The Euro remains strong above 1.1740 after a rally and a decline in the Dollar
EUR/USD remains strong, gaining almost 1% over two days, approaching highs of 1.1743. This rise comes after a positive ZEW Economic Sentiment Survey from the Eurozone and Germany, which beat expectations.
US President Trump’s announcement of new tariffs on European countries caused a “Sell America” trend, weakening the US Dollar. As markets stay cautious, Eurozone leaders are meeting in Brussels to discuss possible responses.
As the US dollar weakens, the New Zealand dollar rises for three days, approaching 0.5850
The NZD/USD is nearing a four-month high of 0.5850 as the US Dollar weakens. This shift is influenced by geopolitical tensions and unpredictable US trade policies, affecting how investors feel.
We’re noticing a trend called “Sell America” where the US Dollar is impacted by Trump’s interest in Greenland and his tariffs on other nations. US Treasury officials and Danish ministers are urging calm and addressing the strained relations between the US and EU.
New Zealand Economic Indicators
In New Zealand, the BusinessNZ Performance of Services index increased to 51.1 in December from 49.6 in November, indicating economic growth after a long contraction period. Additionally, China’s economy grew by 4.5% year-on-year in Q4, with industrial production up by 5.2%. However, the retail and housing sectors face challenges. The New Zealand Dollar (NZD) is shaped by the country’s economic health and central bank policies. China’s economy, as New Zealand’s largest trading partner, also plays a significant role. Dairy prices, vital for New Zealand’s exports, further influence the NZD. The Reserve Bank of New Zealand (RBNZ) impacts the NZD through interest rate decisions, affecting its market appeal. Macroeconomic data and overall investor sentiment also contribute to the NZD’s value, with the currency performing better in a stable economic environment. Looking back on January 20, 2026, the events of 2025 remind us how quickly geopolitical risks can affect the US Dollar. Last year, tensions around Greenland led to a widespread “Sell America” trend, pushing the NZD/USD down to 0.5850. Currently, with the pair trading higher at around 0.6150, the fundamental drivers appear consistent, suggesting further growth is likely.US Dollar Challenges
The US Dollar is facing challenges again, but for different reasons than last year’s Greenland incident. Uncertainty from upcoming US mid-term elections and renewed trade issues with Southeast Asia have increased market fear, pushing the VIX up to 18 from an average of 14 last quarter. This political instability is negatively affecting the dollar, similar to how Trump’s unpredictable policies impacted it in 2025. On the flip side, the New Zealand economy remains robust, providing support for the Kiwi. In the fourth quarter of 2025, New Zealand’s inflation was a stubborn 3.6%, well above the RBNZ’s target, causing more aggressive comments. In contrast, the US’s Core PCE inflation was only 2.5% in December, prompting the Federal Reserve to signal a continued pause on interest rates. The Kiwi also benefits from its largest trading partner, China, which appears economically more stable than last year. China’s latest official manufacturing PMI was 50.9, showing three months of growth and increasing demand for New Zealand’s commodities. This creates a better backdrop for the NZD compared to the mixed Chinese data from early 2025. Given the difference between a hawkish RBNZ and a neutral Fed, traders may want to consider positioning for continued NZD/USD strength. Buying call options with a strike price around 0.6250 for March expiration provides a way to capture potential gains while managing risk. This environment resembles the 2025 setup, but the support for the Kiwi is even stronger now. However, we should stay alert to specific risks for New Zealand, especially in its dairy sector. The latest Global Dairy Trade auction surprisingly showed a 1.8% drop in prices, potentially creating short-term challenges for the Kiwi dollar. Therefore, using option spreads, like a bull call spread, may be a wiser strategy to protect against any pullbacks from fluctuating commodity prices. Create your live VT Markets account and start trading now.Positive Eurozone data boosts sentiment, strengthening the Euro and raising EUR/GBP
On Tuesday, the Euro gained ground due to better economic outlooks in the Eurozone. German producer prices showed a drop in inflation, and UK employment data suggested potential interest rate cuts by the Bank of England.
The EUR/GBP exchange rate rose to about 0.8720, a 0.60% increase, with the Euro outperforming the Pound Sterling. The ZEW Survey indicated a rise in German investor sentiment, with the economic sentiment index climbing from 45.8 in December to 59.6 in January, beating expectations.
