Last week, despite a fragile geopolitical outlook, a favorable macroeconomic environment continued to support broad risk appetite. Historically, both realized and implied volatility in equities, forex, and commodities remained moderate. In Europe, major stock indices continued their steady rise, while cyclical currencies such as the Swedish krona and Norwegian krone strengthened against the euro. Notably, the US dollar index also performed strongly at the beginning of the year, but this momentum is not expected to continue.

The US dollar lacks directional momentum due to geopolitical and local uncertainties. On the one hand, US President Trump continued to threaten military intervention in Iran, but softened his tone over the weekend, indicating that all options were still under consideration. On the other hand, the Federal Reserve faces issues stemming from the lawsuit filed against Chairman Powell, making the dollar less attractive to investors.

A meeting between officials from Denmark, Greenland, and the United States ended peacefully without reaching a resolution. Danish Prime Minister Mette Frederiksen stated that "fundamental differences" remain among the parties regarding the future of Greenland. NATO allies from Germany, France, Sweden, and Norway have pledged to send military personnel to participate in exercises in Greenland later this year.

Government bond yields on both sides of the Atlantic remained relatively stable. The US yield curve is expected to steepen this year, as rising term premiums will push up long-term yields even if the Federal Reserve continues to cut rates. In the Eurozone, macroeconomic momentum remains positive, but market expectations for inflation over the next few years have fallen below 2%.

Meanwhile, the Bank of Japan is not expected to adjust its policy rate again on Friday morning following its December rate hike. The market has not priced in any policy rate change. Japanese Prime Minister Sanae Takashi is likely to formally announce a snap election next week, tentatively scheduled for February 8th.

Last Week's Market Performance Recap:

Last week, US stocks hit new record highs again, driven by a rotation in chip stocks and value stocks. Although December non-farm payrolls fell short of expectations, the decline in the unemployment rate indicates that the labor market has not deteriorated rapidly, and market expectations for this year's rate cut path remain largely stable. US stocks achieved a weekly gain across the board in the first full trading week of 2026. In late U.S. trading, the S&P 500 rose 0.64% to 6965.78, a record closing high; the Nasdaq Composite rose 0.81% to 23669.75; and the Dow Jones Industrial Average rose 0.48% to 49500.20, also a record closing high.

Last week, spot gold prices declined as some traders reduced their positions after gold prices had risen 7.4% since the beginning of the year. Although safe-haven demand and expectations of Fed rate cuts have supported the market throughout 2025, the surge in gold prices this year, coupled with easing concerns about Iran, limited gains after reaching a record high of $4642.97. However, with gold prices currently at high levels, support has weakened. This suggests that traders may be waiting for a price pullback before re-entering the market. Spot gold was trading at $4583 before the weekend.

Silver market bulls again performed strongly last week, reaching a new record high. With the three-day US holiday weekend approaching, short-term futures traders are taking profits and partially cashing out. Furthermore, risk aversion in the overall market has cooled somewhat. Spot silver closed at $89.340 per ounce, surging 11.930% for the week.

The US dollar index rose slightly to 99.50 on Friday, near a six-week high. Recent robust US employment data supported the dollar and postponed market expectations for further interest rate cuts by the Federal Reserve until June. However, Fed official Bowman stated on the same day that the job market could weaken rapidly, and policymakers should be prepared to cut rates again if necessary. Over the past month, the dollar has been on a strong one-sided trend in the foreign exchange market, consistently leading major currencies. This trend is not driven by a single factor, but rather by the resonance of strong US macroeconomic data and hawkish comments from Fed officials, jointly constructing the dollar's dominance.

The euro closed lower against the dollar on Friday, at a one-and-a-half-month low of 1.1584, declining in 11 of the past 15 trading days. It has now reached its lowest level since early December, with significant downward pressure. For euro/dollar bulls, the only potential positive factor currently seems to lie with Trump—who has explicitly proposed lowering the federal funds rate to 1%. If his proposals are implemented, it could reverse the dollar's strong performance. Last week, the yen strengthened on Friday, rising to 158.16 against the dollar, after the Japanese Finance Minister warned that Tokyo would not rule out any options to address the yen's weakness, including coordinated intervention in the foreign exchange market with the US. Among major global currencies recently, the yen is the only one that has managed to strengthen against the dollar. Market concerns about the Japanese government intervening to stabilize the yen have intensified, causing the dollar/yen exchange rate to fall.

