Title: Weekly Forex Market Analysis: Major Currency Pairs in Focus (December 28, 2025 – January 2, 2026)
Original Source: Adapted and expanded from “Pairs in Focus: 28 December 2025 to 02 January 2026” by Christopher Lewis, as published on DailyForex.com.
As the calendar turns from 2025 to 2026, the global foreign exchange markets remain active despite the holiday-shortened trading week. Though December is typically marked by lower liquidity and calmer markets, this transitional week is watched closely by traders seeking insights into early 2026 economic themes. With major central banks maintaining divergent policy paths and geopolitical uncertainties lingering, several key currency pairs present potentially significant price movements.
This detailed analysis of the forex market, based on both the technical picture and the prevailing macroeconomic backdrop, focuses on the outlook for the following major forex pairs:
– EUR/USD
– GBP/USD
– USD/JPY
– AUD/USD
By understanding both the technical chart formations and the underlying fundamentals at play, traders can gain an advantage as they position themselves for the start of the New Year.
EUR/USD Analysis
The EUR/USD pair enters the final trading days of 2025 consolidating near recent resistance, with euro bulls facing ongoing headwinds from diverging monetary policies between the European Central Bank (ECB) and the U.S. Federal Reserve.
Technical Outlook:
– The EUR/USD has been trading in a gradual ascending channel since late October.
– The 1.1050 resistance level remains a significant barrier. It represents the high from early December 2025 and coincides with the upper bound of the rising channel.
– Support is seen near 1.0850, which aligns with the 50-day EMA and the lower channel trendline.
– A breakout above 1.1050 could open the door to 1.1200, a psychological level and prior resistance from August 2023.
– Conversely, failure to hold above 1.0850 could see a retracement toward the 200-day EMA near 1.0680.
Fundamental Drivers:
– Despite modest euro strength in Q4 2025, the currency remains vulnerable due to uneven inflation across the eurozone and sluggish GDP growth.
– ECB officials have signaled a cautious approach to tightening. Inflation has cooled in some member states, prompting speculation that further rate hikes may be limited in early 2026.
– Meanwhile, the U.S. Federal Reserve has kept interest rates elevated to quell remaining inflation, which has bolstered demand for the dollar.
– The yield differential still favors the U.S. dollar, limiting the euro’s upside.
– Any dovish commentary from the Federal Reserve regarding rate cuts in Q1 2026 could boost the euro.
GBP/USD Analysis
The British pound has been resilient in late 2025, with improved economic data and hawkish comments from the Bank of England (BoE) providing support. However, technical barriers remain, and momentum appears to be fading.
Technical Outlook:
– GBP/USD faced resistance near 1.2750, where a triple-top pattern has formed from late November through December.
– Support rests around 1.2600, which was previously a resistance level and now acts as a potential springboard.
– A break above 1.2750 could send the pair toward 1.2900, while a drop under 1.2600 might trigger a decline toward the 1.2450 zone.
– Short-term RSI and MACD indicators are neutral to slightly bearish, reflecting indecision among traders.
Fundamental Drivers:
– Inflation in the UK has remained persistent, leading the BoE to maintain a hawkish stance into the end of the year.
– Wage growth continues to exceed consumer price inflation, supporting household consumption and delaying talk of rate cuts.
– Brexit-related uncertainty, though reduced in 2025, still weighs on longer-term economic confidence.
– The UK economy achieved growth
Read more on USD/CAD trading.