IC Markets Global – Europe Fundamental Forecast | 21 January 2026
What happened in the Asia session?
Markets extend declines amid ongoing fallout from President Trump’s escalated rhetoric on Greenland acquisition and tariff threats against Europe, compounded by recent weak Chinese Q4 GDP data at 4.5% and rising Japanese government bond yields to multi-decade highs. No major new macroeconomic data releases occurred today, but anticipation built around Trump’s upcoming speech at Davos and broader geopolitical tensions weighing on sentiment.
What does it mean for the Europe & US sessions?
Pre-market earnings reports from key companies, including Johnson & Johnson (JNJ), TE Connectivity (TEL), Truist Financial (TFC), Ally Financial (ALLY), and others, may drive sector volatility in U.S. and European sessions today. Gold prices have surged over 2% to around $4,755 per ounce amid heightened political risks from U.S. tariff threats on European nations and expectations of Federal Reserve rate cuts by mid-2026, bolstering its safe-haven appeal.
The Dollar Index (DXY)
Key news events today
President Trump Speaks (1:30 pm GMT)
Pending Home Sales m/m (3:00 pm GMT)
What can we expect from DXY today?
The US dollar remains under strain, drifting lower in line with forecasts as the Fed’s easing bias persists post-2025 rate cuts, inflation lingers near 2.7%, and job growth slows, narrowing yield advantages against the ECB (2.00%) and BoE (3.75%). Short-term bounces lack conviction amid light trading volumes, trade tensions, and upcoming data like UK CPI today and PMIs later this week.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) is widely expected to lower the federal funds rate target range by 25 basis points to 3.50%–3.75% at its December 9–10, 2025, meeting, marking the third consecutive cut after the October reduction to 3.75%–4.00%
- The Committee continues to pursue maximum employment and 2% inflation goals, with the labour market showing further softening as the unemployment rate rose to 4.4% in September 2025 amid modest job gains.
- Officials note persistent downside risks to growth alongside resilient activity, with inflation easing to 3.0% year-over-year CPI in September but remaining elevated due to tariff effects; core PCE stands at around 2.8% as of October.
- Economic activity grew at a 3.8% annualised pace in Q2 2025, according to revised estimates. However, Q3 and Q4 are expected to face headwinds from trade tensions, fiscal restraint, and data disruptions, such as the government shutdown.
- September’s Summary of Economic Projections forecasts 2025 unemployment at a median of 4.5%, with PCE inflation near 3.0% and core PCE at 3.1%, signalling a gradual disinflation path. Updates expected on December 10 may adjust for higher unemployment and lower growth.
- The Committee maintained its data-dependent approach, noting a softening labour market and inflation above the 2% target, while deciding to lower the federal funds rate target range by 25 basis points to 3.50%-3.75%. Dissent persisted, with multiple members opposing the cut or advocating for a hold, reflecting divisions similar to recent meetings.
- The FOMC confirmed the conclusion of its quantitative tightening program effective December 1, 2025, with Treasury rolloff caps at $5 billion per month and agency MBS caps at $35 billion per month to ensure ample reserves and market stability.
- The next meeting is scheduled for 27 to 28 January 2026.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
President Trump Speaks (1:30 pm GMT)
Pending Home Sales m/m (3:00 pm GMT)
What can we expect from Gold today?
Spot gold hit records near $4,760 before minor pullbacks, with forecasts for January 21 suggesting a range of $4,576-$4,762, influenced by upcoming US President Trump’s speech and GDP data. Technicals show weakening bullish momentum but strong support above $4,500, with resistance near $4,900.
Next 24 Hours Bias
Strong Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (7:30 am GMT)
ECB President Lagarde Speaks (4:45 pm GMT)
What can we expect from EUR today?
The Euro remains stable post-Bulgaria’s adoption, with no fresh shocks reported; markets focus on broader EU responses to global pressures like potential US tariffs under President Trump, as highlighted in European leaders’ statements from January 20. Long-term, the currency’s expansion bolsters investor confidence and lowers borrowing costs for new members, though critics note risks of short-term inflation.
Central Bank Notes:
- The Governing Council of the ECB kept the three key interest rates unchanged at its 4–5 January 2026 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40% and the deposit facility at 2.00%. This decision aligns with the assessment that the current stance supports medium-term price stability, as inflation edges below the 2% target while growth shows resilience amid balanced risks. Markets and commentary indicate value in holding steady, with no fixed path ahead given uncertainties in data.
- Price dynamics remain stable near target levels. Headline HICP inflation stood at 2.1% in November 2025, with projections for 1.9% in 2026 driven by base effects from energy and easing non-energy components. Services inflation persists somewhat elevated but trends toward moderation, alongside contained food pressures.