The current dollar rebound has caused the pound/dollar to relinquish most of its earlier gains. Although it reached a daily high of 1.3413, strong US data released last week limited the pound's gains. The pound/dollar is trading at 1.3380, continuing to move away from the key technical level of the 200-day moving average at 1.3405, and slipped back below the key 1.3400 level on Friday. The significant rebound in the US dollar was driven by market reactions to the possibility of K. Hasset becoming the next Federal Reserve Chair. Last week, the Australian dollar rose for the second consecutive day against the US dollar on Friday, recovering to 0.6690, and is currently rebounding in the 0.6665 area. The pair is on track for a 0.3% weekly appreciation and is nearly 4% higher than its December lows, with the market optimistic about the Reserve Bank of Australia's next interest rate hike.

Last week, oil prices experienced a classic "geopolitically driven" rally. Initially, driven by news of tensions in the Middle East, oil prices rose for four consecutive days, rapidly escalating market sentiment. Traders bet on a potential escalation of the conflict, impacting global energy supplies, causing risk premiums to rise rapidly. Overall, if no new escalation of the conflict or evidence of shipping disruptions emerges in the coming days, risk premiums are likely to continue to decline, and oil prices are more likely to fall back after the rebound.

Last week, after an earlier period of sharp price swings, Bitcoin stabilized around $95,000 on Friday. Traders' expectations are increasingly focused on a short-term assessment: Bitcoin may test the $100,000 mark, but a decisive, sustainable breakout is unlikely. Bitcoin is currently trading narrowly around $95,000, having briefly surged above $97,000 during yesterday's US trading session before retreating back to around $95,000; after a short-selling-driven surge, resistance and profit-taking are emerging. Trading volume has decreased by 13% in the past 24 hours.

The yield on the 10-year US Treasury note rose to 4.23% on Friday, its highest level in over four months, as investors reacted to renewed political noise and a reassessment of policy expectations surrounding the Federal Reserve. Focus now shifts to next week's Personal Consumption Expenditures (PCE) inflation and Gross Domestic Product (GDP) data releases for clearer guidance on deflation and the Fed's response mechanism; a lack of dovish readings could keep long-term yields high. The US bond market will be closed on Monday for Martin Luther King Jr. Day.

Market Outlook for This Week:

This week (January 19-23), global markets will experience a double dose of data and events. China's economic performance, US core inflation data, Federal Reserve policy signals, and the Davos Forum are all converging, creating a complex interplay between macroeconomic data from various countries, dialogues at top global summits, central bank policy moves, and energy market reports—each potentially reshaping the market landscape. Investors need to focus on key variables and accurately grasp potential risks and opportunities.

Financial markets will be focused on the Davos Forum in Switzerland from January 19th to 23rd, attended by world leaders, central bank governors, billionaires, and technology company executives.

The 56th World Economic Forum Annual Meeting (Winter Davos) will commence and continue until January 23rd, with Trump leading the largest US delegation in history.

Regarding the risks this week:

Risk Warning: Key Variables Require Close Attention

Besides core economic data, investors should pay attention to three potential risks:

First, the continued contraction of global peace and security cooperation and escalating regional conflicts may trigger risk aversion, benefiting assets such as gold and the US dollar;

Second, speeches and policy documents from officials of the Federal Reserve and the European Central Bank may signal a shift in direction, potentially leading to rapid corrections in market expectations and volatility in currency and bond markets;

Third, the hesitant trend in global equity markets at high levels, if it triggers consolidation, could radiate to investment products such as precious metals;

Fourth, Trump's geopolitical dialogues and policy statements during the Davos Forum may cause fluctuations in market risk appetite.

This Week's Conclusion:

This week, the market is focused on US PCE inflation and PMI data. If inflation remains stubborn and the economy is strong, it will dampen expectations of interest rate cuts, benefiting the US dollar. While the Bank of Japan is expected to hold rates steady, political instability is weighing on the yen, postponing the prospect of a rate hike until July. Weak UK data may increase the probability of a rate hike, putting pressure on the pound; the Reserve Bank of Australia still has the possibility of raising rates, with employment data being key.

