Markets to watch this week

Markets Brace for Trump’s Inauguration

The fresh week kicked off with a slight sense of optimism, as market participants anticipate clarity on the extent to which Trump’s policy promises will be implemented following his upcoming inauguration. Thus far, indications suggest that there may be “close to 100” executive orders on his first day in office, signalling the likelihood of sector-wide volatility as markets react. Key sectors to monitor include financials, energy, industrials, healthcare, and technology.

Focus will also be on US trade policies, particularly tariffs, which will carry significant global economic implications. Earlier cues from President Trump have highlighted Mexico, Canada, and China as primary targets, which may bear the first brunt of potential tariff measures. Although weekend talks between Trump and Xi hinted at a more conciliatory stance for early negotiations, contrasting with his “fire and fury” approach during his first term, lessons from 2018 also remind us that geopolitical dynamics can shift rapidly.

Attention will revolve around the US dollar movement ahead, as markets evaluate whether Trump’s policy agenda has already been priced in or if a “sell the news” reaction could unfold in the absence of policy surprises. This uncertainty could have far-reaching implications for global assets, setting the stage for a pivotal week ahead.

US Dollar Index: have much been priced for Trump’s policies?

Lower-than-expected US inflation and retail sales data have tempered the Federal Reserve (Fed)’s hawkish bets lately, and while wide interest rate differentials with other major economies are likely to sustain the US dollar’s medium-term appeal as a carry trade, near-term dollar’s trajectory will hinge significantly on the extent of follow-through for Trump’s policy agenda this week. Technically, the US dollar remains within a rising wedge formation, but bearish moving average convergence/divergence (MACD) divergence, marked by lower highs, raises the odds of a wedge breakdown, making the lower boundary a critical level to watch.

Key Levels:

• R2: 110.86
• R1: 109.81
• S1: 108.26
• S2: 106.88

US dollar daily chart

US Russell 2000: break of 6 January high on watch

Sentiments have improved for the small-caps over the past week, with a bounce off a support confluence from a lower channel trendline and 200-day moving average (MA) reaffirming the broader upward trend. US economic resilience, along with Trump’s upcoming deregulation push, may continue to fuel traction for the small-caps ahead, which have lagged behind other US indices over the past year and may offer catch-up potential. Focus will be whether its 6 January high can be overcome ahead. For now, a bullish divergence is presented at its daily MACD, while its daily relative strength index (RSI) is back at its midline.

Key Levels:

• R2: 2450
• R1: 2285
• S1: 2140
• S2: 2000

US Russell 2000 daily chart

China A50: stabilising ahead of Trump’s inauguration

Chinese equities have stabilised over the past week, tapping on better-than-expected economic data and increased traction towards value. While optimism has emerged from the Trump-Xi talks over the weekend, lessons from 2018 suggests that US-China dynamics can change quickly. For now, the China A50 index has reclaimed the 12,918 level, though caution remains on any upcoming Trump’s policies, as shown by the subdued price action. Its daily RSI has returned to its midline, where a decisive move above the 50 level may be needed to offer bullish conviction.

Key Levels:

• R2: 14,345
• R1: 13,460
• S1: 12,918
• S2: 12,200

China A50 daily chart

Spot gold: third time’s the charm?

Gold prices have recently made another attempt to retest the critical US$2,720 resistance level, a threshold it has failed to surpass on two occasions since November last year. This move highlights gold's resilience, despite a stronger US dollar and easing tensions in the Middle East. The yellow metal may also be viewed as a good hedge against upcoming Trump 2.0. Momentum indicators are improving, with the daily MACD turning positive and the RSI climbing back above its midline. A broader upward trend is supported by a rising channel, with a decisive break above US$2,720 likely to unlock further upside potential.

Key Levels:

• R2: 2850
• R1: 2720
• S1: 2580
• S2: 2473

Spot gold daily chart

USD/JPY: Bank of Japan’s rate decision as major risk event

Hawkish Bank of Japan (BoJ)'s bets have pushed the USD/JPY to a one-month low, as Japan's inflation and wage data suggest room for a potential 25 basis point (bp) rate hike. The focus now shifts to whether surprises from Trump’s policies could alter this narrative, though his attention is likely to remain on other major trading partners rather than Japan. Technically, the daily RSI for USD/JPY has dipped below its midline, signalling weakening upward momentum. A broader reversal would emerge if the pair breaks below the 154.47 support confluence, putting the 151.96 level as the next key area to watch.

Key Levels:

• R2: 158.46
• R1: 156.70
• S1: 154.47
• S2: 151.96

USD/JPY daily chart