Wall Street Highs Contrast Tech Divergence in AI Competition

EUR/USD extended its decline on Tuesday, falling 0.23% and breaking below the 1.1700 level, as fresh data pointed to slowing economic momentum across the Eurozone.  The move came despite mixed US economic releases and generally neutral-to-dovish commentary from Federal Reserve officials. Instead, weakening European fundamentals weighed more heavily on the single currency, while the US Dollar recouped some of its recent losses.

Market participants largely brushed aside geopolitical developments, including recent events involving Venezuela, while the lack of tangible progress in Ukraine-Russia peace talks continued to cap sentiment toward the euro.

In the United States, December Purchasing Managers’ Index (PMI) data showed a moderation in activity compared with the prior month. S&P Global’s Services PMI eased to 52.5 from 54.1, while the Composite PMI fell to 52.7 from 54.2, signaling that growth momentum may be cooling.

In Europe, incoming data highlighted a deceleration in services activity. The Eurozone HCOB Services PMI slipped to 52.4 in December from 53.1 in November, underscoring softer demand across the bloc.

Adding to the pressure, German inflation — measured by the Harmonized Index of Consumer Prices (HICP) — fell to 2.0% year-on-year from 2.6%, dropping back to the European Central Bank’s target. The data reinforced market expectations that the ECB’s tightening cycle is effectively over unless growth deteriorates sharply.

Looking ahead, investors will monitor Eurozone inflation data, including the December HICP release, Italian inflation figures, and German retail sales. In the US, attention will turn to the ADP Employment Change report, ISM Services PMI, JOLTS job openings data, and additional speeches from Federal Reserve officials, all of which could shape near-term direction for the EUR/USD pair.

Bitcoin edged lower on Tuesday, giving back gains from the previous session, as heightened geopolitical uncertainty and caution ahead of key US economic data weighed on risk sentiment across crypto markets.

Risk appetite remained subdued amid escalating global tensions, including a worsening diplomatic dispute between China and Japan, as well as continued uncertainty surrounding Washington’s stance on Venezuela. Investors also stayed on the sidelines ahead of several high-impact US economic releases due later this week.

Crypto sentiment found limited relief after MSCI said it would not move forward with a proposal to exclude digital-asset treasury companies from its indexes. The decision means Strategy Inc., the world’s largest corporate holder of Bitcoin, will remain in MSCI’s global indexes for now.

However, the rally followed a sharp decline during the regular session, after Strategy disclosed an unrealized $17.44 billion loss on its digital asset holdings in the fourth quarter of 2025. The stock has nearly halved over the course of 2025, as prolonged weakness in Bitcoin prices and concerns over the firm’s debt-funded accumulation strategy weighed on investor confidence.

Investors remained cautious ahead of key US economic data, with particular focus on Friday’s nonfarm payrolls report, which could influence expectations for Federal Reserve policy.

Oil prices dropped sharply during Asian trading on Wednesday after US President Donald Trump said Venezuela would supply tens of millions of barrels of crude to the United States, fueling concerns over rising global supply.

Crude markets were already under pressure following reports earlier this week that the US takeover of Venezuela could pave the way for a broad easing of sanctions on the country’s oil industry. Such a move could ultimately return significant volumes of Venezuelan crude to international markets, weighing on prices.

Despite ongoing geopolitical tensions lending some risk premium to prices, oil remained on the defensive amid growing concerns that global markets could face a supply surplus in 2026. Crude benchmarks are already on track for their steepest annual decline in five years, following a sharp sell-off through 2025.

In a social media post, Trump said Venezuela would hand over between 30 million and 50 million barrels of oil to Washington, with the US set to sell the crude at prevailing market prices.

Oil markets are also closely monitoring developments surrounding potential ceasefire negotiations between Russia and Ukraine. On Tuesday, the US backed a coalition of mostly European nations in pledging security guarantees to Kyiv, should a ceasefire be reached.

The commitment was announced at a Paris summit aimed at reassuring Ukraine, with Washington also offering to assist in monitoring and verifying any future ceasefire agreement.

US equities closed at record highs on Tuesday as renewed strength in artificial intelligence stocks outweighed a pullback in the energy sector.

Technology shares led the advance, benefiting from strong momentum in AI-related names, while energy stocks eased after rallying sharply in the prior session.

Artificial intelligence shares jumped after key announcements at the Consumer Electronics Show (CES). NVIDIA CEO Jensen Huang unveiled the company’s next-generation AI platform, Vera Rubin, confirming it is now in full production. He also announced the release of Alpamayo, an open-source AI model designed to accelerate autonomous vehicle development.

Strength in AI spilled over into memory and storage stocks, extending gains from last year as demand for advanced chip architecture continued to rise. The rally in technology helped offset weakness in the energy sector, which pulled back after surging a day earlier on geopolitical developments tied to Venezuela.

Attention is now turning to comments from Federal Reserve officials, as markets look for clearer guidance on the outlook for interest rates ahead of the Fed’s January 30–31 policy meeting.

The wave of Fed commentary comes ahead of Friday’s US December nonfarm payrolls report, which is expected to provide a key test for markets after recent data suggested cooling momentum in the labor market.