The Forex market is the largest in the world with around $5 trillion average daily trade volume. It dwarfs the daily trade volume of the New York (NYSE), Tokyo (TSE), and London Stock Exchange (LSE) which stands at around $22, $18 and $8 billion respectively. In this article, we will take a look at the top 5 most traded currencies in the world.
US dollar The United States Dollar (USD, US$) is the official currency of the United States and also eight other countries, including East Timor, Ecuador, El Salvador, Palau, Micronesia, Panama, Marshall Islands, and Zimbabwe. The US dollar is the most traded currency in the world, accounting for a daily average volume of around $2.2 trillion, making up a large proportion of the total average daily volume. There are a few reasons why the dollar is the most traded currency in the world – the US has the largest economy in the world at around $19 trillion.
Euro The Euro (EUR, €) is the official currency of the European Union, and it’s the second most traded currency in the world at $800 million average daily volume. The Euro is the official currency of 19 out of the 28 EU member states. It was first introduced back on the 1st January 1999.
Euro has one of the highest combined values of banknotes and coins in circulation in the world at €1.2 trillion. Japanese Yen The Japanese yen (JPY, ¥) is the third most traded currency in the world, making up a daily average volume of around $550 billion. Japan has the third largest economy in the world, just behind the United States and China at $4,8 trillion.
The Bank of Japan issues the Japanese yen (BoJ), and it is also unofficially used in the African nation of Zimbabwe. Pound Sterling The pounds sterling (GBP, £) is the official currency of the United Kingdom, Jersey, Guernsey, the Isle of Man, South Georgia and the South Sandwich Islands, the British Antarctic Territory, and the Tristan da Cunha. The pound is fourth on the list of the most traded currencies in the world with a daily average volume of around $325 million.
Sterling is worlds oldest currency still in use. Australian Dollar The Australian dollar (AUD, A$) is the official currency of the Commonwealth of Australia and is also an unofficial currency of Cambodia, Gambia, New Caledonia, Papua New Guinea, and Zimbabwe. It is the fifth most traded currency in the world with a daily average volume of around $174 million.
The Aussie dollar, as it is usually referred to by foreign exchange trades is issued by the Reserve Bank of Australia (RBA). This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions.
Trading Forex and Derivatives carries a high level of risk.
By
Klavs Valters
Account Manager, GO Markets London.
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain our Disclosure Statement (DS) and other legal documents available on our website for that product before making any decisions.
In 2025, the S&P 500 traded around 6,835 and was up approximately 16% year to date (YTD). Market direction remained most sensitive to Federal Reserve expectations, inflation data and the earnings outlook, with returns also shaped by mega-cap tech leadership and the broader AI narrative. The index pulled back from earlier December highs, but it has so far held above key major moving averages (MA).
Key 2025 drivers included:
Fed expectations and inflation: Inflation cooled through the year but remained sticky around 2.5% to 3%. A Fed easing bias likely supported price to earnings (P/E) multiples and “risk-on” positioning. More recently, markets appeared increasingly rate-sensitive, with the decreased likelihood of an additional rate cut until March 2026.
Earnings and guidance: Corporate earnings remained strong quarter on quarter. Recent Q3 results reportedly saw over 80% of the S&P 500 beat earnings per share (EPS) expectations. For Q4, the estimated year-over-year earnings growth rate is 8.1%, despite ongoing concerns around import tariffs and potential margin pressure.
Index leadership and breadth: Returns were heavily influenced by mega-cap tech and AI beneficiaries, even as broader market breadth appeared less consistent at points through the year.
Policy headlines and volatility: Trade and tariff headlines drove sharp moves, particularly earlier in the year. Some investors pointed to the “TACO” trade, with rapid recoveries after policy proposals were softened. Over time, similar shocks appeared to have less impact as the market became somewhat desensitised.
Valuations and sensitivity: The forward 12-month P/E ratio for the S&P 500 is 22, above the 5-year average (20.0) and above the 10-year average (18.7). That gap kept valuation sensitivity, especially in AI-linked names, firmly in focus.
Current state
The S&P 500 is about 1% below record highs hit earlier in December. That could indicate the broader uptrend remains in place, with a move back toward the recent highs one possible scenario if momentum improves. Despite the recent retracement, the index remains above all key major moving averages (MA). The latest bounce followed lower than expected CPI numbers earlier this week, alongside continued, and to some, surprising optimism about what may come next.