Overall, the market's main focus in the coming week will remain on the core contradiction of whether inflation is persistent enough and whether growth is strong enough. With the Fed's two rate cuts already widely priced in, any data deviating from expectations could trigger asymmetric and volatile price swings.

The Profound Impact of Trump's Pressure on Powell!

The Launch of a Criminal Investigation and Key Allegations

On January 11, 2026, Federal Reserve Chairman Jerome Powell confirmed in a video statement that the U.S. Department of Justice had issued a grand jury subpoena to the Fed, threatening criminal charges against him for his testimony before the Senate Banking Committee in June 2025, which relates to the Fed's office building renovation project. This unprecedented action marks a new high in the conflict between the Trump administration and the Fed.

The core allegations in the investigation include two aspects: first, the cost overrun of the Fed office building renovation project, with the budget soaring from the initial $1.9 billion to $2.5 billion; and second, whether Powell made false statements to Congress regarding the project's size.

Notably, Powell's statement also reflected on his career, noting that he "served the Federal Reserve under four administrations (Republican and Democratic), fulfilling his duties without political fear or bias in each case, focusing on our mission of price stability and full employment." He pledged to "continue to do the work the Senate confirmed I did with integrity and a commitment to serving the American people."

Historical Precedents of Political Interference and Their Lessons

There have been numerous instances in U.S. history where political forces attempted to interfere with the Federal Reserve's decisions. The most famous case occurred during the Nixon administration in the 1970s. In 1971, in an effort to secure re-election, President Nixon exerted unprecedented political pressure on then-Federal Reserve Chairman Arthur Burns, demanding a significant interest rate cut.

According to later-released White House tapes, Nixon repeatedly pressured Burns to adopt expansionary monetary policy. Under Nixon's pressure, the U.S. federal funds rate plummeted from 5% at the beginning of 1971 to 3.5% at the end, and the M1 money supply growth rate reached a post-World War II peak of 8.4%.

The consequences of such political interference were disastrous—the US economy was plunged into a decade-long "Great Stagflation," with inflation exceeding 15%, unemployment surpassing 10%, and the dollar index plummeting by 30%.

Another important precedent is the confrontation between the Truman administration and the Federal Reserve in 1951. At that time, the Fed wanted to raise interest rates to combat inflationary pressures, but President Truman and Treasury Secretary Snyder strongly opposed this, demanding that low interest rates be maintained to protect the value of war bonds. Truman invited the entire Federal Open Market Committee (FOMC) to a meeting at the White House and issued a statement afterward stating that the FOMC "committed to supporting the President in maintaining the stability of government securities during the duration of the emergency." However, the FOMC did not actually make such a commitment, and Federal Reserve Chairman Eccles subsequently released the actual minutes of the meeting, triggering a public political crisis.

These historical precedents demonstrate that political interference in monetary policy often leads to severe economic consequences, including high inflation, economic instability, and a loss of central bank credibility. Based on these lessons, the US has continuously strengthened the independence of the Federal Reserve in its institutional design to ensure that monetary policy decisions are based on economic fundamentals rather than political considerations.

Wall Street and Financial Market Concerns

Wall Street and financial markets reacted extremely negatively to the news of the Justice Department's investigation into Powell, reflecting deep-seated concerns about a threat to the Federal Reserve's independence. Following the news, major bank stocks, including JPMorgan Chase, fell sharply.

This decline reflects not only concerns about the specifics of the investigation but also fears of uncertainty surrounding the Fed's future policies.

The foreign exchange market reacted even more dramatically. The dollar depreciated against both the euro and the yen, while prices of alternative safe-haven assets such as gold and silver rose sharply. The market interpreted this event as a "direct attack on the Fed's independence," rather than a simple legal dispute.

Powell's statement that this was a "pretext" related to interest rate politics transformed the legal case into an attack on the Fed's independence, and the market is repricing the credibility of the US as a monetary anchor.

International investors' concerns are particularly evident. An Asian fund manager stated that the event was "shocking" because it undermines a fundamental assumption of the global financial system—the Fed's independence. He said, "If the Fed cannot independently set monetary policy, then the foundation of global asset pricing will be shaken."

International Concern and Response

The international community has expressed widespread concern and anxiety regarding the US Department of Justice's investigation into Jerome Powell, particularly major European countries and international organizations. German Finance Minister Lars Klingberg, during a visit to Washington, stated unequivocally that central bank independence is a "clear bottom line" for him regarding the US Department of Justice's investigation into Federal Reserve Chairman Jerome Powell.

