Weekly Edge | January 26, 2025

Data Deluge & FOMC Spotlight

Looking Back

Our call last week for a bumpier ride on tariff news didn’t fully materialize—markets took Trump’s measured tariff delays in stride, and equities pushed higher but faded on Friday. While we anticipated more volatility from the inauguration headlines, the S&P 500, Nasdaq, and Russell 2000 all ended the week near or at new highs. Credit spreads stayed tight, and foreign buyers continued snapping up U.S. assets, creating a strong bid under the market.

Major Headlines/Surprises

• President Trump delayed immediate tariffs on China, focusing first on Canada and Mexico starting February 1. Markets welcomed the temporary reprieve, lifting risk appetite.

• Japan’s inflation rate jumped to 3.6%, surpassing expectations of 3.2%. Though the Bank of Japan increased rates to 0.5% (as expected), but JPY did a whole lot of nothing.

• UK data disappointed: unemployment rose to 4.4%, and consumer confidence fell more than expected.

• U.S. consumer sentiment (Michigan) also surprised to the downside at 71.1 vs. 73.2 expected. Yet, stronger existing home sales (4.24M vs. 4.19M) suggested a resilient housing market.

Price Action Across Asset Classes

• Equities: The S&P 500 raced to new highs, with small and mid-caps playing catch-up. Banks beat Q4 earnings expectations, adding fuel to the rally.

• Bonds: Treasury yields bounced around on shifting growth expectations and White House rhetoric. Overall, 10-year yields stayed in a 4.5%–4.7% range, reflecting a solid economy but no immediate inflation panic.

• Commodities: Oil slipped from $80 to $75 per barrel after new executive orders aimed at boosting U.S. energy output. Gold stayed bid as a haven, consistent with its positive daily momentum. Copper paused after a brief run-up on Chinese stimulus hopes.

• Currencies/Crypto: The U.S. dollar softened briefly on the tariff delay but is poised to rebound if foreign inflows remain robust. Bitcoin swung around on speculation over a possible U.S. “Bitcoin reserve” but settled little changed.

Prevailing Market Regime

• Tariff talk is top of mind, yet the market sees only a modest near-term shock. Growth signals remain strong (e.g., U.S. housing resilience, banks beating earnings).

• Inflation remains moderate despite Japan’s uptick—broadly, markets are pricing a continued “Goldilocks” scenario: decent growth with contained inflation. Liquidity stays ample as foreign capital inflows pour into U.S. stocks and bonds.

• Consensus regime: bullish equities, mild upward pressure on yields, credit staying tight, and no immediate break in sentiment.

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Looking Ahead

Key Data Releases

• Germany Ifo (Monday) and Euro Area GDP (Thursday): Watch these for Eurozone growth sentiment and possible catalyst for reversal in Euro FX.

• US Durable Goods (Tue), GDP (Thu), Core PCE (Fri): Strong prints here would reinforce a hawkish Fed narrative if the Fed chooses to lean that way.

• Australia CPI (Tuesday): Softer inflation read might open the door for RBA cuts in Q1, pressuring the AUD.

• BoC Rate Decision (Wednesday): Markets expect a 25bp cut to 3.00% or a hold at 3.25%. Watch how they balance inflation vs. growth worries.

• Fed Rate Decision (Wednesday): Market is leaning toward no change at 4.5%, but any dovish nuance or tough talk on tariffs from Washington could swing yields.

FOMC in Focus

Why It Matters

The last FOMC in December triggered notable volatility. Since then, key U.S. data have run hotter than forecast (robust housing starts, firm retail sales, better PMI prints). Although the Fed is widely expected to hold rates at 4.5% again (the “pause”), any incrementally hawkish language—hinting at future hikes or emphasizing persistent inflation risks—could catch a complacent market off guard.

Hawkish Tilt Possibility

• Labor & Inflation: Continued low jobless claims and a stable inflation trend (albeit edging lower in some measures) could let the Fed maintain a data-dependent “wait-and-see” stance. But if they want to get ahead of any reacceleration in wage or services inflation, we might see more forceful rhetoric about “further tightening if conditions warrant.”

• Balance of Risks: The Fed might also highlight the risk of letting financial conditions stay too loose if markets rally unimpeded—especially with growth reaccelerating. That could be the hawkish “surprise” scenario, pushing yields higher and strengthening the dollar.