What to watch in January
Q4 earnings from mid-January: Results and guidance may help clarify whether valuations are being supported by forward expectations.
AI narrative and positioning: With AI-linked mega-caps carrying a large share of market capitalisation, changes in sentiment or expectations could have an outsized impact on index performance.
US jobs and CPI data: The latest US jobs report reportedly points to the highest headline unemployment rate since 2021. Cooling inflation this week may keep markets alert to shifts in rate cut timing, particularly around the March decision.
S&P 500 daily chart
Source: TradingView
Major FX pairs
Source: Adobe Images
AUD/USD
AUDUSD has been choppy in 2025. Since the “redemption day” drop in April, the move has looked more like a steady grind higher than a clean upside trend.
Key levels Recent peaks in early September and mid-December highlight resistance near 0.6625. Support has been evident around 0.6425, where price bounced over the last month.
What is supporting the bounce That support test coincided with stronger than expected jobs and inflation data, lifting expectations that the Reserve Bank of Australia (RBA) may raise rates during 2026 rather than cut again. The latest pullback looks contained so far, with buying interest already visible and price still above key longer-term moving averages.
What could drive a breakout The pair remains range-bound, but the tilt is still constructive. If Chinese data stays firm, metals prices hold up, and the central bank outlook remains relatively hawkish, a break above resistance could gain more traction.
AUD/USD daily chart
EUR/USD
After early 2025 euro strength, EURUSD has mostly consolidated since June in a roughly 270 pip range. This month tested 1.18 resistance, reaching highs not seen since September.
What price is doing now The recent pullback still lacks strong downside conviction. Some technical analysts refer to the 1.17 area as a near-term reference level.
What could come next If price holds 1.17 and buyers step back in, another push toward 1.18 is possible. One view is that the European Central Bank (ECB) could be less inclined to ease in 2026, which could be consistent with a firmer EURUSD scenario. Broader analyst commentary also suggests the euro may stall rather than collapse against the US dollar, although outcomes remain data and policy dependent.
EUR/USD daily chart
USD/JPY
Year-to-date picture USDJPY is close to flat overall for the year. After US dollar weakness in Q1, the pair reversed higher and now sits just below resistance near 158.
Rates remain the main driver Rate differentials still favour the US dollar. The Bank of Japan (BOJ) held steady for much of the period despite expectations it might act, and the recent rate increase was modest. Policy has only moved marginally away from zero.
What could shift the balance Rate differentials remain a key influence. Without a clearer shift in BOJ policy, the JPY may find it difficult to sustain a rebound. Some market commentators cite 154.20 as a chart reference level.
In 2025, the ASX 200 closed around 8,621 points and was up approximately 6% year to date (YTD) as of 19 December close. Market direction was most sensitive to Reserve Bank of Australia (RBA) expectations, commodity prices and China-linked demand, and (to a lesser extent) moves in the Australian dollar (AUD). The index recovered from November’s pullback, but remained below October’s record close.
Key 2025 drivers included:
RBA policy expectations: Sentiment was shaped by shifting views on the timing and extent of rate moves. The November pullback reflected repricing towards a longer pause and higher uncertainty around whether the next move could be a hike rather than a cut, particularly as jobs and inflation data surprised.
Resources and China sensitivity: With a meaningful resources weight, the index responded to iron ore stability, strong gold prices and relative firmness in base metals. China data and any perceived policy support (including signals from the People’s Bank of China (PBOC)) remained important for the export backdrop. A relatively stable AUD also reduced currency-related noise for exporters.
Index composition and market structure: The ASX 200’s heavier tilt to materials and banks, and lower exposure to high-growth technology, meant it often lagged tech-led global rallies, but tended to hold up better when AI and growth valuations were questioned.
Corporate earnings: Reporting season outcomes influenced valuation support. In September’s half-year reporting season, around 33% of ASX 200 companies beat expectations, which helped underpin pricing around current levels.
Current state
The ASX 200 was roughly 5% below its late-October record high close of 9,094 points. After the November retracement, support around 8,400 appeared to hold and buying interest improved. The 50-day EMA near 8,730 (a prior consolidation area) was a commonly watched near-term reference, noting technical indicators can be unreliable.
What to watch in January
China and commodity demand: Growth, trade and any fresh stimulus inference from the PBOC may affect sentiment.
Domestic inflation and labour data: CPI and jobs prints are key inputs into RBA expectations.
