the yen may weaken further. The large interest rate gap with the U.S., where the Federal Reserve’s rate is around 4.5%, continues to encourage carry trades against the yen. Because of this, the currency remains vulnerable, currently trading around 155 against the dollar. Governor Ueda is not expected to indicate any more rate hikes. This should lower uncertainty and could reduce currency volatility in the coming weeks. Previously, implied volatility increased ahead of two rate hikes in 2025, but the current situation suggests a period of stability. In this environment, strategies like selling out-of-the-money JPY call options become attractive, allowing traders to benefit from the weak yen and falling volatility.Japanese Government Bond Market Shifts
We are also observing changes in the Japanese government bond market and the yield curve. Shifting bond issuance towards shorter-term debt could stabilize front-end yields while allowing longer-term yields, such as the 10-year, which is currently around 1.1%, to rise. This scenario could make trades anticipating a steepening yield curve favorable. The expectation that inflation will significantly ease in the first quarter of this year supports the idea of a patient central bank. Japan’s core inflation, which peaked at 2.8% in late 2025, has already decreased to 2.5%, reinforcing the notion that the BoJ does not need to tighten its policy anytime soon. This indicates that any potential strengthening of the yen in the coming weeks may be temporary and could represent a selling opportunity. Create your live VT Markets account and start trading now.US dollar strengthens alongside risk assets after Greenland agreement and Trump’s tariff removal
The US Dollar has gained strength following a deal about Greenland that removed planned EU tariffs. Risk assets also increased, but markets are waiting for more information before fully changing their focus.
President Trump will let officials like JD Vance and Marco Rubio handle further negotiations. The Federal Reserve’s meeting on January 28 may shift attention back to economic factors, especially with lower unemployment rates and a Department of Justice investigation into Jerome Powell, which could lead to a more hawkish approach.
Jerome Powell’s Response to Investigation
Jerome Powell’s response to the investigation indicates potential upside for the dollar, as he may adopt a more hawkish tone in future meetings to show independence. While there are some risks for the dollar, like fluctuations in Japanese Government Bonds (JGBs) that may influence Treasuries and concerns about upcoming US tech earnings, the current economic climate is favorable for the US dollar in the near term. We remember the dollar’s rally in early 2025 after the Greenland deal led to the removal of EU tariffs. Present high-level trade talks about critical minerals are fostering a similar mix of uncertainty and opportunity. In the week after last year’s Greenland announcement, the Dollar Index (DXY) rose over 1.2%. We are closely monitoring this situation. The events surrounding the Federal Reserve last year also provide insights for the upcoming meeting on January 28. After the investigation into its leadership in 2025, the Fed took a more hawkish stance to assert its independence. With December’s core inflation data showing an unexpected rise to 2.8%, the Fed is likely to maintain a strong position, which could support the dollar.Positioning for Potential Dollar Strength
This points to the possibility of dollar strength, suggesting traders consider call options on the USD, especially against currencies with more dovish central banks. Implied volatility in major currency pairs surged around the 2025 Greenland news, so acquiring options now could be wise ahead of a similar increase. We are particularly interested in USD/JPY call options, as any further JGB fluctuations could enhance the dollar’s appeal as a safe haven. However, there are ongoing risks, much like last year when tech earnings were under scrutiny. We see a similar scenario now, with major tech companies set to report next week amidst worries about slowing global growth. Traders with long positions in the dollar should think about hedging with protective puts on tech-heavy indices such as the Nasdaq 100. Create your live VT Markets account and start trading now.Brent crude rises slightly as US-EU trade frictions ease, says ING expert
Oil markets have been stable lately, with Brent prices rising just under 0.5%. This small increase is thanks to reduced trade tensions between the US and the EU, especially after President Trump stepped back from a tariff threat regarding Greenland.
The International Energy Agency (IEA) updated its oil demand growth prediction for 2026. They raised it from 860,000 barrels per day to 930,000 b/d. This shift suggests a return to normal economic activity and lower oil prices. Still, the IEA warns that a significant supply surplus will likely continue until 2026.
Market Developments
In other news, markets are witnessing several important moves. Gold remains strong above $4,800 as traders wait for delayed US PCE data. The GBP/JPY exchange rate stays stable despite fiscal concerns in Japan, while US initial jobless claims rose to 200,000 last week. In the crypto market, Bitcoin has gained slightly, now just above $90,000. Ethereum is stable around $3,000 in a volatile market, and XRP has shown slight growth for the second consecutive day. Axie Infinity also sees gains, driven by increased interest from large investors. The easing of trade tensions has created a calm but consider this a chance to prepare for potential issues. Even with a slight increase in demand forecasts, a significant supply surplus is expected to dominate the market until 2026. This fundamental imbalance will likely return to focus once geopolitical concerns fade. We have seen pressure on supply build for months, especially since late 2025. Non-OPEC+ production, especially from the US, hit record highs of over 13.3 million barrels per day, contributing to the global oversupply. Recently, the EIA reported a surprise increase in US crude inventories by 5.5 million barrels, indicating that supply continues to outstrip demand.Outlook and Trading Strategy
The recent demand growth upgrade to 930,000 barrels per day is encouraging, but it may not be enough to absorb the excess supply. For example, data from China shows its manufacturing PMI dropped to 49.7, signaling a slight contraction that could reduce energy import demand. This indicates that support for prices from demand may be weaker than it seems. Given this situation, the current low market volatility is a good chance for traders. We believe it’s wise to take bearish positions, such as buying put options on Brent or WTI crude futures for the upcoming months. These strategies are currently affordable and offer a way to profit from a potential price drop when attention shifts back to the ongoing supply surplus. Create your live VT Markets account and start trading now.Strong employment figures push the Australian Dollar above 0.6800 against the US Dollar
The Australian Dollar has gained strength, with AUD/USD rising above 0.6800 after a strong jobs report for December. Australia’s economy added 65,200 jobs, bringing unemployment down to 4.1%, down from 4.3%. This figure exceeded the Reserve Bank of Australia’s (RBA) forecast of 4.4%.
