Dollar steady as geopolitics dominate headlines

Data-crammed week 

The first full trading week of 2026 is underway, with market participants quickly putting aside their festive mood and focusing on a rather busy calendar ahead. Following two weeks of relative calm and scarce data releases, the US ISM manufacturing PMI – forecast to show a marginal improvement – will act as an appetizer today. On Wednesday, the ISM Services PMI and the ADP employment report for December will provide valuable information about the US economy, ahead of Friday’s pivotal nonfarm payrolls figure.

President Trump’s action in focus

However, the focus today is on the weekend’s events regarding Venezuela. Following a period of public altercations, Venezuelan President Maduro has been transferred to the US and is now preparing to face a number of legal indictments. Market interest lies in the “next day” in Venezuela, considering the vast but underdeveloped oil reserves of this Latin American country.

The prospect of increased oil production, driven by US firms developing new wells and upgrading the existing aging infrastructure, adds to the already negative supply story for 2026. Consequently, the initial oil reaction has been negative, with WTI oil prices trying to stay above the $57 level, erasing the late-December attempt to climb above the July 30, 2025 descending trendline.

Notably, Trump appears to fully embody the popular phrase “appetite comes with eating”, as, following the Venezuelan “success”, he repeated his desire and need to annex Greenland – ignoring calls from the Danish PM to stop the threats – predicted the fall of the current Cuban government and more-or-less threatened to take similar action against Colombia’s President, who is accused of the same crimes as Venezuela’s Maduro.

Gold and cryptos higher, dollar rally pauses

Geopolitical events and the threat of further US actions have pushed gold towards the $4,420 area, recovering from the late-December sell-off, which was mostly driven by silver’s correction rather than a change of heart from investors. Interestingly, cryptos appear to be one of the main beneficiaries of the new year, with both bitcoin and ethereum gaining around 5-6% already.

Similarly, the dollar has started the new year on the front foot, posting gains across the board today. At the time of writing, euro/dollar is trading around the 1.1690 level, with the next key support seen in the 1.1637-1.1662 zone, while pound/dollar has broken below the short-term ascending trendline, with bears potentially eyeing a test of the 1.3364-1.3375 area.

Interestingly, this dollar strength is also evident against the yen. The pair is hovering around the 156.74 level, potentially prompting another series of verbal interventions from Japan’s Finance Ministry officials. Notably, this muted upside pressure takes place amidst further comments from BoJ Governor Ueda about further rate hikes if economic and inflation conditions evolve in line with BoJ forecasts. Markets are less convinced, as the next rate hike is currently priced in late-July. Key data released this week and further information on the upcoming wage round could unlock a faster rate hike.

Equities mixed, Fed rate cut expectations critical

With Fed Fund futures fully pricing in the next 25bps rate cut in mid-June, equities have had a mixed start to 2026, with Asian indices exhibiting the strongest will to rally. For US equities, apart from the key data releases, Fedspeak remains pivotal, and following a very quiet period, this is expected to intensify this week. Notably, Philadelphia Fed President Paulson, a voter this year, confirmed his dovish inclination during the weekend, highlighting the need for further adjustments to the Fed funds rate if inflation moderates and the labour market stabilizes.