* Wall Street continues higher, after Trump’s walk-back of threats

* Dollar slips as Greenland worries fade, AUD surges as strong jobs lift hike bets

* Zelensky says deal on US security guarantees is “finished”

* Intel beat expectations but offered soft guidance for the current quarter

FX: USD recoiled from the 200-day SMA at 98.71 but hasn’t yet taken out the week’s low at 98.24. Data showed consumer spending on track for strong growth but the greenback succumbed to selling even as the “Sell America” theme appeared to have abated. Broader risk sentiment is now positive, while the longer-term repercussions of this week’s latest TACO could be more meaningful, if investors diversify away from US assets.

EUR picked up as dollar selling saw the major move away from the 50-day SMA at 1.1663. The daily RSI is back above 50 but bullish momentum will need to be strong to decisively get past the December highs around 1.18. Today’s PMIs could help the single currency if they cement the picture of an improving macro outlook. The flip side is further easing back of geopolitical tariff risk.

GBP bounced off the 200-day SMA at 1.3404 with whippy price action through the session. Renewed political uncertainty caused some volatility in the UK gilt market with yields jumping (and subsequently reversing) on rumours of a potential challenge to PM Starmer’s leadership. This revives memories of the ‘Truss moment’ and wild moves in gilts around potential damage to the fiscal situation. Cable eventually settled down with bulls eyeing the January top at 1.3567.

JPY underperformed again with haven buying abating and domestic politics continuing to keep pressure on the yen. An on hold BoJ will see focus on Ueda’s press conference and guidance, with the currency weakness and bond market turbulence on the radar. See below for more.

AUD surged on stellar jobs data. Unemployment surprisingly dipped to 4.1% as employment jumped by 65k, mainly driven by full-time hiring. Bets on the first hike of the cycle jumped with a 60% chance in February and 34bp by June. Bulls eye the long-term top at 0.6942 from September 2024.

US stocks: S&P 500 added 0.55% to close at 6,913, the Nasdaq was up 0.76% at 25,518 and the Dow Jones was higher 0.63% at 49,384. The Vix moved down again below 16 after its recent high above 20. Seven sectors were green with Communication Services, Consumer Discretionary and Tech outperforming, while Real Estate, Utilities, Industrials and Consumer Staples – defensives – lagged. Gains were led by megacap Tech names like Meta (+5.7%)and Tesla (+4.2%).The former was up on a broker upgrade on progress on AI while the EV-maker was boosted by positive robotaxi announcements from Elon Musk, who said the network will be very widespread in the US by the end of the year. Netflix fell 2.1% on more questions about the Warner Bros deal.  Abbott Labs plunged 10% on current quarter forecasts below analyst estimates.

Asian stocks: Futures are mixed. APAC stocks were green. The ASX 200 saw decent gains on positive global sentiment though the hot jobs report saw selling late on. The Nikkei 225 snapped the 5-day losing streak with chipmakers and financials strong. The Hang Seng and Shanghai Comp lagged in spite of tech bouncing.

Gold jumped to another record high and is a whisker away from $5,000, on a softer dollar. Bullion is up for three straight sessions and has risen 13.5% year and month-to-date. This price action is quite significant when some of the safe haven demand is meant to be unwinding, signalling strong retail and CTA demand. The monthly RSI is currently at 95, hugely overbought. Do we need to touch $5,000 to post a blow-off top?

Day Ahead – Bank of Japan Meeting, PMIs

After raising rates only last month, the Bank of Japan is widely expected to keep the policy rate steady at 0.75%. The latest quarterly outlook will also be released with possible higher growth and inflation forecasts. Guidance and comments on the weak yen and pass through to inflation, will be key. Based on the tone of rhetoric in the Governor Ueda speech last week, it looks very likely that the press conference will confirm more of the same this year – a BoJ that remains cautious over the pace of rate hikes ahead. He gave no impression that the depreciation of the yen was in any way altering the BoJ reaction function. He merely repeated the common guidance of there being a need for further rate hikes if the economy unfolded as expected. 

Global PMIs will be released with economists forecasting that modest growth momentum should continue with the indices near to prior December levels. UK data has shown signs of recovery after the budget gloom. Eurozone figures should cement the recent solid services momentum, though December’s composite figure did fall to a three-month low. We note that this data has been patchy in predicting GDP growth, especially in France.

Chart of the Day – USD/JPY consolidating below highs

Markets expect the BoJ to remain open to further rate hikes. But it won’t rush its next move if inflation moderates at least by the first half of 2026. Domestic politics have been a big recent driver of the yen recently, with a snap election called for 8^th February. The dovish PM and her big fiscal plans have pressured JPY. Last week saw the major push up past the January 2025 high at 158.87, before it closed below on a weekly basis. Prices are consolidating in a bullish fashion beneath this key level with eyes also on verbal and possible full intervention if we break sharply higher.