“FAFO” Narrative Drives the Markets in 2026

The “buy America” narrative had started to evolve again with the US dollar growing since the beginning of the first week of 2026, and stock indices moving higher, especially DAX (German index), which is being driven by rising military expenses and defensive stocks such as Rheinmetall, which had grown for more than 20% in 2026 alone, and for around 150% in 2025.

The trend for defensive stocks will probably be dominant for the upcoming weeks and months, given the development of geopolitical trends: the US has escalated the situation with Venezuela, having seized its president, Maduro, and a Russian oil tanker. Lockheed Martin (LMT) stock, for example, has expanded by 4.5% on Friday,

That situation also keeps the demand for other defensive assets, such as Gold, Silver, Swiss Franc, and Japanese Yen (though it is driven down by carry trade operations despite the rising yields of 30-year bonds). We may call it a “FAFO” narrative: President Trump’s intervention in the oil market and disruption of geopolitical balance.

The NFP publication on Friday showed weaker-than-anticipated growth, with a 50k increase versus the anticipated 70k. That has pressured the US dollar at the moment, but it later balanced the situation, closing the day in the green. Gold wobbled but had also closed the day in the positive zone.

Despite a weaker-than-anticipated NFP report, traders do not expect the interest rate to decrease during the nearest FOMC meeting in January, nor during the next meeting in March.

Moreover, probabilities of interest rates remaining at the same level have increased after Friday’s trading day, according to the FEDwatch tool. At the same time, yields of 30-year bonds of the US have declined a bit.

This situation can provide some limited support for the US dollar starting from Monday, or at least unlikely to pressure it during the beginning of the week.

The next important publication for the upcoming week is the US CPI on Tuesday. After a weaker NFP, it’s expected to also cool down a bit, but this is already priced in, and traders don’t believe in further interest rate declines, given the stabilization of monetary policies worldwide.

Let’s dive a bit deeper into the situation and try to figure out the possible direction for Gold and the US500.

XAU/USD (Gold)

Gold is located in a strong seasonal window for growth: according to 30-year seasonal studies, Gold has a high probability of growth in the first two weeks of January.

From a technical point of view, it has bounced off the 20-day moving average, which often serves as a strong dynamic support zone and points to a possible development of the upswing. The most recent price action confirms this point of view, as pullbacks are being bought out and most days during the first week are bullish for XAUUSD.

The price is moving in a solid bullish momentum, but it still isn’t overbought, yet it remains below the previous all-time high and the upper band of the Bollinger Bands, which suggests the possibility of continuation, at least ahead of Tuesday’s US CPI report.

US500

The “sell America” narrative had stepped back from the agenda, but tech stocks underperform compared to financial and industrial stocks. Dow Jones and S&P 500 now lead the rally, as defensive and energy stocks are getting back in play, after the escalation around the US-Venezuela conflict.

S&P 500 lags behind DAX, though, and it might accelerate a bit as military, energy, and defensive stocks may drive the rally. Other than that, starting from January 12, a number of large financial companies will post their earnings, such as JPMorganChase, Bank of America, Wells Fargo and BlackRock.

The published reports will show the overall trend for corporate profits and may, along with the US CPI report, define the further direction of US indices.

If the S&P 500 starts the week in the green, probabilities of continuation would increase, whereas the current situation looks rather neutral. I’d expect it to move in a plateau and accelerate a bit later within the week, as more data will come in (US inflation, corporate profits)