Title: Weekly Forex Market Analysis: Key Currency Pairs to Watch From December 28, 2025, to January 2, 2026
By: DailyForex Market Analysis Team (Original Author: Christopher Lewis)
Expanded and Enhanced by [Your Name]
The final days of 2025 promise elevated volatility and unpredictable movements in the foreign exchange markets as we transition into the new year. Historically, the period between Christmas and the first week of January sees thin liquidity, increased algorithmic activity, and frequent false breakouts. This environment creates opportunities for short-term traders while posing risks for those seeking longer-term setups. As the calendar shifts into 2026, the spotlight remains firmly on central bank policy expectations, particularly those of the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan (BoJ).
This weekly Forex analysis, originally published by Christopher Lewis for DailyForex, offers a focused overview of key currency pairs during the range of December 28, 2025, to January 2, 2026. This expanded version includes additional market insights, technical analysis, and fundamentals that could influence trading outcomes early in the new year.
Key Themes Impacting Forex Markets
Before diving into specific pairs, it’s essential to understand the macroeconomic and geopolitical themes driving currency demand:
– **Inflation Trajectory**: Markets are closely watching inflation data in the US, Eurozone, and UK. Disinflation trends may justify rate cuts in Q1 2026.
– **Interest Rate Expectations**: Speculation about the Federal Reserve’s first rate cut of 2026 could influence USD volatility. FOMC minutes and Fed speakers are critical.
– **Central Bank Divergence**: Disparities in monetary policy between the Fed, ECB, BoJ, and BoE are widening. Clarity on rate paths will dictate long-term FX flows.
– **Geopolitical Stability**: Tensions in global hotspots, such as Eastern Europe and the South China Sea, continue to fuel risk-on/risk-off sentiment.
– **Volume and Liquidity**: The week between holidays is typically characterized by thin trading volumes, often exaggerating price movements.
Currency Pairs in Focus (December 28, 2025 – January 2, 2026)
EUR/USD Analysis
EUR/USD remains in focus as year-end flows dominate trading behavior. The currency pair retreated below the 1.1000 psychological barrier after hitting multi-month highs in early December. A combination of cautious ECB commentary and resilient US economic data has supported the greenback, dampening the euro’s rally.
– **Technical Analysis**:
– The pair is trading near a support zone around the 1.0850 area.
– A daily close above 1.1000 would confirm bullish momentum resumption toward 1.1150.
– RSI divergence on the daily chart suggests indecision, and the 50-day EMA offers short-term directional guidance.
– **Fundamental Drivers**:
– German inflation data due December 29 may shape short-term expectations for the ECB.
– The US Core PCE reading released on December 30, a key gauge of inflation, could shift Fed policy sentiments.
– Bond yield differentials remain in favor of the US dollar, limiting euro strength in the medium term.
– **Outlook**: Cautiously bullish above 1.1000, range-bound below.
GBP/USD Analysis
The British pound has demonstrated resilience in recent weeks, bolstered by better-than-expected UK inflation readings and a relatively hawkish Bank of England (BoE). However, sluggish growth figures weigh on sterling’s longer-term prospects.
– **Technical Analysis**:
– Strong resistance encountered around 1.2800; support is forming near 1.2560.
– The 200-day moving average near 1.2630 acts as a decision zone.
– Momentum indicators are mixed, signaling range-bound behavior
Read more on USD/CAD trading.