Key levels and follow-through: The post-November rebound may need continued demand to sustain momentum.
Source: Trading View
What moved the Nikkei 225 in 2025?
In 2025, the Nikkei 225 traded around 39,200 points and was up approximately 21% year to date (YTD). Market direction was most sensitive to moves in the Japanese yen (JPY) and Bank of Japan (BOJ) communication, with the index consolidating after multi-decade highs. While broader signals remained constructive, consolidation can resolve either higher or lower.
Key influences included:
JPY movements and earnings translation: A weaker JPY can boost the reported value of overseas earnings for some exporters, although it may also increase input and import costs. The net impact often depends on company hedging practices and varies by sector, with effects most evident in export-heavy industries such as automotive, industrials and parts of technology manufacturing.
Gradual BOJ policy transition: The BOJ continued to step away from ultra-easy settings, but tightening was generally cautious. Markets largely priced a slow, conditional normalisation, which helped limit downside, even as policy headlines created bouts of volatility.
Corporate governance reforms: Ongoing improvements in capital efficiency and shareholder returns supported interest from overseas investors. Share buybacks, stronger balance-sheet discipline and improved return on equity (ROE) contributed to re-rating in parts of the market.
Global cyclical exposure: The Nikkei moved with shifts in global manufacturing sentiment and expectations for US growth, particularly during risk-on phases associated with AI-related capital spending.
Current state
After pushing to multi-decade highs earlier in the year, the Nikkei spent time consolidating but has remained structurally strong. Price sits above key long-term moving averages, and some technicians watch the 50-day exponential moving average (EMA) as a potential reference level (noting these indicators can be unreliable). Currency swings and shifting BOJ expectations were commonly cited as contributors to much of the second-half volatility, although pullbacks were generally met with buying interest.
What to watch in January for Japan
JPY volatility: Sharper yen moves, especially if driven by BOJ or Federal Reserve expectations, could quickly change exporter earnings assumptions.
BOJ communication: Small changes in language on inflation persistence or bond market operations may move sentiment.
Global growth data: US and China manufacturing and trade prints remain key inputs for an externally focused economy.
The biggest move in 80 years We need to start with what is probably the biggest structural change Europe has seen since the formation of the European Union to its biggest member – Germany. For the first time in 80 years Germany’s Bundestag has voted to lift the country's “debt brake” to allow the expansion of major defence and infrastructure spending under new leadership of incoming Chancellor Frederick Merz. We need to illustrate how much spending Germany is going to do in defence it is up to €1 trillion over the forward estimates. 5 billion of which is to support Ukraine for this year and to continue to put European pressure on Russia.
It's also a country it has been highly sceptical of stimulating itself having suffered through the Weimar government of the 1920s and 30s that led to hideous hyperinflation and drove the country to political extremism. It is also clearly in response to Washington’s change of tact regarding Europe and the war in Ukraine. As it is now clear that Europe who need to defend itself and that NATO is becoming a dead weight that can no longer be relied upon.
Couple this with what the EU is doing itself. Last week we saw the head of the EU Ursula von der Leyen, delivered a speech that stated the continent needed to: “rearm and develop the capabilities to have credible deterrence.” This came off the back of the EU endorsing a commission plan aimed at mobilising up to €800 billion in investments specifically around infrastructure and in turn defence. The plan also proposes to ease the blocs fiscal rules to allow states to spend much more on defence.
If you want to see direct market reactions to this change in the continent’s commitments – look no further than the performance of the CAC40 and DAX30. Both are outperforming in 2025 and considering how far back they are coming compared to their US counterparts over the past 5 years – the switch trade may only be just beginning. What is also interesting it’s the limited reactions in debt markets.
The 10-year Bund finished marginally higher, though overall European bond markets saw limited movement. Bonds rallied slightly following confirmation of the German stimulus package. Inflation swap rates were little changed, while EUR swaps dipped, particularly in the belly of the curve.
EUR/USD ticked up 0.2% to $1.0960. Hopes for a potential Russia-Ukraine cease-fire also offered some support to the euro but has eased to start the weeks as Russia looks to break the deal before it even begins. Staying with currency impactors – The US saw a range of second-tier U.S. economic data releases last week all came in stronger than expected.
