US: European Allies Increasingly View US As Unreliable Partner

• Despite a softer-than-expected US inflation report for December, the initial weakness for the US dollar was short-lived and the resultant price action saw the greenback steadily grind higher throughout the session. As such, the USD index is hovering close to session highs as we approach the APAC crossover, in close proximity of last Friday’s post NFP highs at 99.26.
• Dollar strength has been most notable against the yen on Tuesday, with an impressive pre-data rally overnight consolidating post release as the domestic political backdrop in Japan continues to weigh on yen sentiment.
• For USDJPY, this has translated to a move above 159.00, the highest level since July 2024. Technical developments have exacerbated the latest leg higher for USDJPY, with last week’s breach of 157.89 confirming a resumption of the medium-term uptrend. Furthermore, today’s breach of a key resistance at 158.87 (2025 high) could spur additional topside momentum, with immediate targets for the move including 159.60 and 160.00, both Fibonacci projection points.
• The greenback recovery combined with a moderately softer equity backdrop, which has subsequently weighed on the likes of AUD and NZD, with both currencies roughly 0.5% in the red. For AUDUSD, we have highlighted the focus remains on a key support zone between the 20- and 50-day exponential moving averages, with the latter intersecting today at 0.6630.
• US PPI figures will take the spotlight on Wednesday, however, it is worth noting that China trade data will cross overnight.

Upside Call volume rising as underlying futures hold modest gains. Projected rate cut pricing vs. late Monday levels (*): Jan'26 at -0.7bp (-1.2bp), Mar'26 at -6.9bp (-6.6bp), Apr'26 at -11.2bp (-11.2bp), Jun'26 at -24.6bp (-23.6bp). 

• +23,000 SFRU6 96.75/96.70/97.25/97.50 call condors 6.0 ref 96.76
• +7,500 SFRM6 96.43 puts 0.0 over 0QM6 96.37 puts

• RES 4: 1.3726 High Sep 17 and a key resistance     
• RES 3: 1.3661 High Sep 18
• RES 2: 1.3607 2.764 proj of the Nov 4 - 13 - 20 price swing
• RES 1: 1.3568 High Jan 6 and the bull trigger
• PRICE: 1.3440 @ 16:02 GMT Jan 13
• SUP 1: 1.3383 50-day EMA
• SUP 2: 1.3312 Low Dec 17
• SUP 3: 1.3288 Low Dec 9 
• SUP 4: 1.3180 Low Dec 2     

The trend theme in GBPUSD remains bullish and the latest pullback appears to have been a correction. Support at the 50-day EMA, at 1.3383, remains intact. A clear break of this EMA would signal scope for a deeper retracement and open 1.3312, the Dec 17 low. For bulls, a reversal higher would refocus attention on key resistance and the bull trigger at 1.3568, the Jan 6 high. Clearance of this level would resume the uptrend that started on Nov 4.