The U.S. dollar exhibited strength at the onset of European trading on Tuesday (January 28, 2025). The crash experienced by the Nasdaq spurred a surge in demand for the U.S. dollar as a safe haven.
On Monday, the Nasdaq plummeted by over 600 index points, and at one point, it had fallen nearly 1,150 index points. As previously noted in the Macro Overview, the crash was fueled by declines in technology stocks, particularly Nvidia, which saw a 17% drop, resulting in a market capitalization loss of $600 billion.
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The sell-off was triggered by the emergence of a Chinese AI startup, DeepSeek. They have launched two AI models, DeepSeek V3 and DeepSeek R1. Reports suggest that DeepSeek can create AI using older chip technology, as the U.S. has imposed restrictions on chip exports to China. These older chips are considerably cheaper compared to Nvidia’s latest advanced models. Additionally, DeepSeek claims to train its AI at a cost of $5.6 million, whereas other AI systems require between $100 million and $1 billion for similar processes.
As a result, DeepSeek’s disruptive approach caused a sell-off in Nvidia stocks, a key supplier of advanced chips for the AI sector. This shift in the AI industry landscape indicates that there may no longer be a need for expensive chips, potentially leading to a decline in demand for Nvidia’s products, which, in turn, has prompted sell-offs in U.S. technology shares, resulting in a sharp drop in the Nasdaq index.
Former President Trump has also acknowledged DeepSeek’s entry into the market, expressing a favorable opinion. He believes that American firms need to develop AI more swiftly and cost-effectively.
This sentiment will likely influence market movements tonight, alongside additional data releases from the U.S. Here are the data points from Trading Central:
- U.S. durable goods orders at 8:30 PM WIB (month-on-month/December); forecast 0.5% vs previous -1.1%.
- U.S. consumer sentiment at 10:00 PM WIB (January); forecast 104 vs previous 104.7.
GOLD
Gold prices (XAUUSD) displayed volatility, trading within the range of $2,734 to $2,745 per troy ounce at the beginning of the European session, showing an upward inclination. As mentioned in the prior Macro Overview, the crash in the tech sector in the U.S. is likely to escalate demand for gold as a safe haven.
Despite a gradual recovery in the Nasdaq today, uncertainties remain high, compounded by several policies under former President Trump, enhancing gold’s appeal as a safe-haven asset. This sentiment is expected to impact gold’s trading this evening, along with the release of U.S. economic data.
OIL
Oil prices (CLS10) rebounded at the start of European trading, reaching a daily high of $73.84 per barrel. Yesterday, oil prices dropped by more than $1.50, hitting their lowest level since early January.
Even with this rebound, oil remains overshadowed by negative sentiments following China’s report of a contraction in manufacturing activity this month, raising concerns about waning demand from China. Additionally, Trump’s plans to boost domestic oil production may exacerbate global supply issues.
Both factors contribute to a negative outlook for oil, which is expected to persist in tonight’s trading.
EURUSD
The EURUSD pair remains tethered near the daily low of 1.04192 as European trading begins. Compared to Monday’s closing, the EURUSD has declined by 709 points (70.9 pips).
The U.S. dollar, positioned as a dominant safe haven today, is bolstered by expectations of favorable economic data from the United States to be released tonight. If this data surpasses forecasts, the EURUSD may face further downward pressure.
GBPUSD
Similar to the EURUSD, this currency pair is hovering around the daily low of 1.24260 after a drop earlier today. Given this scenario, GBPUSD could experience additional pressure in tonight’s trading if the U.S. economic data proves to be better than forecasted, particularly should the tech sector’s sell-off continue.
USDJPY
The USDJPY retraced some gains after peaking at a daily high of 155.975. In comparison to Monday’s closing, the USDJPY surged almost 150 pips to reach that high, making a correction reasonable.
Should tonight’s U.S. economic data be released above expectations, the USDJPY stands to receive positive sentiment.
Nasdaq
The Nasdaq climbed to 21,422 after dipping to 21,219 earlier today. As mentioned earlier, market participants are still evaluating the impact of DeepSeek’s launch, which disrupts the AI industry with its low-cost AI solutions.
Additionally, Trump’s encouragement for American companies to develop AI using quicker, more cost-effective methods could exert further pressure on U.S. tech stocks, creating a potentially negative sentiment for the Nasdaq.