Housing starts jumped, likely benefiting from improved February weather. Industrial production rose 0.7% month-over-month big beat considering consensus was for a 0.2% gain while manufacturing jumped 0.9%. Import and export prices also exceeded forecasts, prompting a slight upward revision to core PCE inflation estimates, mainly due to higher-than-expected foreign airfares.
These upside surprises led to a brief sell-off in treasury bills but yields soon drifted lower as equities struggled. Looking ahead to the FOMC decision, expectations remain for the Fed to hold steady. Chair Powell has emphasised that the U.S. economy is in a "good place" despite ongoing uncertainties and has signalled there’s no rush to cut rates.
The Fed’s updated projections are expected to show a slight downward revision to growth, a more cautious view on GDP risks, and slightly higher inflation forecasts. As for rate cuts, the median expectation remains two 25bps cuts in 2025 and another two in 2026, with markets currently pricing around 56bps of easing next year. All this saw the U.S. dollar trade mixed against G10 currencies as local factors took centre stage.
Despite a weaker risk tone in equities, the DXY USD Index edged down 0.1%. The Aussie and Kiwi dollars softened (AUD/USD -0.3%, NZD/USD -0.4%) as risk sentiment deteriorated. The AUD will be interesting this week as we look to the budget that was never meant to happen on Tuesday.
Considering that we are within 10 weeks of a certain election, the budget really is not worth the paper its written on as it will likely change with an ‘election’ likely to be enacted straight after the new government is sworn in. That said, the budget is likely to show once again that Canberra is messing at the edges and not taking the steps needed to address structural issues. The AUD is likely to fluctuate on the release and then find a direction (more likely to the downside) over the week as the budget shows the soft set of numbers with little or no change in the interim.
Finally, the rally of the yen appears to be over as it continues to weaken. USD/JPY climbed from Y149.20 in early Tokyo trade to around Y149.90 as the London session got underway. With CFTC data showing significant long yen positioning, some traders likely unwound short USD/JPY bets ahead of the BoJ decision.
Other JPY pairs moved in tandem with USD/JPY. But whatever is at play out of Japan – the rally of the past 6-7 months looks to be ending and with USD/JPY facing the magic Y150 mark – will the BoJ step in like it did last year? Will the market look straight past it again?
January’s market action often matters more than simply marking the opening of the calendar year. Institutional positioning resets, testing of economic assumptions, and early price moves reflect how market participants interpret the first meaningful signals of the year.
While January rarely determines full-year outcomes, it frequently shapes the narratives markets carry into the first quarter (Q1).
Four critical levers: growth, labour, inflation, and policy, can provide an early indication of how markets are processing and prioritising incoming information.
Growth: manufacturing PMIs
January’s first growth test comes from the manufacturing surveys, with markets watching whether signals from S&P Global Manufacturing PMI and ISM Manufacturing PMI tell a consistent story.
Key dates:
ISM Manufacturing PMI: 5 January, 10:00 AM (ET)/ 6 January, 1:00 AM (AEDT)
What markets look for:
Attention often centres on new orders as a forward-looking indicator of demand, alongside prices paid for early insight into cost pressures.
Broad strength across both surveys would support the narrative that the growth momentum seen toward the end of 2025 may extend into early 2026, easing some concerns about a sharper slowdown. Weaker or conflicting readings would keep the growth outlook uncertain, rather than decisively negative.
How it tends to show up in markets:
Firmer growth signals often appear first in higher short-dated Treasury yields. Rising yields can tighten financial conditions, weigh on equity valuations, and support the USD, with spillover effects across foreign exchange (FX) and commodity markets.
Labour: job openings and payrolls
While early-January Non-Farm Payrolls (NFP) often drive short-term volatility, JOLTS job openings may be more influential in shaping January’s policy narrative.
Key dates:
JOLTS Job Openings: 7 January, 10:00 AM (ET)/ 8 January, 1:00 AM (AEDT)
Non-Farm Payrolls (NFP): 9 January, 8:30 AM (ET)/ 10 January, 12:30 AM (AEDT)
What markets look for:
Markets often treat JOLTS as a clearer indicator of underlying labour demand than month-to-month hiring flows.
A continued drift lower in openings would support the view that labour demand is easing in an orderly way, reinforcing confidence that inflation pressures can continue to moderate. A rebound or stalled decline would suggest labour conditions remain firmer than expected.
Market sensitivities:
For markets, easing labour demand typically supports lower short-dated yields and a softer USD, while persistent tightness can push yields higher, strengthen the USD, and increase volatility across rate-sensitive assets.