While the European Central Bank has not commented on specific cases, several officials have expressed support for central bank independence on various occasions. "If the independence of the central bank of the world's largest economy, the United States, is questioned, it will have a systemic impact on global financial stability."

The International Monetary Fund (IMF) and the World Bank have also expressed concern over this event. A senior IMF official warned in an internal meeting that political interference in central banks could lead to a "vicious cycle of policy missteps," ultimately harming economic growth and financial stability.

Concerns are particularly strong in emerging market countries. Many central bank officials in emerging market countries worry that if the Federal Reserve loses its independence, US monetary policy could become more unpredictable, bringing greater external shocks to emerging markets.

Some countries have already begun to take preventative measures. Central banks in some countries are reassessing their foreign exchange reserve structures and reducing their reliance on dollar assets.

The international media reaction has been equally strong. The Financial Times published an editorial stating that this event marks "a dangerous turning point in American democracy," warning of "far-reaching global consequences" from political interference in the Federal Reserve. The Economist compared this event to historical cases of hyperinflation, pointing out that when politics overrides monetary policy, it often leads to disastrous economic consequences.

Conclusion Political interference in the Federal Reserve will have profound negative consequences. First, it will reduce the predictability of Fed policy and increase market volatility. Second, it may lead investors to demand higher risk premiums, thereby pushing up U.S. Treasury yields and increasing financing costs for governments and businesses. Third, it could weaken the dollar's status as the global reserve currency and accelerate the process of "de-dollarization."

This political pressure could have a chilling effect, making future Fed officials more cautious in policy-making and hesitant to make unpopular but necessary decisions. A former Fed official stated, "If the Fed chair faces a criminal investigation for making independent judgments, who will want the position? This will cause long-term damage to the Fed's talent pool."

Conclusion:

Political interference in the Federal Reserve will have profound negative impacts. First, it will reduce the predictability of Fed policy and increase market volatility. Second, it may lead investors to demand higher risk premiums, thereby pushing up US Treasury yields and increasing financing costs for governments and businesses. Third, it may weaken the dollar's status as the global reserve currency, accelerating the process of "de-dollarization."

This political pressure may have a "chilling effect," making future Fed officials more cautious in policy-making and hesitant to make unpopular but necessary decisions. A former Fed official stated, "If the Fed chair faces a criminal investigation for making independent judgments, who would want the job?" This will cause long-term damage to the Fed's talent pool.

Moderate inflation aids interest rate cuts; Gold prices surge and then fall, is it nearing its peak?

Early last week, gold prices touched a record high of $4,634.60 per ounce, but then quickly fell back. This rapid pullback after the surge has led investors to question whether the gold bull market has come to an end. Meanwhile, US December inflation data was moderately lower than expected, and the dollar index regained its upward momentum. The strong rebound of the dollar is increasingly exerting downward pressure on gold.

Moderate inflation data release; While expectations of a rate cut remain stable, gold prices are showing initial signs of pressure.

However, gold prices did not continue to rise after the data release, but instead fell from their highs, reflecting that the market's interpretation of the inflation data is not one-sided. Although lower-than-expected inflation supports a rate cut, it also suggests signs of economic cooling, and investors are beginning to weigh whether the Federal Reserve will act more cautiously.

Meanwhile, although the decline in US Treasury yields was moderate—the 10-year yield fell to 4.175% and the 30-year yield to 4.823%—the constructive reaction in the bond market did not fully translate into strong support for gold. The breakeven yields of five-year and ten-year Treasury Inflation-Protected Securities rose to 2.368% and 2.3%, respectively, indicating that the market expects future inflation to be under control, which to some extent weakens the urgency of gold as an inflation hedge. Therefore, while moderate inflation has ignited the flames of a rate cut, it has also exposed profit-taking pressure on gold in the short term, and the pullback from the highs may indicate a temporary weakening of bullish momentum.

The US dollar index has resumed its upward trend; Gold's Safe-Haven Aura Fades, Topping Signals Emerge

The strong rebound of the US dollar index was a key driver behind gold's surge and subsequent decline. The increased attractiveness of the dollar to other currencies directly raised the cost of holding dollar-denominated gold, putting pressure on international buyers and causing gold prices to fall from record highs.