Full-time positions increased by 54,800, and part-time roles grew by 10,400. A slight uptick in the participation rate to 66.7% and a 0.4% monthly increase in hours worked indicate a tighter job market. The chances of a 25 basis points interest rate hike by the RBA have now risen to 60% before their meeting in February.
Potential February Rate Hike
The likelihood of a rate increase in February could be further supported if the upcoming December CPI data shows trimmed mean inflation higher than the RBA’s year-on-year target of 3.2%. This could push the Australian Dollar even higher. Last year’s strong December jobs report prompted a surge in rate hike expectations and pushed AUD/USD above 0.6800. That report showed 65,200 jobs added and unemployment dropping sharply to 4.1%, signaling a tightening labor market that caught many off guard. In early 2026, the situation is quite different, suggesting a need for caution. December 2025’s labor data showed the unemployment rate ticked up to 4.3%. Additionally, the Q4 2025 CPI data revealed trimmed mean inflation fell to 2.9%, placing it within the RBA’s target range, easing the need for further hikes.United States Job Market
In contrast, the United States’ latest Non-Farm Payrolls report from January 2026 showed over 210,000 jobs added in December, beating expectations. This ongoing strength keeps the Federal Reserve in a more hawkish position than the RBA, making this policy gap a key factor influencing the currency pair. Given these conditions, we recommend considering buying AUD/USD put options to prepare for a potential drop toward the 0.6500 level in the next month or two. A bear put spread could be an effective way to lower initial costs while managing risk, allowing traders to take advantage of the geopolitical tensions created by differing central bank policies. Implied volatility remains high due to this policy uncertainty, making selling options riskier. The futures market is now pricing in less than a 15% chance of an RBA rate hike by mid-year, a significant drop from the 60% probability observed following last January’s jobs report. This shift shows that market attention has moved from RBA rate hikes to the timing of potential cuts later in the year. Create your live VT Markets account and start trading now.Frantisek Taborsky from ING expects Turkey’s central bank to reduce rates by 150 basis points during the meeting.
Turkey’s central bank is expected to cut interest rates by 150 basis points in the upcoming Monetary Policy Committee meeting. This move is part of a trend towards easing, and markets are eager to see if this pace will continue.
A lower-than-expected Consumer Price Index (CPI) for December, mainly due to non-food items, along with high reserves, supports the potential cut to 36.5%. However, there may be a smaller cut of 100 basis points due to rising food prices and signs that domestic demand is recovering.
Market Expectations
The market predicts an interest rate of 27% by the end of the year, while current rates are around 30.25%-30.50%. If the central bank gives clearer signals or if inflation unexpectedly drops, rates could rise more sharply. The Turkish lira remains strong and attractive for carry trade opportunities in emerging markets. Investor confidence is growing, evident in long positions in the lira, reaching an estimated USD 50 billion, surpassing last year’s figures. Last year’s 150 basis point rate cut marked the beginning of a significant easing cycle. At that time, we believed the policy rate would decrease notably, creating an attractive carry trade. This was bolstered by then-record foreign exchange reserves. By the end of 2025, the central bank was quite aggressive, lowering the policy rate to 25%, even below our initial forecast of 27%. Annual inflation fell from over 60% to just under 20% by December 2025. Although the lira depreciated against the dollar, the high yields compensated for the currency’s slow decline, making long positions in the TRY profitable for most of the year.Trading Strategies
With the central bank currently pausing, the straightforward carry trade has become more crowded and uncertain. Traders should consider using derivative strategies, like selling out-of-the-money TRY puts, to earn premium while managing risk. This strategy leverages the expectation that authorities will prevent sharp currency drops, especially since foreign reserves remain strong at around $140 billion. The key focus will be the upcoming January inflation data. A higher-than-expected figure may lead the central bank to signal a longer pause, affecting crowded long-lira positions and causing short-term volatility. Forward contracts currently suggest a slower rate of depreciation for 2026, but this outlook hinges on inflation continuing to decline. Create your live VT Markets account and start trading now.Francesco Pesole notes that New Zealand’s CPI at 3.0% year-on-year could strengthen RBNZ tightening expectations
New Zealand’s Consumer Price Index (CPI) for the fourth quarter is expected to stay at 3.0% year-on-year, just above the Reserve Bank of New Zealand’s (RBNZ) prediction. This could lead to further tightening of policies.