Economic Sentiment Rises
The Eurozone saw significant economic sentiment improvement, reaching 40.8, far above the forecast of 35.2. Destatis reported that the German Producer Price Index fell by 0.2% month-on-month in December, and annual producer prices dropped by 2.5%, indicating steady inflation normalization. In the UK, unemployment held steady at 5.1%, with the addition of 82,000 jobs, though wage growth showed a slight decline. This information raises expectations of the Bank of England loosening monetary policy. The focus now turns to upcoming UK Consumer Price Index data, which could affect future interest rate decisions, while a stronger Euro puts additional pressure on the GBP. Looking back to January 2025, we noticed a clear trend driving the EUR/GBP to the 0.8720 level. Strong investor sentiment boosted the Euro, while signs of a cooling UK labor market fueled predictions of Bank of England rate cuts, creating an upward trend for the pair. Today, on January 20th, 2026, the situation has changed. The Bank of England did deliver two rate cuts in the latter half of 2025. With the UK CPI now slightly above the 2% target at 2.1% year-on-year, further easing from the BoE appears less urgent. As a result, the EUR/GBP pair has retreated from its 2025 highs and currently trades closer to 0.8650.Shifts in Economic Policy
The previous optimism in the Eurozone has diminished. The latest German ZEW survey for January 2026 shows a decline to 22.5, down from the four-year highs recorded in early 2025. This cooling sentiment and a dip in Eurozone inflation to 2.4% have led markets to predict more than an 80% chance of an ECB rate cut by April. The focus now shifts from Euro strength to when the ECB will ease its policies. For derivative traders, this policy shift indicates that last year’s upward momentum has waned. Selling out-of-the-money call options on EUR/GBP with upcoming expirations could be a smart move to collect premium. This strategy will profit if the pair stays stable or moves lower as the ECB approaches its own cutting cycle. As the significant divergence of 2025 is now behind us, implied volatility for the pair has decreased from over 8% to around 5.5%. Traders may want to consider put spread strategies to manage their risk while betting on a modest decline. This allows for a focused bet that the pair will fall without requiring a significant or volatile move. Create your live VT Markets account and start trading now.USD/CAD approaches 1.3800 as the US Dollar performs poorly, down from highs of 1.3928
The US Dollar has weakened against the Canadian Dollar over the last two days, with the exchange rate falling about 0.6%. It dropped from a high of 1.3928 to current lows around 1.3820.
Geopolitical Influences
Geopolitical tensions are likely to impact the market, especially as US traders return after Martin Luther King Jr. Memorial Day. Canada’s recent data shows its Consumer Price Index (CPI) rose by 2.4% in December, which is higher than expected. However, the Bank of Canada’s preferred measure – the BoC CPI – has eased slightly. Several factors influence the Canadian Dollar. These include the Bank of Canada’s interest rates, oil prices, and the overall health of Canada’s economy. Market sentiment and the US economy are also important. When interest rates and oil prices are higher, the Canadian Dollar (CAD) tends to strengthen. On the other hand, negative economic data can weaken it. Key economic indicators like GDP growth and employment data play a significant role in determining the value of the CAD. A strong economy can attract foreign investments and encourage the Bank of Canada to increase interest rates, boosting the CAD. Conversely, weak economic data may harm the dollar’s strength. Last year, in January 2025, the US Dollar was weakening due to geopolitical tensions and plans for increased trade tariffs. This pushed the USD/CAD exchange rate down from highs near 1.3928 toward the 1.3800 level. At that time, strong Canadian inflation data also helped strengthen the CAD.Market Strategy and Data
In January 2026, the situation is quite different, indicating a change in strategy. The Federal Reserve has adopted a more aggressive approach. Recent Non-Farm Payroll data for December 2025 showed strong job growth of over 250,000, leading to increased expectations for rate hikes. In contrast, the Bank of Canada is dealing with softer domestic data, including a recent report showing Q4 2025 GDP growth at just 0.8%, below expectations. This growing difference between the US and Canadian economies is creating an upward trend for the USD/CAD pair. WTI crude oil prices have also recently dropped below $75 a barrel, which is putting additional pressure on the commodity-linked CAD. For derivative traders, this suggests positioning for a stronger US dollar against the Canadian dollar. Given this outlook, buying call options on USD/CAD may be a smart decision for gaining upside exposure while managing risk. With expected volatility increasing, options expiring in the next 30 to 60 days could allow time for this economic divergence to unfold. Strategies that benefit from a rising USD/CAD, such as bull call spreads, should be considered to take advantage of the anticipated upward movement. Create your live VT Markets account and start trading now.Pound Sterling rises against US Dollar to nearly 1.3490 amid ongoing US-EU disputes
The Pound Sterling is gaining strength against the US Dollar, mainly due to mixed employment figures from the UK and increasing tensions between the US and EU. In the UK, companies added 82,000 new jobs, keeping the unemployment rate steady. In contrast, the US Dollar is losing value due to disputes over Greenland.