- December 2025 Eurosystem staff projections confirm headline inflation at 2.1% for 2025, declining to 1.9% in 2026 and 1.8% in 2027 before nearing 2% in 2028. Downside risks from soft producer prices and anchored expectations offset potential upsides from geopolitics or fiscal measures.
- Euro area GDP growth remains resilient at subdued levels, with Q3 2025 at 0.3% qoq and forecasts around 1.2-1.4% for 2025-2027. Surveys signal stabilization, bolstered by public investment and external demand against softer private spending.
- The labour market stays tight overall, with unemployment steady at 6.4% through October 2025, near historic lows and solid participation. Real incomes support consumption as inflation eases, with credit conditions aiding gradual household and firm expansion.
- Business sentiment reflects caution over US policy, trade tensions, and tariffs, tempered by easing supply chains and a competitive euro. Export sectors gain a modest lift, while domestic drivers like investment build momentum.
- The Governing Council will continue to make data-dependent decisions meeting by meeting, assessing inflation outlook, underlying trends, and transmission. Both hikes and cuts remain possible based on data, avoiding preset paths amid uncertainties.
- Balance sheet normalisation proceeds steadily, with APP and PEPP portfolios shrinking post-reinvestment halts, at a pace deemed suitable without market strain.
The next meeting is on 4 to 5 February 2026
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss Franc has strengthened notably against major currencies like the USD amid heightened risk-off sentiment driven by US President Trump’s tariff threats on European nations over Greenland. As of January 20, 2026, the USD/CHF pair dropped to around 0.7900, reflecting a 0.91% daily decline and marking the CHF near 2011 highs due to safe-haven demand.
Central Bank Notes:
- At its 11 December 2025 monetary policy assessment, the Swiss National Bank (SNB) is widely expected to leave the policy rate unchanged at 0%, extending the pause that began in September as the Governing Board judges that current settings are sufficient to keep inflation near, but still below, its target while avoiding an unnecessary move into negative rates.
- Recent data show that the tentative rebound in Swiss inflation has stalled, with headline CPI easing from 0.1% year‑on‑year in October to 0.0% in November and core inflation slipping to about 0.4%, reinforcing the view that underlying price pressures remain very weak and that deflation risks, while contained, have not fully disappeared.
- The SNB’s conditional inflation forecast is likely to remain close to the September projections, with inflation still seen averaging roughly 0.2% in 2025, 0.5% in 2026, and 0.7% in 2027 under an unchanged policy rate path, though the latest CPI prints argue for a slightly lower near‑term profile and keep open the option of renewed easing if activity or prices weaken further.
- The global backdrop has deteriorated further, as continuing U.S. tariff actions and softer external demand weigh on world trade, while uncertainty in key European and U.S. markets for Swiss exports persists, leaving the SNB cautious about the growth outlook despite Switzerland’s relatively resilient domestic demand.
- Business and labour-market sentiment in export‑oriented manufacturing remains subdued, with firms reporting pressure on margins from the still‑strong franc and softer foreign orders, although the broader economy is still expected to grow at around 1–1.5% in 2025 and unemployment only drifting up gradually from low levels.
- The SNB continues to stress its willingness to act if deflation risks re‑emerge, reiterating that it can ease policy through renewed rate cuts or targeted foreign‑exchange intervention if necessary, while also highlighting its commitment to transparent communication, including the publication of detailed minutes from recent assessments and ongoing dialogue with international partners on FX policy
The next meeting is on 19 March 2026.
Next 24 Hours Bias
Strong Bullish
The Pound (GBP)
Key news events today
CPI y/y (7:00 am GMT)
What can we expect from GBP today?
The pound remains under pressure from weaker UK jobs data signaling possible BoE easing, trading GBP/USD flat near 1.3450 as it tests key resistance amid US economic releases and global uncertainties like tariffs and Fed leadership issues; while year-to-date losses are modest, upcoming data risks further downside.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) will meet on 18 December 2025, with the current Bank Rate standing at 4.00 per cent after being held in a close 5–4 vote at the 5 November meeting. Market pricing and analyst commentary point to a high risk of a 25‑basis‑point cut to 3.75 per cent, but this remains conditional on incoming inflation and labour‑market data, so the December note should be treated as pre‑decision guidance rather than an ex‑post summary.
- The BoE is expected to leave its quantitative tightening (QT) framework broadly unchanged through year‑end, maintaining the lower reduction pace in gilt holdings that was set earlier in 2025. Official communications still characterise the existing QT path as consistent with a restrictive stance, with policymakers stressing that balance‑sheet reduction will remain gradual and sensitive to market‑liquidity conditions.