Inflation: PPI and CPI
Key Dates:
PPI: 14 January, 8:30 AM (ET)/ 15 January, 12:30 AM (AEDT)
CPI (December 2025 data): 15 January, 8:30 AM (ET)/ 16 January, 12:30 AM (AEDT)
The inflation signal can be read as a pipeline from producer prices to consumer inflation. Markets are watching whether producer-level cost pressures continue to fade or begin to re-emerge.
What markets look for:
Core PPI, particularly services-linked components, provides an early indication of cost momentum. Core CPI breadth may help determine whether inflation is continuing to cool or showing signs of persistence.
A softer pipeline would reinforce confidence that disinflation can extend into early 2026, increasing the scope for a potential March policy adjustment. Stickier CPI readings above 3% would raise questions about the durability of recent progress.
How rates and the USD often react
Market reaction tends to be led by yields. Cooling inflation pressure usually pulls short-dated yields lower and softens the USD, while persistent inflation risks can push yields higher and tighten financial conditions.
Policy: January FOMC meeting
By the time the Federal Reserve meets at the end of January, markets will have processed the early growth, labour, and inflation signals of the year.
A policy change is unlikely this month, but how those signals are framed in the statement and press conference still matters. With January cut expectations priced well below 20%, attention is on whether expectations for a March move, currently around 50%, begin to shift.
Confidence that inflation and labour pressures are easing would typically support lower yields and a softer USD. A more cautious tone could lift yields, strengthen the USD, and tighten global financial conditions.
Putting it all together
January’s data acts as condition-setters rather than decision points. The practical takeaway lies in how markets respond as those conditions become clearer:
If growth and labour soften while inflation continues to ease, markets may lean toward a more constructive risk backdrop, with Treasury yields remaining the key guide and expectations for policy easing later in Q1 firming.
If growth holds up and inflation proves sticky, a more cautious posture may be warranted, with heightened sensitivity to Treasury yields, USD strength, and pressure on equity valuations and rate-sensitive commodities.
Asia open: what matters after the Venezuela headlines
Asia starts the week with a fresh geopolitical shock that is already being framed in oil terms, not just security terms. The first-order move may be a repricing of risk premia and volatility across energy and macro, while markets wait to see whether this becomes a durable physical disruption or a fast-fading headline premium.
At a glance
What happened: US officials said the US carried out “Operation Absolute Resolve”, including strikes around Caracas, and that Venezuela’s President Nicolás Maduro and his wife were taken into US custody and flown to the United States (subject to ongoing verification against the cited reporting).
What markets may focus on now: Headline-driven risk premia and volatility, especially in products and heavy-crude-sensitive spreads, rather than a clean “missing barrels” shock.
What is not happening yet: Early pricing has so far looked more like a headline risk premium than a confirmed physical supply shock, though this can change quickly, with analysts pointing to ample global supply as a possible cap on sustained upside.
Next 24 to 72 hours: Market participants are likely to focus on the shape of the oil “quarantine”, the UN track, and whether this stays “one and done” or becomes open-ended.
Australia and Asia hook: AUD as a risk barometer, Asia refinery margins in diesel and heavy, and shipping and insurance where the price can show up in friction before it shows up in benchmarks.
What happened, facts fast
Before anyone had time to workshop the talking points, there were strikes, there was a raid, and there was a custody transfer. US officials say the operation culminated in Maduro and his wife being flown to the United States, where court proceedings are expected.
Then came the line that turned a foreign policy story into a markets story. President Trump publicly suggested the US would “run” Venezuela for now, explicitly tying the mission to oil.
Almost immediately after that came a message-discipline correction. Secretary of State Marco Rubio said the US would not govern Venezuela day to day, but would press for changes through an oil “quarantine” or blockade.
That tension, between maximalist presidential rhetoric and a more bureaucratically describable “quarantine”, is where the uncertainty lives. Uncertainty is what gets priced first.
Source: Adobe images
Why this is price relevant now
What’s new versus known for positioning
What’s new, and price relevant, is that the scale and outcome are not incremental. A major military operation, a claimed removal of Venezuela’s leadership from the country, and a US-led custody transfer are not the sort of things markets can safely treat as noise.
Second, the oil framing is explicit. Even if you assume the language gets sanded down later, the stated lever is petroleum. Flows, enforcement, and pressure via exports.