The GBP/USD pair has risen to around 1.3490, continuing its upward trend, with the “Sell America” sentiment gaining traction. The US Dollar Index has dropped by 0.54%, now sitting just under 98.50. This market reaction follows President Trump’s 10% tariffs on several EU countries and the UK, linked to the Greenland issue.
The UK Labour Market
The UK labour market shows an unemployment rate of 5.1%, remaining stable instead of dropping to 5%. Average earnings, excluding bonuses, increased by 4.5% annually, while total wage growth (including bonuses) rose by 4.7%. Slower wage growth leads to expectations that the Bank of England might cut interest rates. The GBP/USD has reached nearly 1.3480, just above the 20-day Exponential Moving Average of 1.3433. The 14-day Relative Strength Index reads 57, indicating balanced momentum. Resistance is found at the 61.8% Fibonacci retracement level of 1.3491; a daily close above this could lead to gains towards 1.3622. The US Dollar is the most widely traded currency, comprising 88% of global forex transactions. The Federal Reserve impacts the USD through its monetary policy, altering interest rates to manage inflation and employment. Typically, quantitative easing weakens the USD by increasing its supply.The Ongoing Sell America Trade
The “Sell America” sentiment, driven by the conflict over Greenland, is currently shaping market trends. As the US Dollar Index drops towards 98.50, this could present opportunities to trade against the dollar. The Pound Sterling is showing resilience, despite mixed economic data from within the UK. We see a strong case for buying call options on the GBP/USD pair, especially with strike prices above the 1.3500 resistance level. This would allow us to benefit from a possible rally toward 1.3620 while limiting our downside risk to the premium paid. Historically, we’ve witnessed currency fluctuations of 2-3% during the US-China trade tensions in 2019, illustrating how quickly political factors can impact markets. Overall market anxiety is on the rise, reflected by increased volatility. The CBOE Volatility Index (VIX) has climbed from lows of 12.8 in December 2025 to over 17, indicating that traders expect larger price swings. This situation is ideal for purchasing straddles on major pairs like EUR/USD to profit from significant movements in either direction. The upcoming UK inflation report is a key event to monitor. The UK Consumer Price Index (CPI) was at 3.1% in the third quarter of 2025, significantly above the Bank of England’s target. Another high inflation reading could cause the central bank to delay any interest rate cuts, which would support the Pound further. Conversely, we anticipate the US Personal Consumption Expenditures (PCE) inflation data will show a cooling trend, similar to the 2.6% annual rate observed at the end of 2025. This would reinforce the belief that the Federal Reserve has no urgent need to raise rates, putting additional downward pressure on the US Dollar. The differing inflation outlooks between the UK and the US favor a stronger GBP/USD. This situation is peculiar, as the US is causing the geopolitical uncertainty that typically affects safe-haven assets. As a result, there’s a shift toward investments like gold, which has recently hit record highs above $4,700 per ounce. We should consider taking long positions in gold through futures or call options to take advantage of this move to safety. Create your live VT Markets account and start trading now.USD/JPY falls to around 157.80 during European trading due to US-EU disputes
The USD/JPY pair has dropped to about 157.80 during the European trading session. This fall is linked to a weaker US Dollar, caused by tensions between the US and the EU over Greenland’s sovereignty.
The US Dollar Index, which compares the Dollar against six major currencies, is down 0.56% at around 98.45. The Dollar is suffering due to President Trump’s tariff threats towards several EU countries and the UK.
US Will Not Withdraw From NATO
Despite the pressure on the US Dollar, Treasury Secretary Scott Bessent assured at the World Economic Forum that the US will remain in NATO. He also indicated that the White House will soon announce the successor to Federal Reserve Chair Jerome Powell. At the same time, the Japanese Yen is strengthening against the US Dollar but is still weaker against other currencies. This is happening as Japan’s PM Sanae Takaichi plans to dissolve the lower house on January 23 and suspend the consumption tax for two years, suggesting more flexible fiscal policies ahead. The next key event for the Yen is the Bank of Japan’s monetary policy announcement on Friday. Ongoing geopolitical tensions are causing significant market fluctuations, and we should brace for more. The potential for US tariffs against the EU echoes the US-China trade disputes from 2018 to 2020, a time when currency volatility spiked over 15%, according to the Deutsche Bank Currency Volatility Index. Traders might think about buying options, like straddles, on USD/JPY to benefit from large price changes as the situation evolves.The USD/JPY Trade Strategy
The Dollar seems likely to weaken further, with the DXY already at 98.45. The mix of trade disputes and uncertainty about the new Federal Reserve Chair are strong negative factors, as a new chair may lean towards more lenient policies. Historically, times of high trade uncertainty, like in mid-2019, have led to 2-3% drops in the Dollar Index within a quarter. Although the Yen is gaining against the Dollar, we must be cautious about its own weaknesses. Prime Minister Takaichi’s promise of a consumption tax cut reminds us of the fiscal measures from the “Abenomics” era last decade, which primarily drove sustained Yen weakness. During that time, USD/JPY rose from below 100 to over 120 between 2013 and 2015. This indicates that the Yen might not be the best currency to buy against the Dollar, and it could weaken against others. The upcoming Bank of Japan meeting on Friday is crucial for future direction. Given plans for looser fiscal policies, the BoJ is unlikely to signal any policy tightening, which will likely limit the Yen’s strength. Create your live VT Markets account and start trading now.Rabobank says Switzerland’s inflation trends might lead the SNB to take a dovish approach.
