**Weekly Forex Forecast: December 28, 2025 – January 2, 2026**
*Based on analysis by Adam Lemon, with additional insights.*
The last week of December marks a unique period for forex traders as the year comes to a close and a new one begins. This particular week is typically characterized by lighter trading volumes and, often, unpredictable volatility due to holidays, with many institutional traders on vacation. However, for discerning participants, this period can offer both risks and opportunities. Below, we take an in-depth look at what to expect for the major currency pairs, the dominant themes in the market, and key technical levels to watch.
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### Market Overview and Sentiment
– **Low Liquidity Conditions**: The final week of the year is marked by reduced trading volumes as much of the institutional investment community is either off for holidays or focusing on closing out their annual books. This can lead to less predictable and sometimes exaggerated price movements.
– **Volatility Fluctuations**: While sometimes volatility drops during the holiday week, unexpected news flow or thin markets can cause rollercoaster price action, especially for pairs with heavier speculative interest.
– **Year-End Flows and Positioning**: Many traders close positions before the year’s end, which can contribute to sudden, sharp moves opposite the prevailing trends.
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### Key Themes Influencing Forex Markets
– **Central Bank Policies**: With recent policy guidance from the Federal Reserve, European Central Bank (ECB), Bank of England (BoE), and Bank of Japan (BoJ), expectations about the pace and scale of future interest rate changes continue shaping broader currency trends.
– **US Dollar Trajectory**: Speculation about the timing and extent of anticipated US rate cuts in the new year keeps the dollar’s direction a focal point for the market. Recent economic data has introduced uncertainty regarding inflation and job growth, fueling debate about the Fed’s next moves.
– **China Growth Concerns**: Economic signals from China continue influencing risk appetite, commodity prices, and the direction of trade-sensitive currencies, especially the Australian dollar and the Canadian dollar.
– **Geopolitical Headwinds**: Ongoing uncertainty in eastern Europe and the Middle East, as well as US–China tensions, act as undercurrents that can unexpectedly sway market sentiment.
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### Major Currency Pair Forecasts
#### EUR/USD
– **Recent Price Action**: The euro has been consolidating against the dollar after rallying earlier in December. The pair is caught between mixed economic signals from both the eurozone and the US.
– **Technical Outlook**:
– *Support*: The 1.0900 and then the 1.0800 level are significant supports to watch.
– *Resistance*: The 1.1000 psychological barrier remains a major resistance, with 1.1120 ahead as a secondary target.
– **Fundamental Drivers**:
– Revised ECB communication has pushed back expectations for immediate rate cuts
Read more on AUD/USD trading.