Markets take a break in December

The sentiment for the entire stock market remains muted, as CNN’s fear-and-greed index holds consistently in the fear zone, driven mostly by low market breadth - the number of stocks showing a positive performance.

After the long lasting government shutdown, investors have finally received the employment and inflation data in December. Despite the stronger than expected NFP ($119K vs $50K forecasted), the market has ignored this strength, and paid more attention to the worsening unemployment condition. Above that, the October’s numbers were recalculated and adjusted lower. As a result, the US dollar was under pressure again and hasn’t got any support.

So, in December most investors are paying attention to the differential between interest rates: dovish monetary policy in the US would probably continue in 2026, while most central banks have stopped their cycles of lowering interest rates.

For example, yields of 30-years bonds of the EU have jumped to the new peak, whereas yields of US treasury bonds hold at a relatively stable plateau. That pushes the US dollar index lower, appreciating Euro, British pound of other currencies (except Japanese Yen, which is used for carry trade operations and is constantly under pressure)

The only major currency that is pressured other than the US dollar, is Japanese Yen. The interest rate for Japan was expectedly lifted to 0.75%, but statements of governor Ueda were not hawkish enough, and the guidance for the future rate hikes was unclear, which resulted in a massive liquidation of the Yen across the board.

Traders and investors were not going to take a risk holding the Yen ahead of long holidays. The “relief rally” on the US stock market, fueled by weaker than expected US inflation report boosted the attitude for carry trade operations back again despite the hawkish move of BOJ.

Falling yen, though, may create a context for possible interventions from the Japanese financial authority, so the price of the Yen starts diverging with macro indicators and inflation

Markets are closing the year in a neutral tone, so let’s break down the situation into details, and try to figure out potential opportunities for the upcoming month.

Possible trends:

There are two very strong seasonal tendencies: Nasdaq and Gold tend to start and maintain bullish behavior throughout January, and in case of continuation, carry it forward to the rest of the first quarter.

Though, the AI narrative stays muted, and the spread between techs and industrial stocks holds on a relatively low base, we may expect a rally at the beginning of the year.

That depends on the sentiment, but some probability skew towards longs exists, as money managers accumulate positions at the beginning of year, if they expect the year to be bullish.

Nasdaq

Nasdaq index was struggling in December as the AI narrative was muted. The position of the price, however, holds near the value area: the combination of 20-day and 50-day moving averages. The price action is muted, but the beginning of the year may bring new buying activity to the market, as investors will look forward into the new earnings season, new annual cycle and would step in following the discount for many big names from the tech sector and beyond.

The breakout of the range may expand the upswing as shown on the chart and drive Nasdaq to 28000 and potentially higher.

Gold

Gold was also inside of a massive consolidation in December, following the rotation from Gold to Silver. Both metals are moving in a strong uptrend driven by shortages of supply and maintained bullish sentiment. Gold, along with Silver will deliver one of the best results in the investment industry, so it would be reasonable to expect the continuation of an uptrend.

According to the chart studies, Gold consolidates in a narrow trading range close the previous all-time high and may expand the breakout up to 2500-2600 area.

DAX (DE30)

Another potential opportunity for the beginning of the year would be the German DAX index (DE30). It builds inside of the massive consolidation area, and having tested the key dynamic support zone below (20-day moving average), it may be expanding the swing.

European assets benefit from the capital flows for American assets, as the “sell America” narrative may not be over yet. The overall sideways behavior of DAX may turn into the attempt to aggressively break the upper border of the current massive trading range and establish the new high.