Switzerland is currently facing mild deflation. In December, the Producer Price Index dropped by 1.8% compared to last year, while the Consumer Price Index showed a small increase of just 0.1% in January. This situation has led to speculation about possible interest rate cuts by the Swiss National Bank (SNB). Weak manufacturing activity is a concern, as indicated by a Purchasing Managers’ Index of 45.8 in December.
Market expectations suggest that the SNB may lower interest rates below zero soon. The decline in the Producer Price Index points to deflation risks. The slight increase in the Consumer Price Index keeps inflation at very low levels. The SNB meets to discuss policy four times a year, with the next meeting scheduled for March 19.
Impact of Trade Tensions
Increased trade tensions between the EU and the US could harm the Swiss economy, which might lead policymakers to adopt a more cautious approach. Despite these risks, the Swiss franc remains strong due to safe-haven demand, with the EUR/CHF exchange rate steady around 0.92. Rabobank maintains a three-month forecast for EUR/CHF at 0.92, indicating ongoing support for the currency. Looking back to early 2025, we saw significant deflationary risks, with producer prices falling and general inflation just above zero. Manufacturing activity was also declining, which suggested the Swiss National Bank might consider a more cautious policy. As a result, the SNB cut its policy rate to -0.25% at its March 2025 meeting to combat economic slowdown and prevent deflation. This rate cut initially weakened the franc, raising the EUR/CHF exchange rate to about 0.93 in the second quarter. The move was a direct response to worries about the economy’s lack of growth.Current Economic Outlook
Today, the situation has improved slightly, with December 2025 inflation data showing a rise to 0.5%, moving us away from immediate deflation concerns. However, the latest manufacturing PMI remains low at 48.2, which indicates ongoing economic weaknesses. As a result, the SNB is likely to keep rates negative for now, stabilizing short-term yields. For traders in derivatives, this suggests a period of low implied volatility in the Swiss franc. With the SNB expected to keep rates down and safe-haven demand supporting the currency, the EUR/CHF pair could stay between 0.9250 and 0.9450. Strategies that benefit from stable prices, like selling straddles, might be advantageous in the upcoming weeks. We should be wary of unexpected global events, which can drive significant safe-haven flows into the franc. A sudden rise in geopolitical risks could push the EUR/CHF back below 0.92, increasing volatility. Therefore, holding some inexpensive, out-of-the-money puts on EUR/CHF could provide a useful hedge against such risks. Create your live VT Markets account and start trading now.Rabobank suggests Switzerland’s inflation trends could lead the SNB to adopt a dovish stance.
Switzerland is facing mild deflation, with the Producer Price Index (PPI) dropping by 1.8% year-over-year in December. The Consumer Price Index (CPI) for January is just slightly positive at 0.1%. These trends are raising concerns about possible interest rate cuts from the Swiss National Bank (SNB). Weak manufacturing activity, reflected in a Purchasing Managers’ Index (PMI) of 45.8 in December, is adding to economic worries.
Market expectations suggest the SNB might lower rates below zero soon. The PPI’s decline indicates deflation risks, while the CPI’s slight rise shows minimal inflation. The SNB holds four policy meetings each year, with the next scheduled for March 19.
