**Weekly Forex Forecast: December 28, 2025 to January 2, 2026**
*Based on insights from DailyForex (original by Adam Lemon), additional analysis included.*
## Overview
As we approach the end of December 2025 and step into early 2026, the forex markets present a nuanced landscape shaped by both the lingering impacts of recent monetary policy changes and expectations for key economic data releases in the new year. Thin holiday trade may contribute to less volatile market movements but can sometimes result in outsized reactions to data surprises or developments in geopolitical events. Traders should be aware of reduced liquidity, as many global financial centers operate on limited schedules around the turn of the year.
### Key Themes for the Week
– Year-end positioning and profit-taking in major currency pairs
– Ongoing reflection of central bank policy divergence, especially between the Federal Reserve, European Central Bank, and Bank of Japan
– Impacts from recent inflation data and their implications for future interest rate decisions
– Geopolitical developments, particularly pertaining to energy prices and supply chains
– Technical breakouts and key support/resistance levels amid light trading volumes
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## US Dollar (USD) Dynamics
The US Dollar Index has been exhibiting mixed movement due to a combination of shifting rate expectations and global risk sentiment. While the US economy has remained relatively resilient, there is a cautious outlook as investors weigh the potential timeline for the Federal Reserve to begin rate cuts in 2026.
**Factors influencing the Dollar:**
– Latest US inflation data showed year-over-year consumer price growth moderating, but not as swiftly as doves hoped
– Labor market remains strong, preventing an imminent policy pivot from the Fed
– Risk assets have retained a bid, limiting demand for the dollar as a safe haven
– Fiscal policy discussions and budget negotiations could add an extra layer of uncertainty
**Technical Perspective:**
– Dollar Index holding above 103.50 keeps the medium-term trend sideways to bullish
– A breakout above 104.70 would open the path toward 106.00
– Main support is seen near 102.80
## Euro (EUR) Outlook
The euro has maintained a trading range against the dollar, largely due to the counter-balancing forces of sluggish Eurozone growth and persistent inflation uncertainty. The European Central Bank has made clear its focus remains on inflation control, even as growth forecasts dim.
**Key developments:**
– Eurozone inflation readings remain above the ECB’s target, complicating calls for imminent rate cuts
– Euro area growth forecasts for 2026 are subdued, limiting euro upside potential
– Ongoing energy market uncertainties, especially around natural gas flows, continue to linger after last winter’s supply disruptions
**Technical Perspective:**
– EUR/USD stuck between 1.0800 support and 1.0970 resistance
– Break below 1.0770 exposes 1.0650
– Upside capped unless a daily close occurs above 1.1000
Read more on AUD/USD trading.