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Momentum & Trends

• Equities: Longer-term daily momentum in S&P, Nasdaq, and Russell remains strongly positive. Shorter-term charts show mild choppiness but still lean up. Shorter-term charts show overbought conditions and Friday’s close was week; we believe minor pullback or rotation is plausible.

• Bonds: Choppy momentum signals with small flips on 15- and 60-minute timeframes. The path of least resistance seems slightly higher in yield if growth data keep impressing.

• Commodities: Gold’s daily momentum is firmly up; a breakout above recent highs could attract more flow. Oil’s uptrend broken is broken on the daily chart; rhetoric on supply expansions (U.S./Saudi) weighs. Still, fresh Russia sanctions (strictly enforced) could flip the story bullish quickly—headline risk is high in both directions.

• Currencies: The dollar index is wobbling short term, but sentiment is that strong U.S. growth plus foreign inflows keep a floor under the greenback. Potential rebound area; a hawkish Fed could spark further upside. EUR/USD near 1.05–1.06 resistance, vulnerable to a downturn if global conditions or Fed speak shift.

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Best Trading Opportunities

• Short Treasuries: With the 10-year near 4.6%, strong growth prints might push yields higher again. Consider put spreads as a risk-defined way to position for a modest yield rise.

• Long Gold Dips: Safe-haven sentiment and a sustained uptrend combine to make gold attractive on pullbacks.

• Short EUR/USD near 1.05–1.06: This zone has proven sticky resistance. The EUR’s bounce last week was fueled by relaxed tariff chatter and strong European PMIs, but a hawkish Fed on Wednesday could revive the dollar’s uptrend.

• Short-Term Caution on US Stocks: Equities are still in a broader bull trend, but they look stretched on the shorter horizon. Friday’s weakness hints at possible consolidation or rotation. Consider hedges or tight stops on fresh longs.

• No Touch on Crude Oil: The uptrend looks broken. Policy headlines are pulling in opposite directions—U.S./Saudi capacity increases vs. potential sanctions to pressure Russia. The market feels like a coin toss here, so we prefer to stand aside.

• Keep an Eye on AUD: Aussie outperformed recently on China-driven commodity strength. However, if Tuesday’s CPI disappoints, the RBA might fast-track cuts given Australia’s slowing growth. That would weigh on AUD.

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Chartbook

Foreign Exchange

Australian Dollar (6A)

Last week we said we liked AUD long, principally because (i) it was bouncing after hitting fresh 4-year lows, and (ii) divergence from industrial metals like Copper, which had been ripping.

• Long AUD: It is not going up yet, so too early for me to take a position. But there is divergence between what commodities and AUD is doing. If commodities continue rallying, I expect this to divergence to resolve even if the RBA remains soft on rates.

Against a backdrop of broad USD weakness, the monthly trend in AUD has flipped to bullish. Momentum is now positive on 1h and 4h timeframes. We continue to be bullish AUD but are not adding more risk ahead of inflation data on Tuesday. The RBA is looking for an excuse to cut, which is why divergence had arisen between the AUD and Copper.

British Pound (6B)

Pound Sterling rallied against the dollar (as did all G7 pairs) and broke above the steep monthly down channel it had been trading. The rally wasn’t enough to neutralize the monthly down trend; however, the Pound did outperform Euro (observable via EURGBP).

Despite downbeat UK data, two factors helped push sterling above the euro:

1. Relative Monetary Policy Outlook
   Even with weaker economic data, traders still see the Bank of England staying on a hawkish footing longer than the European Central Bank—particularly if UK inflation remains sticky.

2. Short-Covering & Positioning
   Heading into last week, markets already had hefty short positions in GBP. When the negative UK data prints didn’t spark another leg lower, short sellers began covering, adding support to sterling. Meanwhile, Euro positioning was not as skewed, so EUR lacked that additional “snapback” effect against GBP.

We lean towards the latter view, ie. the trend into last week was steep and narrow. Soft data was expected and did indeed materialise, but expectations were obviously for even softer data.

Canadian Dollar (6C)

The Canadian Dollar remained rangebound with no apparent trend. Tuesday’s tariff news caused volatility but no trend emerged. We are long puts on the Canadian Dollar with a 6 month time horizon, and are data dependent in terms of whether we continue to inventory the position. We expect the BOC to ease sooner and more aggressively than global peers, and we expect the currency to weaken if the tariff threats materialize.

