Trade wars, inflation and interest rates shape the financial landscape ahead

As in the last quarter of 2025, January seems to be affected by the same factors, including geopolitical tensions, political uncertainty, tariff warnings from the USA, inflation readings, and central banks' interest rate expectations. In this article, we will examine how these factors are affecting major instruments such as USOIL, and EURUSD.

From Greenland to the Gulf: geopolitical stress tests commodities and risk appetite

In January of 2026, the geopolitical tensions around the world are shaping investor behaviour and commodity markets to a great extent. Renewed friction between the United States and European allies over President Trump’s aggressive push to control Greenland, including threats of tariffs and military posturing, has unnerved global markets and fuelled safe-haven demand. European responses, including possible retaliatory measures, have contributed to broad risk-off sentiment and heightened uncertainty. Meanwhile, unrest in Iran and ongoing instability in the Middle East have eased slightly, reducing the immediate risk premium for crude supply, but the region remains a focal point for potential future disruptions. Additionally, U.S. actions against Venezuela’s oil infrastructure continue to influence perceptions of energy security. These cumulative geopolitical forces have pushed investors toward assets perceived as security bolsters, especially gold,  lifting prices as markets price in risk, while crude oil prices have shown mixed reactions, with easing tensions dampening recent spikes and keeping prices range-bound amid abundant global supply.

Inflation takes hold as policy paths diverge and rate cuts come into focus

 Inflation data in the U.S. shows that inflation started declining in the last quarter of 2025, except October, where we don’t have data due to the government shutdown, and has somewhat stabilized around 2.7% down from the previous 3%. This is a major driver of market participants' anticipation of the Fed cutting rates in the second half of the year (given that inflation continues its declining trend).

Monetary policy among other central banks is a main focus, with major central banks taking different approaches. While some have begun easing in response to higher real rates and persistent inflation concerns, others remain closer to neutral, constrained by domestic growth dynamics. This divergence reinforces diverse market behaviour and underscores the importance of fiscal policy as a tool for maintaining momentum, particularly in economies with greater policy space.

Elevated yields offer attractive starting points for investors, and active management is well positioned to capitalize on the dispersion created by uneven economic conditions. Bonds and diversification strategies, especially those that blend developed- and select-emerging-market exposures, are presented as effective ways to navigate the nuanced risks and opportunities of the current cycle.

Crude Oil under pressure as easing geopolitical risks and oversupply concerns arise

Oil prices moved lower as near-term geopolitical risk around Iran eased and broader markets shifted into risk-off mode, partly driven by renewed uncertainty over President Trump’s stance on Greenland and potential tariff threats against Europe. While unrest in Iran remains elevated, the lack of fresh supply disruptions has reduced immediate risk premiums, pushing the region out of the market’s short-term focus. At the same time, crude continues to face pressure from structural supply-demand imbalances, with rising output and inventories reinforcing concerns that global supply is outpacing demand. Localized tightness still exists, but the broader picture points to oversupply, keeping prices capped unless geopolitical tensions materially escalate or an unexpected supply shock emerges.

From a technical perspective, crude prices corrected sharply late last week after meeting strong resistance near $61, an area defined by the upper Bollinger Band and the 50% Fibonacci retracement. Moving averages continue to confirm the broader bearish trend despite the recent rally, while the Stochastic oscillator sits at neutral levels, suggesting room for movement in either direction. Price is currently testing dynamic support between the two moving averages, with key downside support located near $58, an area reinforced by the 23.6% Fibonacci retracement, the 50-day SMA, and prior price reactions dating back to late December.

Euro-dollar tests major levels while declining

Euro-dollar was declining in the first half of January, mainly due to positive non-farm payroll readings (which returned to positive territory) and somewhat lower U.S. inflation. On the other hand, the European Central Bank seems reluctant to reduce its interest rates further, while the Federal Reserve is under political pressure to lower its rates. Recently, the Euro seems to be benefiting from this pressure, and the Fed's rate probabilities suggest the potential to reduce rates further, putting extra pressure on the Dollar against the Euro. For the time being, the probabilities favor a hold at the next Fed meeting on the 28th of January, and that might already be priced in; therefore, a new major factor/catalyst will be needed for the Dollar to find support against other major currencies. 

From the technical analysis point of view, the price has found sufficient support on the lower band of the Bollinger Bands and is correcting to the upside. Currently, the price is testing the resistance of the 23.6% of the weekly Fibonacci retracement level . If this area holds strong and pushes the price downwards, then the first potential area of support might be found around $1.17, which is the dynamic resistance area between the two moving averages as well as the 38.2% Fibonacci retracement level. The Stochastic oscillator is in extreme overbought territory, hinting that the short-term dynamics might be poised for a bearish correction. The Bollinger Bands are sufficiently expanded, indicating sufficient volatility to support any significant moves in the upcoming sessions; therefore, caution is strongly recommended.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.