Impact of Trade Tensions
Increased trade tensions between the EU and the US could hurt the Swiss economy, potentially leading to a more cautious approach from policymakers. Despite these challenges, safe-haven investments are expected to keep the Swiss franc stable, with the EUR/CHF exchange rate around 0.92. Rabobank maintains a three-month forecast for EUR/CHF at 0.92, indicating ongoing support for the currency. Looking back to early 2025, we noted clear deflationary risks, with producer prices declining and inflation rates barely above zero. Manufacturing activity was also contracting at that time. This situation pushed the Swiss National Bank to adopt a more dovish policy. Consequently, the SNB cut its policy rate to -0.25% at its March 2025 meeting to combat the economic slowdown and prevent a deflation spiral. This initial cut weakened the franc, pushing the EUR/CHF rate up towards 0.93 during the second quarter of that year. The decision was a direct response to ongoing economic weakness.Current Economic Outlook
Today, the situation has stabilized, with December 2025 inflation data showing a rise to 0.5%, moving away from immediate deflation risks. However, the latest manufacturing PMI remains low at 48.2, indicating persistent economic weakness. This suggests that the SNB will likely keep rates negative for now. For derivatives traders, this hints at a period of low implied volatility in the Swiss franc. With the SNB unlikely to raise rates soon, the EUR/CHF pair could stay relatively stable between approximately 0.9250 and 0.9450. Strategies benefiting from time decay and stable prices, like selling straddles, may be advantageous in the coming weeks. We must stay alert for unexpected global events, which historically prompt significant safe-haven flows into the franc. An increase in geopolitical risks could quickly push the EUR/CHF back below 0.92, causing volatility to spike. Therefore, holding some inexpensive, out-of-the-money put options on EUR/CHF could be a wise hedge against such potential risks. Create your live VT Markets account and start trading now.Rabobank suggests Switzerland’s inflation trends could lead the SNB to adopt a dovish stance.
Switzerland is facing mild deflation, with the Producer Price Index (PPI) dropping by 1.8% year-over-year in December. The Consumer Price Index (CPI) for January is just slightly positive at 0.1%. These trends are raising concerns about possible interest rate cuts from the Swiss National Bank (SNB). Weak manufacturing activity, reflected in a Purchasing Managers’ Index (PMI) of 45.8 in December, is adding to economic worries.
Market expectations suggest the SNB might lower rates below zero soon. The PPI’s decline indicates deflation risks, while the CPI’s slight rise shows minimal inflation. The SNB holds four policy meetings each year, with the next scheduled for March 19.
Impact of Trade Tensions
Increased trade tensions between the EU and the US could hurt the Swiss economy, potentially leading to a more cautious approach from policymakers. Despite these challenges, safe-haven investments are expected to keep the Swiss franc stable, with the EUR/CHF exchange rate around 0.92. Rabobank maintains a three-month forecast for EUR/CHF at 0.92, indicating ongoing support for the currency. Looking back to early 2025, we noted clear deflationary risks, with producer prices declining and inflation rates barely above zero. Manufacturing activity was also contracting at that time. This situation pushed the Swiss National Bank to adopt a more dovish policy. Consequently, the SNB cut its policy rate to -0.25% at its March 2025 meeting to combat the economic slowdown and prevent a deflation spiral. This initial cut weakened the franc, pushing the EUR/CHF rate up towards 0.93 during the second quarter of that year. The decision was a direct response to ongoing economic weakness.Current Economic Outlook
Today, the situation has stabilized, with December 2025 inflation data showing a rise to 0.5%, moving away from immediate deflation risks. However, the latest manufacturing PMI remains low at 48.2, indicating persistent economic weakness. This suggests that the SNB will likely keep rates negative for now. For derivatives traders, this hints at a period of low implied volatility in the Swiss franc. With the SNB unlikely to raise rates soon, the EUR/CHF pair could stay relatively stable between approximately 0.9250 and 0.9450. Strategies benefiting from time decay and stable prices, like selling straddles, may be advantageous in the coming weeks. We must stay alert for unexpected global events, which historically prompt significant safe-haven flows into the franc. An increase in geopolitical risks could quickly push the EUR/CHF back below 0.92, causing volatility to spike. Therefore, holding some inexpensive, out-of-the-money put options on EUR/CHF could be a wise hedge against such potential risks. Create your live VT Markets account and start trading now.JPY declines amid fiscal concerns as government bonds drop following snap election announcement
The Japanese Yen has weakened due to a drop in government bonds after Prime Minister Takaichi announced a snap election. The key agenda includes a two-year food tax reduction, which raises concerns about Japan’s financial discipline. The election process begins with the lower house dissolving on January 23, campaigning starting on January 27, and voting on February 8. Takaichi plans to lower the sales tax on food from 8% to 0% if he wins.
Despite worries in the market, current signs indicate that Japan has a stable economic outlook. Nominal GDP growth is around 4%, and 10-year government bond yields are about 2.3%. This suggests Japan can handle primary budget deficits. These indicators point to a healthy fiscal environment, where growth is faster than borrowing costs. Therefore, the risks to Japan’s finances might not be as serious as the market believes. This means Japan’s financial stability looks stronger than expected.