Euro (6E)

The Euro broke its monthly downtrend and is now in a gentle uptrend with wide dispersion. We remain bearish the Euro and believe we are in the 1.05-06 where shorts can be considered, with a tight stop loss around 1.07. Momentum is positive on 1h and 4h charts but remains negative on the daily. Further rally from here into the 1.06 area will be enough to bring daily momentum to the zero line.

Japanese Yen (6J)

Our expectations for Yen outperformance last week did not materialize. The monthly trend moved from sideways to slightly up, but only because the market consolidated at the highs rather than due to a rally. Momentum remains choppy on the 1h & 4h timeframes, and negative on the daily. Perhaps it will take sequential hot data (which seems likely) to finally reverse the persistent down trend.

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Treasuries

2Y Note (ZT)

No real change in price or in view. We prefer short positions on the 10Y or 30Y; there is no near-term catalyst for 2Y notes to advance or decline—the cutting cycle is paused and incoming data continues to be hot.

10Y Note (ZN)

We remain in a downtend but the speed of the decline has slowed, with 10Y notes basically trading sideways last week. Momentum remains negative on 4h and daily charts, with momentum on the zero line on the 1h chart. This is a market poised to move on the slew of macro this week. We expect strong prints (Durable Goods, GDP, PCE) and a marginally more hawkish Fed. The rate decision is a fait accompli but expect fireworks to be lit during the post-meeting presser.

30Y Bond (ZB)

Same setup as the 10Y, i.e.. will move on the data this week. Our expectation is for marginally hotter data and marginally more hawkish Fed, but we have no alpha in predicting this data. Our expectation is for the existing trend to continue because with the Fed on pause, the market will be driven principally by endogenous forces rather than policy response. Indications are that the US economy has started to re-accelerate post election, with the resolution of election uncertainty giving the greenlight to many pending transactions. Consumer confidence and investor confidence are still on the upswing, and that should fuel growth but perhaps also inflation, given the labour market remains tight. And it has not gone unnoticed that commodities have been ripping despite US Dollar strength.

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Equities

S&P 500 (ES)

On the surface, the stock index charts resemble the 10Y and 30Y charts. Last week, they each broke the monthly down channel and tested the channel from above. However, our proprietary momentum data tells a different story. The S&P 500, for example, is firmly positive on 1h, 4h and daily timeframes, whereas treasuries only recently flipped positive on the lower timeframes.

Nasdaq 100 (NQ)

The Nasdaq closed weak on Friday, as did all the indexes. Momentum remains positive on all timeframes we track; however, on the 1h chart the Nasdaq is approaching the zero line. A break below would be the first sign of reversal.

In Masaponzi Meme Top, Shrub shines a light on why the $500 billion Stargate announcement might mark a meme top. And in a separate comment, he pointed out that while Facebook plans to ramp their AI capex by 30% (15 billion), Nvidia stock was down 3%. The move in NVIDA was due to headlines that a scrappy competitor LLM “Deepseek” was trained on a measly $5 million. What the first reports buried was that the Deepseek model runs on $2 billion of Nvidia GPUs. Easy to imagine many trapped short sellers here wishing they didn’t sell the news.

Masaponzi Meme Top?

Russell 2000 (RTY)

Higher yields continue to pressure many unprofitable, debt-laden companies that comprise the Russell 2000. For more than a month it has been sideways, most recently with a subtle upward bias. Momentum is positive on all timeframes, making RTY a potential bullish exposure. In our inventory, we possess OTM calls which will pay off nicely if/when the market becomes convinced that the economy can withstand high rates and continue to grow.

Dow Jones (YM)

Strongest performer amongst the indexes as industrials stocks catch most of the trade winds from Trumpian policy announcements. We would commend seeking tactical opportunities to get long the Dow.

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Commodities

Crude Oil (CL)

Crude fell out of bed last week, essentially extending the move that began the week prior following the roll of the front month contract. We believe that the top is in for now, and the explosive buying into contract expiry was marked by trapped speculative shorts who were forced to cover.

