Markets to watch this week

Week of US megacap tech earnings kicks off with renewed volatility

The fresh week kicked off with renewed market volatility, as headlines surrounding China’s new artificial intelligence (AI) model, DeepSeek, brought US tech stocks’ valuation back into focus. While questions remain on how viable DeepSeek will be in terms of a lower-cost alternative to US models with lower-tier chips, market participants do not seem to like taking any chances, with the “sell first, think later” mentality translating into a more than 3% drop in the Nasdaq futures at the time of writing.

The potential risks are significant: if DeepSeek eventually turns out to be a significant competitor, concerns around US AI overinvestment, narrowing US-China technological gap, shrinking pricing power for US tech and escalating US-China geopolitical conflict ahead will likely amplify further, leading to further discounts of current US tech valuation. While more clarity awaits, focus this week will be on a series of US megacap tech earnings ahead. Beyond the usual top- and bottom-line beat, market participants will now be scrutinising management’s guidance and growth projections closely, in light of the recent dynamics around potential China’s competition.

US Dollar Index: Room to stabilise this week, tariff cues await

The US dollar will likely look to stabilise this week, having retraced more than 2.5% from its January 2025 high. The bearish divergence on its daily moving average convergence/divergence (MACD) has also played out to a large degree, with the indicator back at more neutral footing. Ahead, while the 1 February timeline for US tariffs may reignite interest in long build-ups, given US dollar’s sensitivity to ‘Trump trade’ dynamics and tariff headlines, the extent of build-up could still be somewhat constrained, as CFTC data suggests that US dollar net-long positioning remains at overcrowded levels for now.

Key levels:

• R2: 109.81
• R1: 108.26
• S1: 106.88
• S2: 105.73

US Dollar Index chart:

Spot Gold: Break of range brings bullish bias

Gold prices have recently broken out of its near-term range, overcoming the crucial US$2,720 level of resistance on its third attempt. Any US-China tensions could be on watch this week, as developments of a more cost-effective AI model with lower-capability chips, DeepSeek, may aggravate any upcoming US measures on China (eg. expanded chip restrictions, higher tariff), just as the 1 Feb tariff timeline looms. This leaves gold as a good hedge against geopolitical uncertainties. A pullback to retest the US$2,720 level could leave buyers watching for any higher low as a continuation of the prevailing upward trend.

Key levels:

• R2: 3,000
• R1: 2,850
• S1: 2,720
• S2: 2,580

Spot Gold chart:

EUR/USD: European Central Bank (ECB) meeting in focus this week

Recent moves in the EUR/USD seem to indicate a shift in trend to the upside, with the formation of higher highs and higher lows displayed over the past two weeks. Its daily relative strength index (RSI) has also reverted above its midline for the first time since October 2024, reflecting bullish momentum. Rate expectations currently lean dovish, with a 25 basis point (bp) rate cut from the ECB this week priced at a done deal. Future policy outlook will be key, which could see policymakers adopt a more cautious policy stance given the recent heat-up in inflation.

Key levels:

• R2: 1.061
• R1: 1.052
• S1: 1.042
• S2: 1.033

EUR/USD chart:

US Tech 100: Watch for crucial channel support

The development of a viable, cheaper AI-model alternative from China has seen markets revise their expectations around US tech dominance and brought some discounting of the current lofty tech valuation. The near-term focus may remain centred on whether DeepSeek is really a ‘gamechanger’ and how US big tech will address it at their upcoming earnings reports. With Nasdaq futures pointing to a sharp drop at the open, attention may turn to a crucial lower channel support around the 20,735 level, which may have to see some holding up.

Key levels:

• R2: 22,750
• R1: 22,000
• S1: 20,735
• S2: 19,875

US Tech 100 chart:

Emerging Markets Index: Formation of new lower high

A firmer US dollar to start the week has put the Emerging Markets Index on the backfoot, as the index retraces from a near-term downward trendline resistance at around the 1,091 level. This validates a broad descending channel in place, with the series of lower highs signalling for further downside potential. Today’s sell-off has erased all of last week’s gains, indicating near-term bearish pressures. Ahead, the index may remain sensitive to any US trade policy headlines, with further downside potentially targeting the 1,042 level.

Key levels:

• R2: 1,134
• R1: 1,091
• S1: 1,042
• S2: 996

Emerging Markets Index chart: