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Santa Rally Extends: “Soft Landing” Fuelled by Low Inflation
Ultima Markets Daily Market Insights – December 22, 2025
Global markets are kicking off the holiday-shortened week with renewed optimism. The “Santa Rally” is firmly underway, driven by cooling US inflation and a Federal Reserve that now has a clear green light to cut rates further in 2026.
The “Dove’s Gift” & BoJ “Dovish Hike”
Last week ended with two decisive events that reshaped the market landscape heading into year-end.
1. US CPI
The delayed November US CPI data released last Thursday came in softer than expected, with Headline CPI falling to 2.7% (vs. 3.1% forecast) and Core CPI easing to 2.6%.
This downside surprise reinforces the “soft landing” narrative, confirming that inflation pressures are easing meaningfully. With price stability largely restored, the Fed can now focus squarely on supporting growth. Markets are pricing in a near-certainty of further rate cuts in early 2026.
2. BoJ Dovish Hike
On the other hand, the Bank of Japan delivered a historic rate hike, raising rates to 0.75%—a 30-year high.
Despite the hike, the market reaction was counterintuitive. The Yen weakened (USD/JPY rose) as the move was fully priced in and accompanied by a lack of aggressive hawkish guidance. Traders interpreted this as a “one-and-done” adjustment rather than the start of a sustained tightening cycle, disappointing those positioned for a strong Yen rally.
The absence of hawkish follow-through encouraged investors to re-engage in “cheap funding” strategies. With the Japanese Yen still offering low funding costs, carry trades remain attractive, continuing to support risk assets such as equities.
“Santa Rally” Extension on Monday
Momentum from Friday is expected to carry into today. The seasonal “Santa Rally”—the tendency for equities to rise during the final trading days of the year—is now supported by solid macro fundamentals:
Yields Dropping: With inflation fears vanishing, bond yields are retreating, forcing capital back into risk assets.
Tech Revival: The AI and Tech sectors, which led the rebound on Friday, are seeing renewed inflows as investors rotate back into growth stocks for 2026 positioning.
Daily Outlook: Dollar, Gold & Equities
US Dollar Index
USDX, H4 Chart | Ultima Markets MT5
The US Dollar remains under pressure, with its near-term outlook biased toward bearish-to-consolidative price action. Softer CPI data has firmly cemented expectations for Fed rate cuts in early 2026. That said, the BoJ’s dovish reaction has provided temporary support for the Dollar against the Yen.
The 98.00 level remains critical. A decisive break below this zone would signal a deeper downside move, particularly given the rising wedge pattern currently forming.
XAU/USD (Gold)
XAU/USD, H4 Chart | Ultima Markets MT5
Gold remains a primary beneficiary of the current macro environment. It is trading near record highs around $4,380 at the time of writing, supported by falling real yields and lingering geopolitical risks.
Momentum remains constructive, and gold could print fresh record highs during the ongoing Santa Rally. A sustained break above $4,385 would open the path toward the psychological $4,400 level, while pullbacks toward $4,350 are likely to attract strong dip-buying interest.
US Equities (Nasdaq100)
The US equity market remains firmly in risk-on mode, with the Nasdaq 100 (NAS100) still eyeing a retest of its recent highs. “Recession fears” and “AI overvaluation” concerns are increasingly being replaced by soft-landing optimism.
NAS100, Daily Chart | Ultima Markets MT5
That said, the outlook remains cautiously bullish, with near-term price action likely driven by Santa Rally sentiment amid thinning liquidity. Technically, as long as prices hold above the 25,000 level, the Nasdaq 100 maintains a constructive bias.
What to Watch for Today?
The path of least resistance remains positive for stocks and gold, while upside for the US Dollar appears limited. With the BoJ event now behind us, a major source of uncertainty has been removed.
Traders can continue to ride the holiday momentum but should remain mindful of thinner liquidity conditions. Into Monday, markets are likely to stay driven by Santa Rally optimism, with volatility potentially exaggerated by lower participation.
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