In the short term, we believe this market will be driven by headlines more than macro. There are wildly divergent scenarios for the future path of prices depending on unknowable events such as (i) whether Trump will strictly enforce Russian sanctions to coerce a deal on Ukraine, and (ii) whether the Saudis will turn on the spigot to aid their security alliance with the USA. It is no touch for us until the key driver/s become apparent; definitely do not rely heavily on technical analysis because a big headline can immediately change the winds of trade.

Gold (GC)

What can be said other than pinch your nose and BTFD? When an asset is going up when fundamentals (rising real yields) say it should be going down, do we fade the trend? Of course not, the trend is your friend! When the trend is at an end, we’ll first observe momentum flips from bullish to bearish on 15m and 1h timeframes. And we’ll see the market start to invalidate the monthly channel.

Copper (HG)

After a solid run-up earlier this month—largely on hopes of stronger global growth and China’s renewed stimulus—copper has recently lost some steam. Several crosscurrents are now influencing its price action:

China’s Role Still Key
Copper’s underlying bull case depends heavily on Chinese demand. Although Beijing’s fiscal and monetary easing have supported industrial metals, actual Chinese demand indicators and new orders data have been mixed, keeping copper from extending its rally decisively.

Global Macro Data Are Uneven

• Japan reported a better-than-expected trade balance and higher inflation, but it remains uncertain how far domestic growth can offset weaker global demand.

• Europe (UK in particular) showed softer consumer confidence and a rising unemployment rate—signs of potential slowing in consumption and industrial activity.

• US data remain relatively firm (e.g., robust housing starts, steady industrial production), suggesting pockets of strength. Still, consumer sentiment dipped, and the Fed’s tone at the upcoming FOMC meeting could swing broader risk appetite.

Short-Term Technicals
Momentum indicators have flattened; copper briefly pulled back from local highs. Traders seem hesitant to extend longs ahead of significant central bank decisions (the Fed this week) and further signals on China’s growth trajectory.

Bitcoin (BTC)

Bitcoin has seen a choppy but broadly positive bias in recent weeks, reflecting the market’s ongoing risk appetite and persistent speculation around pro-crypto policy shifts under the new U.S. administration. However, momentum has cooled somewhat as traders weigh conflicting macro signals:

Resilient Risk Appetite

• U.S. Data: While consumer sentiment (U. of Michigan) came in softer than expected at 71.1 (vs. 73.2 forecast), strong existing home sales (4.24M vs. 4.19M exp.) and robust housing starts underscore that overall economic activity remains healthy. This underpins a generally “risk-on” mood, which can benefit assets like Bitcoin.

Mixed Global Backdrop

• UK: Economic data disappointed—unemployment rose to 4.4%, consumer confidence slid to –22. Sterling nonetheless rallied, suggesting broader FX flows rather than simple fundamental strength. Bitcoin often trades as an alternative or “neutral” currency play, so a stronger pound on shaky fundamentals points to ongoing FX market uncertainty.

• Japan: An uptick in inflation (3.6% vs. 3.2% exp.) and a positive trade balance suggest partial improvement domestically. However, Bank of Japan interest rates remained at 0.5%, indicating Japan is still wary of tightening too aggressively.

Technical Picture

• After an initial post-inauguration rally spurred by speculation of a pro-Bitcoin executive order, BTC’s momentum plateaued. Price action has been characterized by rapid intraday swings, consistent with traders re-evaluating crypto’s role amid shifting policy signals.

Outlook
If global central banks signal they’ll remain supportive of liquidity—especially the Fed at its upcoming meeting—Bitcoin could find fresh tailwinds. Yet, a unexpectedly hawkish shift or cooler risk sentiment (e.g., from worsening consumer data) might temper near-term upside. Overall, Bitcoin remains in a cautious upswing: still bid on dips, but awaiting a clear catalyst to extend momentum meaningfully higher.

Bottom Line

Despite political fireworks in Washington, the market keeps pushing forward on the back of solid economic and corporate earnings momentum. The big puzzle for next week is how central banks (Fed, BoC, ECB) balance decent growth data against inflation that’s still elevated in pockets (e.g., Japan). Equity bulls continue to hold the reins, but watch for any upside surprises in growth or inflation numbers to nudge yields and rotate leadership.

We stay constructive on risk, with a watchful eye on next week’s heavy calendar for any pivot in global monetary policy or growth expectations. In the meantime, the “buy-the-dip” mindset in equities remains intact, and near-term momentum suggests we might yet grind higher before any real test of risk appetite emerges.