Markets Prepare for a Critical January Amid Policy Changes from the Fed and Trump Administration

As global markets resume trading after the New Year holiday, activity remains low, with expectations of light trading until next week when full operations return. Today's focus is on final manufacturing readings for the Eurozone and the UK, as well as US jobless claims. Tomorrow, the US ISM Manufacturing Index is set to provide an early indication of potential market volatility in the near future. However, the overarching sentiment for January—and likely for much of 2025—will be shaped by several significant events and data releases in the coming weeks.

This month is notable for two primary reasons. First, crucial US non-farm payrolls and inflation data are forthcoming, which will likely influence whether the Federal Reserve pauses its policy easing cycle later this month. After a hawkish rate cut by the Fed in December, markets are now bracing for a considerably slower pace of rate reductions in 2025.

Furthermore, the uncertainty in the markets is compounded by the inauguration of Donald Trump on January 20. The incoming administration plans to enact at least 25 executive orders immediately, focusing on areas such as immigration, energy policy, and regulations concerning cryptocurrencies. Trump's previous announcements about tariffs on imports from China, Mexico, and Canada could lead to inflationary pressures by increasing costs for both businesses and consumers. Market watchers are closely monitoring details of these policies and their potential repercussions on the global trading landscape.

In the crypto markets, the upcoming days are set to gauge how market sentiment is shifting post-holiday. Bitcoin's recent pullback from 108,368 appears to be slowing after reaching the 55-day Exponential Moving Average (currently at 92,441). If there is a strong rebound from this level, followed by a break above 99,866 resistance, it could indicate that Bitcoin has concluded its correction and is ready to resume its major upward trend. On the other hand, sustained trading below the EMA may lead to a return to the 38.2% retracement level of 49,008 to 108,368 at approximately 85,962, or even lower, deepening the correction further.

In Asia, Japan is on holiday, while the Hong Kong HSI has declined by 2.40%. The Shanghai SSE in China is down by 3.05%, but the Singapore Strait Times has seen a slight increase of 0.14%.

China’s Caixin PMI Manufacturing Declines to 50.5, Highlighting Ongoing Downward Pressures

The latest data shows that China's Caixin Manufacturing PMI fell to 50.5 in December, down from 51.5 and below market expectations of 51.6, indicating a slowdown in the sector's growth.

Although supply and demand have seen modest expansion, external demand remains a considerable challenge, according to Wang Zhe, Senior Economist at Caixin Insight Group. Zhe points out multiple issues, including sluggish external demand and a significant contraction in the job market. Sales prices have also been weak, and the overall market optimism is waning.

The survey results reveal "prominent downward pressures," largely driven by weak domestic demand and difficult external conditions that have squeezed profit margins and dented confidence among businesses. Additionally, the benefits of previous policy stimulus measures have yet to show consistent results, suggesting more time is needed to evaluate their effectiveness.

Looking Ahead

In the European session, key reports, including the Swiss PMI manufacturing data, Eurozone PMI manufacturing final readings, M3 money supply, and UK PMI manufacturing final results, will be released. Later in the day, the US will provide updates on jobless claims, PMI manufacturing final results, and construction spending.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.4354; (P) 1.4394; (R1) 1.4442; The intraday bias in USD/CAD remains neutral as consolidations continue below 1.4466. A deeper pullback remains possible, but the outlook will remain bullish as long as the support level at 1.4177 holds. A break above 1.4466 and sustained trading above 1.4391 would indicate a retest of the long-term resistance zone at 1.4667/89.

In the larger view, the upward trend from 1.2005 (2021) is ongoing and has met the 61.8% projection of the previous movement. Sustained trading above the current level will likely lead to a challenge of the 1.4667/89 significant resistance zone from the highs of 2020/2015. The medium-term outlook remains bullish as long as the 1.3976 resistance level is maintained, even in case of a deeper pullback.

Economic Indicators Update

GMT	CCY	EVENTS	ACT	F/C	PP	REV
01:45	CNY	Caixin Manufacturing PMI Dec	50.5	51.6	51.5
08:30	CHF	Manufacturing PMI Dec		48.3	48.5
08:50	EUR	France Manufacturing PMI Dec F		41.9	41.9
08:55	EUR	Germany Manufacturing PMI Dec F		42.5	42.5
09:00	EUR	Eurozone Manufacturing PMI Dec F		45.2	45.2
09:00	EUR	Eurozone M3 Money Supply Y/Y Nov		3.50%	3.40%
09:30	GBP	Manufacturing PMI Dec F		47.3	47.3
13:30	USD	Initial Jobless Claims (Dec 27)		223K	219K
14:30	CAD	Manufacturing PMI Dec		51.9	52
14:45	USD	S&P Global Manufacturing PMI Dec F		48.3	48.3
15:00	USD	Construction Spending M/M Nov		0.30%	0.40%
16:00	USD	Crude Oil Inventories		-2.4M	-4.2M

Markets, January, Fed