Recent CPI forecasts have been quite reliable, although some risks remain. Non-tradable inflation is predicted to increase by 0.5% from the previous quarter, compared to the RBNZ’s estimate of 0.4%.
Interest Rate Speculation Continues
The consensus on CPI could fuel speculation about interest rates in New Zealand’s dollar swap market, offering support for the currency. In the short term, traders prefer the New Zealand Dollar (NZD) in different currency pairs rather than against the US dollar. These insights are compiled by the FXStreet Insights Team, which includes journalists selecting analyses from various market experts. Looking back at the fourth quarter of 2025, inflation was slightly above what the central bank expected. This data showed that inflation remained stubbornly at 3.0%, strengthening the belief that the RBNZ will keep its cautious approach into 2026. This has led to ongoing speculation about interest rate hikes in the months ahead. The swap market reflects this cautious stance, creating opportunities for traders. In the past month, the New Zealand 2-year swap rate rose by 35 basis points to 5.85%, indicating expectations of a higher Official Cash Rate. Traders should consider positioning themselves for a steepening of the curve as the RBNZ’s first meeting of the year approaches.Options Market Strategy
In the options market, the differing policies support buying NZD calls, especially against currencies with more lenient central banks. For instance, 3-month implied volatility in NZD/JPY has climbed to its highest level since mid-2025, signaling that the market anticipates larger price movements. Creating trades that benefit from a stronger Kiwi in these pairs seems to be the best approach. We prefer to express this view through cross currency pairs instead of against the US dollar. The Federal Reserve’s ongoing battle with inflation makes NZD/USD a tricky trade. Historical patterns show that when central banks follow different policies, cross-currency pairs like NZD/AUD offer a clearer signal on specific rate views. Although the main trend suggests a stronger NZD, traders should stay vigilant about global growth risks. A significant downturn could affect commodity currencies and possibly lead the RBNZ to alter its stance unexpectedly. Using option strategies like risk reversals may provide a cost-effective way to position for NZD strength while limiting potential losses. Create your live VT Markets account and start trading now.UOB Group analysts expect USD/JPY to range between 157.90 and 158.80, suggesting consolidation.
The US Dollar (USD) is likely to trade between 157.90 and 158.80 in the short term. For a broader view, it seems to be stabilizing within the range of 157.10 to 159.10, according to FX analysts at UOB Group.
Recently, the USD decreased to 157.73, then bounced back to 158.53, closing at 158.25, which is a slight increase of 0.06%. Despite this upward trend, experts predict it will stay within the higher range of 157.90 to 158.80.
Market Trends and Predictions
In the coming weeks, expectations remain similar, with the USD likely continuing its consolidation phase. Analysts predict a range between 157.10 and 159.10. This outlook is based on insights from both commercial and freelance analysts to offer a complete view of market trends. The dollar-yen pair is currently in a consolidation phase, expected to remain between 157.10 and 159.10 for the next few weeks. The strong upward momentum has slowed, and there are no immediate economic events likely to significantly influence the pair’s direction. This suggests a period of stability is more likely than a major breakout. For derivative traders, this hints at strategies that take advantage of the quiet volatility. One approach could be selling out-of-the-money options on both sides to earn premiums, betting that the currency won’t break below 157.10 or above 159.10. The aim is to profit from time decay as long as the pair stays within this expected range through February.Calm Market Outlook
This perspective is backed by recent data showing that one-month implied volatility for USD/JPY has decreased to 9.2%, down from the peaks seen in late 2025. This drop in expected volatility corresponds with steady policy signals from both the Federal Reserve and the Bank of Japan. The market is anticipating a phase of calm after the significant weakening of the yen observed last year. A similar trend of consolidation happened in the fourth quarter of 2025 when the pair hovered just below the 155.00 mark for nearly two months. This quiet phase featured low volatility and stable trading before end-of-year movements triggered the next rise. This recent history suggests that the current trading range may hold for some time. Create your live VT Markets account and start trading now.US Dollar Index stays below 98.90 after a bounce, awaiting growth and inflation data
The US Dollar Index (DXY) has bounced back after US President Donald Trump changed his stance on the European Union during the World Economic Forum. As a result, the index rose from recent lows to 98.26, although it faced difficulties breaking through the 99.00 mark. Trump eased concerns by withdrawing tariff threats against Europe, avoiding military actions against NATO, and discussing a deal regarding the Arctic.
Even with improved investor confidence, the Dollar Index is down by 0.65% for the week. Attention is now focused on upcoming US economic data. The US PCE Price Index figures are expected to show inflation rates above the Federal Reserve’s 2% target. Additionally, the Bureau of Economic Analysis (BEA) is set to provide the final reading for the third quarter’s GDP, which was initially estimated at a 4.3% growth rate, an increase from the previous 3.8%.