This trend has sparked market concerns about a potential top for gold. Historical experience shows that when the US dollar index resumes its upward trend, gold often faces downward pressure, especially against a backdrop of moderate inflation and stable economic data. If the dollar continues to strengthen, gold may test the $4,500 support level in the short term. This topping signal is not unfounded but rather the result of multiple factors, including mechanical selling by investors during the annual commodity index rebalancing period. However, not all investors are pessimistic, with some raising their year-end 2026 gold price forecasts to $5,000-$5,250, suggesting that long-term upside potential remains.

Geopolitical uncertainty persists; It's Too Early to Say Gold Has Peaked; Risks Should Be Wary

While short-term price action suggests a potential top, ongoing global geopolitical tensions continue to provide underlying support for gold. The Trump administration's criminal investigation into the Federal Reserve's independence and the threat of imposing 25% tariffs on Iran's trading partners have raised concerns about global supply chains and the oil market. Gulf states lobbied the US to avoid military action against Iran, warning that oil disruptions would damage economic stability. Meanwhile, US ambitions regarding Greenland escalated US-EU relations, with the EU and Nordic countries issuing a joint statement warning of a potential NATO collapse. These events amplified safe-haven demand, driving funds towards gold, an effect that even a strong dollar could not fully offset.

Geopolitical tensions and questions about the Federal Reserve's independence are fundamental supports for gold. Trump's criminal investigation of Powell drew criticism from global central bank officials, further amplifying uncertainty. The market has revised its year-end 2026 gold price forecast, citing increased geopolitical risks, spot market shortages, and Fed uncertainty as primary reasons.

Furthermore, Japanese Prime Minister Sanae Takaichi's dovish policies could trigger further yen depreciation, indirectly supporting the dollar but also increasing global monetary policy uncertainty. Coupled with great power rivalry, gold's status as a safe-haven asset remains secure.

Conclusion: In conclusion, while the moderate performance of US inflation data solidified expectations of interest rate cuts, the strong rebound of the US dollar caused gold prices to rise and then fall, raising concerns about a potential market top. However, geopolitical tensions and long-term policy uncertainties continue to support the resilience of gold prices. In the short term, gold may face downward pressure, but the overall outlook for 2026 is optimistic. Investors should be wary of the dollar's movements and adjust their positions accordingly to capture potential rebound opportunities.

Why did positive data fail to boost the dollar? What's next?

The recently released NFIB Small Business Optimism Index in the US showed a 0.5-point increase to 99.5 in December, exceeding market expectations of 99.2 and continuing its trend above the 52-year historical average of 98.0. More notably, the uncertainty index dropped sharply by 7 points to 84, the lowest level since June 2024. This seemingly minor change is actually quite significant—it reflects the most genuine feelings of businesses in their operational decisions: concerns about costs, labor, taxes, and supply chains are easing.

Small businesses, as the "capillaries" of the economy, often have a leading indicator effect on the health of the economy. When their expectations for the future improve, this is usually reflected first in increased hiring intentions, increased capital expenditure plans, and improved pricing power. These behaviors will gradually transmit to the job market and inflation path, thus influencing the direction of monetary policy. For example, if businesses generally plan... Increased recruitment or investment implies rising labor demand, potentially leading to increased wage pressure; stronger price increases suggest upward pressure on future inflation. These factors will be crucial references for the Federal Reserve in adjusting its interest rate policy.

Therefore, the value of this data lies not in the monthly fluctuations themselves, but in providing a window into the "true economic landscape." The current high optimism index, coupled with a significant decline in uncertainty, indicates that business confidence in the operating environment is recovering. If this recovery continues, the market may reassess the resilience of growth in the coming quarters and even begin to question previously overly pessimistic recession expectations.

Why didn't the positive data boost the dollar? Two conflicting logics:

Despite positive small business data, the dollar index did not strengthen but instead fluctuated. This reflects a fierce battle between two interpretations of the same data. The first logic is "growth-driven expectations of interest rate hikes": such as... If economic fundamentals improve, the market will perceive a reduced need for the Federal Reserve to cut interest rates, and may even consider resuming rate hikes to suppress potential inflation, thus pushing up interest rate expectations and benefiting the US dollar. In this scenario, US Treasury yields may rise, widening the interest rate differential and attracting capital inflows into dollar assets.