Third, the embargo is not just a talking point anymore. Reporting says PDVSA has begun asking some joint ventures to cut output because exports have been halted and storage is tightening, with heavy-crude and diluent constraints featuring prominently.
What’s still unknown, and where volatility comes from
Key unknowns include how strict enforcement is on water, what exemptions look like in practice, how stable the on-the-ground situation is, and which countries recognise what comes next. Those are not philosophical questions. Those are the inputs for whether this is a temporary risk premium or a durable regime shift.
Political and legal reaction, why this drives tail risk
The fastest way to understand the tail here is to watch who calls this illegal, and who calls it effective, then ask what those camps can actually do.
Internationally, reaction has been fast, with emphasis on international law and the UN Charter from key partners, and UN processes in view. In the US, lawmakers and commentators have begun debating the legal basis, including questions of authority and war powers. That matters for markets because it helps define whether this is a finite operation with an aftershock, or the opening chapter of a rolling policy regime that keeps generating headlines.
Market mechanism, the core “so what”
Here’s the key thing about oil shocks. Sometimes the headline is the shock. Sometimes the plumbing is the shock.
Venezuela’s heavy-crude system: Orinoco production, key pipelines, and export/refining bottlenecks
Volumes and cushion
Venezuela is not the world’s swing producer. Its production is meaningful at the margin, but not enough by itself to imply “the world runs out of oil tomorrow”. The risk is not just volume. It is duration, disruption, and friction.
The market’s mental brake is spare capacity and the broader supply backdrop. Reporting over the weekend pointed to ample global supply as a likely cap on sustained gains, even as prices respond to risk.
Quality and transmission
Venezuela’s barrels are disproportionately extra heavy, and extra heavy crude is not just “oil”. It is oil that often needs diluent or condensate to move and process. That is exactly the kind of constraint that shows up as grade-specific tightness and product effects.
Reporting has highlighted diluent constraints and storage pressure as exports stall. Translation: even if Brent stays relatively civil, watch cracks, diesel and distillates, and any signals that “heavy substitution” is getting expensive.
Heavy-light spread as a stress gauge: rising differentials can signal costly substitution and tighter heavy supply.
Products transmission, volatility first, pump later
If crude is the headline, products are the receipt, because products tell you what refiners can actually do with the crude they can actually get. The short-run pattern is usually: futures reprice risk fast, implied volatility pops; physical flows adapt more slowly; retail follows with a lag, and often with less drama than the first weekend of commentary promised.
For Australia and Asia desks, the bigger point is transmission. Energy moves can influence inflation expectations, which can feed into rates pricing and the dollar, and in turn affect Asia FX and broader risk, though the links are not mechanical and can vary by regime.
Some market participants also monitor refined-product benchmarks, including gasoline contracts such as reformulated gasoline blendstock, as part of that chain rather than as a stand-alone signal.
Historical context, the two patterns that matter
Two patterns matter more than any single episode.
Pattern A: scare premium. Big headline, limited lasting outage. A spike, then a fade as the market decides the plumbing still works.
Pattern B: structural. Real barrels are lost or restrictions lock in; the forward curve reprices; the premium migrates from front-month drama to whole-curve reality.
One commonly observed pattern is that when it is only premium, volatility tends to spike more than price. When it is structural, levels and time spreads move more durably.
The three possible market reactions
Contained, rhetorical: quarantine exists but porous; diplomacy churns; no second-wave actions. Premium bleeds out; volatility mean-reverts.
Escalation, prolonged control risk: “not governing” language loses credibility; repeated operations; allies fracture further. Longer-duration premium; broader risk-off impulse across FX and rates.
Australia and Asia angle
For Sydney, Singapore, and Hong Kong screens, this is less about Venezuelan retail politics and more about how a Western Hemisphere intervention bleeds into Asia pricing.
AUD is the quick and dirty risk proxy. Asia refiners care about the kind of oil and the friction cost. Heavy crude plus diluent dependency makes substitution non-trivial. If enforcement looks aggressive, the “price” can show up in freight, insurance, and spreads before it shows up in headline Brent.
Catalyst calendar, key developments markets may monitor
US policy detail: quarantine rules, enforcement posture, exemptions.
UN and allies: statements that signal whether this becomes a long legitimacy fight.
In 2025, the S&P 500 traded around 6,835 and was up approximately 16% year to date (YTD). Market direction remained most sensitive to Federal Reserve expectations, inflation data and the earnings outlook, with returns also shaped by mega-cap tech leadership and the broader AI narrative. The index pulled back from earlier December highs, but it has so far held above key major moving averages (MA).
