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Holiday calm or a new crisis?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.xmtraders.commentary]: Holiday calm or a new crisis?". Hope this helps you! Original content below:
The holiday season officially begins next week and many traders will be out of their seats until the first full week of January, with trading volumes thin and top releases sparse. However, substantial action is expected in the first full week of January 2026 when the U.S. employment report returns to its normal pace.
But in these calm days, any sudden fluctuations may be amplified by extremely low liquidity, such as what is the risk of a flash crash or geopolitical outbreak?
Holiday calm or a new crisis?
As tensions between the United States and Venezuela increase, the possibility of escalation is greater. President Trump may decide to take more action in the country, expanding military strikes against drug traffickers at sea to land in Venezuela — something he has already warned. The United States this week imposed a blockade on all sanctioned oil tankers, banning them from entering and leaving Venezuela, and Trump is likely to decide to increase pressure on President Madura.
Renewed tensions could push up oil prices and, to a lesser extent, gold prices.
There is also a risk of panic selling on Wall Street if jitters over artificial intelligence persist. Although the Federal Reserve is widely expected to cut interest rates further, the stock market has not seen a significant "Santa Claus" rebound this year. But while some valuations are clearly overstretched, the AI revolution is just getting started, so new winners may emerge while other www.xmtraders.competitors unexpectedly become losers.
However, liquidity has been slightly extended this year, and if there is a new round of doubts about valuations, there is an increased risk that negative news related to artificial intelligence will trigger a new round of technology stock selling.
Major decisions will be faced in early 2026
However, the overall investmentInvestors may prefer to stay on the sidelines, awaiting two key verdicts in early January. First, the U.S. Supreme Court will rule on Trump's tariffs, ending months of uncertainty over whether most of the levies announced since April are legal. However, a ruling against the tariffs would not necessarily be the best outcome, as it could exacerbate uncertainty and potentially cost the U.S. government billions of dollars in losses if it is forced to return tariff revenue to businesses.
Another big decision is who President Trump will nominate to be chairman of the Federal Reserve when Powell's term ends in May 2026. Given that Trump keeps changing his mind and there are new favorites every week, the potential for an unexpected pick is unquestionable. Additionally, selecting someone who can build consensus in a divided FOMC is critical. However, whoever Trump chooses, the new Fed chair will almost certainly be more dovish than Powell, so this announcement is likely to be a low-risk event for markets.
US data will keep markets nervous
Turning now to economic data, the US agenda is undoubtedly the busiest. The third quarter GDP forecast data is the first bright spot next week. The report, due out on Tuesday, is expected to show the U.S. economy grew at a solid annualized rate of 3.2% in the third quarter, slightly lower than the 3.8% rate in the second quarter. Durable goods orders for October and the latest consumer confidence index were also released on the same day.
On Tuesday, December 30, the Federal Reserve will release the minutes of its December policy meeting. With few Fed speakers over Christmas and New Year's, the minutes will be scrutinized for clues on the timing of the next rate cut and the intensity of inflation concerns among policymakers who voted to maintain a rate hike.
Things will start to heat up as we enter January, with the December Manufacturing PMI to be released on Monday, January 5, followed by the JOLTS Job Vacancies, ADP Employment Report and ISM Services PMI on Wednesday.
NFP report to kick off the new year
On top of that, the December jobs report will be released without delay on Friday, January 9. Amid mixed employment data and a much lower-than-expected CPI report in November, further weakness in the labor market in December will fuel expectations of a rate cut in January.
In particular, if the unemployment rate hit a four-year high of 4.6% in November and continues to rise, it will become increasingly difficult for Fed hawks to defend their position.
Finally, the University of Michigan’s preliminary consumer sentiment survey for December will also be released on Friday.
For the U.S. dollar, the ISM Purchasing Managers Index (PMI) and non-profit data may have the biggest impact. Risks to the U.S. dollar are currently skewed to the downside, so an underperformance could intensify selling pressure.
Canada’s employment data will also be released on January 9. The Canadian dollar's modest rebound against the U.S. dollar over the past week took a breather after weak CPI in November. But an upbeat labor market report could energize bulls.
After Japan’s latest measures, Tokyo CPIWill it still have an impact?
It will be business as usual in Japan as most traders tighten up over the Christmas long weekend. December CPI data for the Tokyo area will be released on Friday, December 26, along with November industrial production, retail sales and unemployment rate data.
After the Bank of Japan raised interest rates in December last year, the focus turned to when the next rate hike will www.xmtraders.come. The Bank of Japan will publish a summary of the meeting's opinions on Monday, December 29, but before then, any increase in inflationary pressure may increase the probability of the Bank of Japan raising interest rates and push up the yen.
Similarly, investors may also want to pay attention to wage growth and household spending data scheduled for January 8 and 9 respectively.
Australian consumer price index pays attention to RBA clues
Elsewhere in Asia, China's manufacturing purchasing managers' index will be released on New Year's Eve and January 2, which may attract attention to the Australian dollar. But Australian traders are mainly focused on November domestic consumer price index (CPI) data due on Wednesday, January 7.
Although the Reserve Bank of Australia is unlikely to announce policy changes at its next meeting in February, if the monthly consumer price index (CPI) unexpectedly jumps to 3.8% year-on-year in October, any pullback could delay the timing of a rate hike, putting pressure on the Australian dollar.
The euro and the pound may shrug off these data
The European market will be extremely calm except for the British third quarter GDP data released on Monday and the preliminary Eurozone December CPI forecast on Wednesday, January 7.
With the Bank of England and the European Central Bank having just released their final policy decisions for the year, neither data is likely to move the euro and pound.
The European Central Bank is fully on hold until at least mid-2026, and any disappointing growth data in the UK may not be enough to significantly change the Bank of England's interest rate outlook after the central bank unexpectedly made a hawkish rate cut.
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