However, another logic chain points in the opposite direction: "Cost easing = expected easing." If the recovery in business confidence stems primarily from lower cost pressures and easing labor shortages, rather than strong demand expansion, then the risk of an inflation rebound is limited. In this case, even with a slight recovery in growth, the Federal Reserve may maintain a dovish stance and continue its rate-cutting plan. In this scenario, the upside potential for interest rates is limited, and the dollar is unlikely to receive sustained support. This explains why current long-term US Treasury yields have reacted mutedly, and the market's pricing of the Fed's policy path has not fundamentally changed.

More complexly, risk appetite also influences the dollar's performance. Small businesses... A rebound in confidence is often seen as a signal of an increased probability of a "soft landing," which is conducive to boosting risk sentiment. Theoretically, this should weaken the safe-haven appeal of the US dollar, putting it under pressure. However, in reality, the dollar has not weakened significantly; instead, it has remained resilient. This indicates that the market has not fully bet on the combination of "interest rate cuts + a rise in risk assets," but is in a wait-and-see state: seeing evidence of economic resilience while worrying about a resurgence of inflation, making a complete shift to easing monetary policy difficult.

What's next? The key is whether a "signal resonance" can form.

Currently, the US dollar index is still at a critical juncture for directional choice. A single NFIB data point is insufficient to break the current deadlock; the market needs more high-frequency data for verification, especially inflation readings, non-farm payroll sub-indexes, wage growth, and policy communications from Federal Reserve officials. Only when multiple signals point in unison can a trend-driven market movement be triggered.

In the short term, the 99.00 level is a key psychological level. The 99.18 (220-day moving average) area remains a key level to watch. If the US dollar index finds support here, and subsequent data continues to strengthen growth and inflation expectations—for example, a comprehensive rebound in corporate hiring plans, capital expenditure intentions, and price increases—the market may repric the Fed's interest rate path, delaying rate cut expectations and pushing the dollar to attempt a breakout above the 99.00-99.18 level. Conversely, if support is repeatedly broken and other data fails to follow suit, the market may shift back to an easing narrative, and the dollar index may retreat to around 98.00.

In the medium term, the "operational recovery" clue provided by the NFIB needs to be judged in conjunction with other high-weighted variables. If inflation stickiness reappears, financial conditions tighten, and the labor market remains tense, interest rate differentials are expected to continue tilting towards the dollar, providing upward momentum. However, if the economic recovery relies mainly on efficiency improvements rather than demand expansion, and inflationary pressures are manageable, the Fed will continue to cut rates at its pace, and the dollar will likely maintain a range-bound trading pattern.

Conclusion In conclusion, the current "stillness" of the US dollar is not indifference, but rather a wait for a "trigger point"—perhaps better-than-expected CPI data, or a subtle shift in the Fed's rhetoric. Considering both fundamentals and technicals, the US dollar index is in a sensitive phase dominated by news. The stalemate on the technical charts directly reflects the significant uncertainty surrounding the Fed's future.

Looking ahead, the US dollar index is unlikely to establish a clear trend until it effectively breaks through the psychological barrier of 99.85-100.00 or falls below the lower bound of 98.72 (the 200-day moving average)-98.50. The market is awaiting a sufficiently strong catalyst to break the current stagnant technical balance, and this catalyst is highly likely to come from Washington, rather than simply from economic statistics reports.

Geopolitical uncertainty; increased volatility in oil prices

International oil prices surged in the first half of last week, with WTI crude briefly surpassing the psychologically important $60 mark. However, after heightened tensions surrounding the Middle East situation, the market experienced a sharp correction due to recent developments. The market is currently undergoing a typical "risk premium" retracement. The safe-haven premium previously injected into oil prices due to geopolitical tensions was quickly squeezed out by signs of easing tensions and negative fundamental data. For traders, understanding the shift in bullish and bearish forces behind this price action is crucial.

Recently, oil prices experienced a surge after initially failing to fall due to negative news, followed by a realization of positive news. Trump's statements cooled expectations of conflict in the Middle East, causing the geopolitical premium in the oil market to vanish, leading to a sharp drop in oil prices. The mystery surrounding Venezuela's production recovery remains unsolved, and under the shadow of oversupply, the undercurrent of the battle between bulls and bears has shifted to supply and demand fundamentals.

