Weekly Market Letter 19–26 January , 2026

The Big Picture

The dominant macro theme remains the tension between sticky US inflation (core PCE hovering near 2.8%) and a cooling labor market—December's weak +50,000 NFP reading still lingers in the market's memory. The Fed is widely expected to hold rates at 3.50%–3.75% at this week's FOMC meeting, marking the second consecutive pause after three consecutive 25bp cuts in late 2025.

Adding complexity: geopolitical uncertainty has surged. US-Greenland tensions with Denmark escalated before Trump pulled back; Russia-Ukraine peace talks produced no breakthrough (though negotiations continue); and the US has deployed a carrier strike group amid rising Iran tensions. These factors have turbocharged safe-haven flows into gold while keeping risk assets somewhat range-bound.

Regional Drivers

US: Fed Chair succession remains front and center. Powell's term ends in May, and markets expect a new chair announcement possibly this week. A more dovish appointment could shift rate cut expectations meaningfully. The January FOMC meeting (Jan 27-28) is the immediate focus.

Eurozone: Inflation has returned to the ECB's 2% target for the first time since May (December reading: 2.0%), reinforcing expectations that the ECB will hold rates steady through much of 2026. The euro has drawn support from a weakening dollar and stable policy outlook.

UK: CPI ticked up to 3.4% in December, keeping the Bank of England cautious. BoE officials have signaled limited room for further rate cuts as inflation remains notably above the 2% target. Sterling has found support from reduced expectations of aggressive BoE easing.

Japan: The BoJ held rates at 0.75% as expected at their January 22-23 meeting—the highest level since 1995. Governor Ueda reiterated openness to further hikes if economic conditions warrant. The yen strengthened sharply late in the week amid speculation of coordinated intervention, with the NY Fed conducting a "rate check" that spooked carry traders.

Canada: The loonie strengthened toward 1.37 per dollar, supported by firmer oil prices and a softer greenback. Headline Canadian inflation unexpectedly rose to 2.4% in December, reducing expectations for imminent BoC rate cuts.

The Dow finished Friday at 49,099, posting back-to-back weekly declines for the first time since June. Price recovered midweek from Tuesday's geopolitical-driven selloff but struggled to maintain momentum, weighed down by Intel's 17% plunge on weak guidance. Markets are in wait-and-see mode ahead of mega-cap tech earnings and the Fed decision.

Price action suggests: The index shows hesitation at recent highs, with buyers defending dips but lacking the conviction to break to new territory. The market appears to be awaiting a clearer narrative before committing.

Gold broke above $5,000 for the first time in history this week, touching an all-time high of $5,111.51. The rally has been relentless—up nearly 10% in just five trading days—driven by geopolitical uncertainty (Greenland tensions, Middle East, Ukraine talks), a weakening dollar, and safe-haven demand ahead of the Fed meeting. Central bank buying remains robust, with J.P. Morgan projecting around 585 tonnes of quarterly demand in 2026.

Price action suggests: Gold's surge to record highs signals genuine conviction, not mere technical extension. However, after such a sharp move, some consolidation would be natural. The key is whether buyers continue to step in on any pullbacks.

WTI Crude Oil

Oil recovered this week, with WTI climbing above $60 and posting gains for a fifth consecutive week. Support came from Kazakhstan supply outages (the Tengiz shutdown), a winter storm boosting US heating demand, and US military deployment to the Middle East raising supply-risk concerns. However, the broader supply picture remains challenging—the IEA projects significant oversupply in 2026, and inventories are elevated.

Price action suggests: Price behavior suggests the market is finding some support after last year's steep decline, but rallies remain capped by abundant global supply. The pattern indicates a market searching for equilibrium rather than establishing a new trend.

EUR/USD traded near 1.17-1.18, hovering close to multi-year highs as dollar weakness continued. The pair has benefited from the convergence of ECB on-hold expectations (with inflation at target) and softer US data supporting Fed cut expectations. Political uncertainty in Europe and sluggish growth remain headwinds, but the rate differential story currently favors the euro.

Price action suggests: The pair is consolidating near resistance after a strong 2025 rally. Price shows acceptance of higher levels rather than rejection, though the approach to 1.18-1.19 resistance suggests momentum may slow without fresh catalysts.

Sterling climbed above 1.36, reaching its strongest level since early July, supported by the weakening dollar and scaled-back BoE rate cut expectations following stronger UK PMI data and hawkish comments from MPC member Megan Greene. UK retail sales also surprised to the upside. However, inflation remains sticky at 3.4%, creating a challenging backdrop for policymakers.

Price action suggests: GBP/USD strength is largely a reflection of dollar weakness rather than broad sterling buying. Price is testing higher levels, but without UK-specific catalysts, the pair may struggle to sustain breakout moves.

The yen surged nearly 3% in late sessions, strengthening sharply toward 154 per dollar after the New York Fed conducted a "rate check"—a precursor signal for potential coordinated intervention with Japan. The BoJ held rates at 0.75% as expected but signaled readiness for further hikes. The combination of intervention fears and BoJ hawkishness has shifted momentum decisively in the yen's favor.

Price action suggests: The sudden yen strength suggests carry traders are being forced to unwind positions. Price behavior near the 155-160 zone has historically triggered official response—the market appears to be acknowledging this risk.

The loonie strengthened toward 1.37 per dollar, benefiting from firmer oil prices, a softer greenback, and hotter-than-expected Canadian inflation (2.4% headline). Tariff threats remain a background concern, but the immediate focus has shifted away from trade tensions as the US-Canada relationship stabilizes somewhat. The Bank of Canada's cautious stance on further cuts supports the currency.

Price action suggests: Price is retreating from recent highs, suggesting the extreme tariff-driven weakness in the loonie may have run its course. The pair appears to be reverting toward a more balanced range as fundamentals reassert themselves.