- Headline CPI inflation eased to 3.6 per cent year‑on‑year in October 2025, down from 3.8 per cent in September, helped by softer energy and goods prices, though it remains almost twice the 2 per cent target. Underlying inflation pressures, particularly in services, have continued to moderate only slowly, so the MPC’s central projection still envisages inflation moving closer to, but not yet reaching, 3 per cent over the course of 2026, contingent on further normalisation in energy and wage dynamics.
- UK economic activity remains weak heading into the December meeting, with the labour market showing further signs of slackening. The unemployment rate has risen toward just above 5 per cent on the latest three‑month figures to October, while overall regular pay growth has slowed to around the mid‑4 per cent range, reinforcing the view that domestic cost pressures are gradually easing.
- External conditions continue to cloud the outlook, with fragile global growth and fluctuating commodity prices contributing to bouts of financial‑market volatility. The MPC has highlighted that renewed global energy or food price shocks could temporarily slow the pace of disinflation, but such risks are currently judged unlikely to derail the medium‑term downward trajectory for inflation if domestic demand stays subdued.
- The balance of risks around the inflation outlook remains finely poised. Downside risks are linked to persistently weak domestic demand and rising unemployment, while upside risks come from still‑elevated inflation expectations, sticky services inflation, and the possibility that structural changes in the labour market leave less slack than conventional indicators suggest.
- Overall, the MPC’s stance going into December is restrictive but increasingly open to a gradual easing cycle, with any rate cuts expected to be measured and data‑dependent. Policymakers have reiterated that the Bank Rate will need to stay in restrictive territory until they are confident inflation is on a sustainable path back to the 2 per cent target, and they have signalled that the profile of cuts, once started, is likely to be shallow rather than rapid.
- The next meeting is on 5 February 2026.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The Canadian dollar maintains upward momentum, trading firmer against a softening USD around 1.3838-1.3867, driven by recent inflation upticks to 2.4%, tariff worries weighing on the greenback, and technical patterns like a potential double top near 1.39; forecasts suggest testing resistance at 1.3905 before possible declines, with Bank of Canada likely holding rates at 2.25% next week amid 40% hike odds later this year.
Central Bank Notes:
- The Governing Council left the target for the overnight rate unchanged at 2.25% at its 10 December 2025 meeting, in line with market expectations and signalling that the earlier easing cycle has likely concluded. The Bank noted that while global tariff tensions and trade uncertainty persist, the external backdrop has stabilised somewhat, reducing the need for additional insurance cuts even as world trade remains fragile.
- The Council acknowledged that uncertainty around U.S. trade policy and tariffs continues to weigh on business sentiment, but recent data show Canadian manufacturing and goods exports holding up better than anticipated. Surveys cited by the Bank suggest export order books have stopped deteriorating, with firms reporting some rebuilding of backlogs despite still‑cautious capital spending plans.
- Canada’s economy rebounded more strongly than expected in the third quarter, with real GDP expanding at an annualised pace of about 2.6% after a 1.8% contraction in Q2, largely on the back of higher crude exports and government spending. Monthly data show output rising 0.2% in September, though flash estimates point to a softer start to Q4 as some sectors give back earlier gains.
- Service sector activity has firmed, with indicators showing the services PMI back above the 50 threshold and broadening gains in business and professional services. However, consumer-facing categories remain mixed, as still‑elevated price levels and only modest real income growth keep a lid on discretionary spending even as tourism and technology‑related services expand.
- Housing markets have continued to stabilise, with national resale activity and prices edging higher through the autumn alongside the earlier decline in borrowing costs. The Bank noted that while some major urban centres are seeing renewed price pressures, tighter underwriting standards and still‑high affordability constraints are expected to cap the pace of any rebound.
- Headline CPI inflation eased to 2.2% year over year in October and is estimated to have remained near that rate in November, keeping it slightly above the 2% target but comfortably within the 1%–3% control range. Core measures have drifted lower, with CPI‑median and CPI‑trim around 3% or below, reinforcing the assessment that underlying price pressures are gradually moderating even as gasoline and some shelter components remain volatile.
- The Governing Council reiterated that the current policy rate is “about the right level” to keep inflation close to target while supporting the economy through a period of structural adjustment, and it signalled a shift away from near‑term easing expectations. While the Bank did not rule out future adjustments, officials stressed that, barring a material downside surprise to growth or inflation, further rate cuts are unlikely before 2026. Attention is now focused on the durability of the recovery and the evolution of core inflation.
- The next meeting is on 28 January 2026.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Oil prices experienced upward pressure today amid a mix of supportive economic signals and escalating geopolitical tensions. Brent crude traded around $65 per barrel, up approximately 1.66%, while WTI hovered near $60.60, gaining 1.95%. Key drivers included a weakening US dollar boosting commodity appeal, better-than-expected Chinese GDP growth of 5% for last year, and President Trump’s tariff threats against European nations opposing his Greenland proposals.
Next 24 Hours Bias
Weak Bearish