Just earlier this week, the Middle East geopolitical risk premium continued to push oil prices higher, but Trump's latest statements directly severed this upward momentum, causing a panicked exodus of bullish investors and a complete reversal of the short-term trend. Trump publicly stated that the crackdown on protesters in Iran had eased and that the Iranian authorities had no plans for mass executions. This statement significantly reduced the likelihood of an immediate US military strike against Iran, and the geopolitical risk premium that had previously been supporting oil prices contracted sharply.

Fundamental headwinds return, supply and demand easing pressures become more apparent.

With the geopolitical premium receding, oil traders are forced to refocus their attention on fundamental headwinds. On the one hand, the increase in US crude oil inventories last week far exceeded market expectations, highlighting the current loose supply pressure in the market; on the other hand, the US completed its first sale of Venezuelan crude oil on Wednesday, a move that sends a clear signal—the return of Venezuelan crude oil supply to the international market is imminent, and the subsequent increase in global crude oil supply warrants attention.

Venezuela Production Outlook: Optimistic Targets Cannot Mask Realistic Constraints

In fact, regarding the prospects for the recovery of Venezuelan crude oil production, after the Trump administration took control of Venezuela's long-time ruling leader Nicolás Maduro, the country's crude oil production is expected to increase by 50%, climbing to 1.5 million barrels per day by 2035. The country's existing crude oil infrastructure, including pipelines, wellhead facilities, and refineries, is severely aging and dilapidated. Repairing it would require not only hundreds of billions of dollars in capital injection but also several years of construction. Currently, many oil wells are shut down and idle, and no large-scale exploration drilling operations have been conducted in the country for many years.

Many market analysts estimate that to bring Venezuelan crude oil production back to its historical peak of 3.5 million barrels per day in the 1970s, it would require not only over $100 billion in international capital and a comprehensive reconstruction of infrastructure but also the removal of a series of political and legal uncertainties.

Conclusion For the crude oil trading market, the core logic of the current battle between bulls and bears has shifted from geopolitical conflicts to supply and demand fundamentals. Although Trump's remarks have temporarily cooled the market, protests in Iran have not subsided, and the subsequent evolution of the situation remains highly uncertain. The recovery process of Venezuelan oil production capacity will also be a key variable affecting the medium- to long-term crude oil supply pattern.

Recently, crude oil prices have risen too rapidly due to bets on geopolitical risks. Having reached the upper limit of the trading range, without additional negative geopolitical news, oil prices will likely show signs of priced in the gains and are prone to a pullback.

In the short term, after this sharp decline, the oil market may enter a consolidation phase. Traders need to closely monitor both geopolitical developments and inventory data for guidance.

Overview of Important Overseas Economic Events and Matters This Week:

Monday (January 19): Eurozone December Harmonized CPI YoY - Final Unadjusted (%); Canada December Unadjusted CPI YoY (%); Martin Luther Memorial Day

Tuesday (January 20): UK November Unemployment Rate - by ILO Standard (%); Eurozone January ZEW Economic Sentiment Index

Wednesday (January 21): UK December CPI YoY (%); UK December Retail Price Index YoY (%); UK December Unadjusted Input PPI YoY (%); UK January CBI Industrial Orders Balance; US December Pending Home Sales Index MoM (%); ECB President Lagarde and BlackRock CEO Fink attend a discussion at the World Economic Forum

Thursday (January 22): Japan December Goods Trade Balance - Unadjusted (billion yen); Australia December Seasonally Adjusted Unemployment Rate (%); Australia December Employment Change (thousands); UK January CBI Retail Sales Balance; US Q3 Final Annualized GDP Growth Rate (%); ECB Releases December Monetary Policy Meeting Minutes

Friday (January 23): Japan December National CPI YoY (%); UK January GfK Consumer Confidence Index; UK December Seasonally Adjusted Retail Sales MoM (%); Eurozone January SPGI Manufacturing PMI Preliminary (0121-0127); UK January SPGI Manufacturing PMI Preliminary; Eurozone January Consumer Confidence Index Preliminary; US January SPGI Manufacturing PMI Preliminary; US January University of Michigan Consumer Sentiment Index Final; Bank of Japan Announces Interest Rate Decision and Economic Outlook Report; Bank of Japan Governor Kazuo Ueda Holds Monetary Policy Press Conference

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