Key 2025 drivers included:
Fed expectations and inflation: Inflation cooled through the year but remained sticky around 2.5% to 3%. A Fed easing bias likely supported price to earnings (P/E) multiples and “risk-on” positioning. More recently, markets appeared increasingly rate-sensitive, with the decreased likelihood of an additional rate cut until March 2026.
Earnings and guidance: Corporate earnings remained strong quarter on quarter. Recent Q3 results reportedly saw over 80% of the S&P 500 beat earnings per share (EPS) expectations. For Q4, the estimated year-over-year earnings growth rate is 8.1%, despite ongoing concerns around import tariffs and potential margin pressure.
Index leadership and breadth: Returns were heavily influenced by mega-cap tech and AI beneficiaries, even as broader market breadth appeared less consistent at points through the year.
Policy headlines and volatility: Trade and tariff headlines drove sharp moves, particularly earlier in the year. Some investors pointed to the “TACO” trade, with rapid recoveries after policy proposals were softened. Over time, similar shocks appeared to have less impact as the market became somewhat desensitised.
Valuations and sensitivity: The forward 12-month P/E ratio for the S&P 500 is 22, above the 5-year average (20.0) and above the 10-year average (18.7). That gap kept valuation sensitivity, especially in AI-linked names, firmly in focus.
Current state
The S&P 500 is about 1% below record highs hit earlier in December. That could indicate the broader uptrend remains in place, with a move back toward the recent highs one possible scenario if momentum improves. Despite the recent retracement, the index remains above all key major moving averages (MA). The latest bounce followed lower than expected CPI numbers earlier this week, alongside continued, and to some, surprising optimism about what may come next.
What to watch in January
Q4 earnings from mid-January: Results and guidance may help clarify whether valuations are being supported by forward expectations.
AI narrative and positioning: With AI-linked mega-caps carrying a large share of market capitalisation, changes in sentiment or expectations could have an outsized impact on index performance.
US jobs and CPI data: The latest US jobs report reportedly points to the highest headline unemployment rate since 2021. Cooling inflation this week may keep markets alert to shifts in rate cut timing, particularly around the March decision.
S&P 500 daily chart
Source: TradingView
Major FX pairs
Source: Adobe Images
AUD/USD
AUDUSD has been choppy in 2025. Since the “redemption day” drop in April, the move has looked more like a steady grind higher than a clean upside trend.
Key levels Recent peaks in early September and mid-December highlight resistance near 0.6625. Support has been evident around 0.6425, where price bounced over the last month.
What is supporting the bounce That support test coincided with stronger than expected jobs and inflation data, lifting expectations that the Reserve Bank of Australia (RBA) may raise rates during 2026 rather than cut again. The latest pullback looks contained so far, with buying interest already visible and price still above key longer-term moving averages.
What could drive a breakout The pair remains range-bound, but the tilt is still constructive. If Chinese data stays firm, metals prices hold up, and the central bank outlook remains relatively hawkish, a break above resistance could gain more traction.
AUD/USD daily chart
EUR/USD
After early 2025 euro strength, EURUSD has mostly consolidated since June in a roughly 270 pip range. This month tested 1.18 resistance, reaching highs not seen since September.
What price is doing now The recent pullback still lacks strong downside conviction. Some technical analysts refer to the 1.17 area as a near-term reference level.
What could come next If price holds 1.17 and buyers step back in, another push toward 1.18 is possible. One view is that the European Central Bank (ECB) could be less inclined to ease in 2026, which could be consistent with a firmer EURUSD scenario. Broader analyst commentary also suggests the euro may stall rather than collapse against the US dollar, although outcomes remain data and policy dependent.
EUR/USD daily chart
USD/JPY
Year-to-date picture USDJPY is close to flat overall for the year. After US dollar weakness in Q1, the pair reversed higher and now sits just below resistance near 158.
Rates remain the main driver Rate differentials still favour the US dollar. The Bank of Japan (BOJ) held steady for much of the period despite expectations it might act, and the recent rate increase was modest. Policy has only moved marginally away from zero.
What could shift the balance Rate differentials remain a key influence. Without a clearer shift in BOJ policy, the JPY may find it difficult to sustain a rebound. Some market commentators cite 154.20 as a chart reference level.
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