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US Dollar (USD) is likely to trade between 7.0620 and 7.0740. In the longer run, outlook for USD remains negative; the next level to watch is 7.0400, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Likely to trade between 7.0620 and 7.0740

24-HOUR VIEW: "We expected USD to 'trade between 7.0600 and 7.0745' last Friday. USD subsequently traded in a narrower range than expected (7.0629/7.0714), closing unchanged at 7.0712. Momentum indicators are mostly flat, and we continue to expect USD to trade in a range, most likely between 7.0620 and 7.0740."

1-3 WEEKS VIEW: "We turned negative on USD early last week. In our latest narrative from last Thursday (04 Dec, spot at 7.0565), we indicated that “the outlook for USD remains negative, and the next level to watch is 7.0400.” Although USD has not been to make further headway on the downside, we will maintain the same view as long as 7.0770 (no change in ‘strong resistance’ level) remains intact."

The US Dollar (USD) is mixed this morning, consolidating just above last week’s lows as investors await the New York Fed’s November survey of consumer expectations, BBH FX analysts report.

Consumer expectations survey in focus for Dollar sentiment

"USD is mixed and consolidating just above last week’s lows. The New York Fed November survey of consumer expectations is today’s highlight. "

"US inflation expectations are anchored around 3% and leaves room for the Fed to ease policy. Pay attention to the survey’s 'mean probability of losing a job'. Greater job insecurity will push households toward higher savings and constrain consumer spending activity."

• The Indian Rupee slides to near 90.50 against the US Dollar as FIIs continue to offload stake in the Indian equity market.
• The RBI cuts its Repo Rate by 25 bps to 5.25%.
• Investors expect the Fed to announce a hawkish cut on Wednesday.

The Indian Rupee (INR) trades lower against the US Dollar (USD) at the start of the week. The USD/INR pair jumps to near 90.50 as the Indian Rupee continues to underperform due to the continuous outflow of foreign funds from the Indian stock market, and a dovish monetary policy announcement by the Reserve Bank of India (RBI) on Friday.

So far in December, Foreign Institutional Investors (FIIs) have remained net sellers on each trading day, and have offloaded shares worth Rs. 10,403.62 crore. FIIs also remained net sellers in the last five months on a net basis.

Trade frictions between the United States (US) and India have remained a key concern behind FIIs' consistent selling in the Indian equity market. Analysts at MUFG have predicted that the Indian Rupee could depreciate further to near 92.00 against the US Dollar if a US-India bilateral deal doesn’t strike in the coming months.

On Friday, the RBI cut its Repo Rate by 25 basis points (bps) to 5.25%, as expected, and announced Open Market Operations worth Rs. 1 lakh crore and a three-year USD/INR swap of $5 billion. The RBI assured that both the headline and the core Consumer Price Index (CPI) could rise to 4% in Financial Year (FY) 2026-27. Taking strong cues from the Q3 Gross Domestic Product (GDP) data, the RBI has raised growth projections for the current fiscal year to 7.3% from 6.8%.

This week, investors will focus on the retail CPI data for November, which will be released on Friday. Inflation at the retail level grew by 0.25% in October on an annualized basis.

Daily digest market movers: Investors await Fed's interest rate decision, dot plot

• The Indian Rupee trades lower against the US Dollar on Monday, even as the latter trades with caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to hold its over five-week low of 98.75 posted on Thursday.
• According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
• The odds of a December interest rate cut are high due to soft job market conditions. The major catalyst behind the recent surge in Fed dovish expectations was support for easing monetary conditions by New York Fed Bank President John Williams in late November.
• As traders are confident of a Fed interest rate cut on Wednesday, the major trigger for the US Dollar’s outlook will be monetary policy guidance for 2026. It is likely that the Fed will call for a pause in the monetary-easing cycle as inflationary pressures have remained well above the 2% target for a longer period.
• Investors will also focus on the Fed’s dot plot, which shows where policymakers see the Federal Funds Rate heading in the medium and longer term.
• Market participants would also like to know the current status of the labor market and inflation amid the absence of the latest Nonfarm Payrolls (NFP) and the inflation data.

Technical Analysis: USD/INR holds key 20-day EMA

USD/INR trades at 90.50 as of writing. The 20-day Exponential Moving Average (EMA) is rising and the pair holds above it, reinforcing a bullish short-term trend.

The 14-day Relative Strength Index (RSI) at 70.61 is overbought, pointing to stretched momentum. Initial support sits at the 20-day EMA at 89.54, while a clean break of all-time highs around 90.70 would open the door to further gains.

With price action tracking above a rising average, dip-buying remains favored in the near term. A pause or mild pullback could relieve overbought conditions without damaging the broader advance. Should the daily close slip beneath the 20-day EMA, the bias would shift toward consolidation; maintaining the current stance would keep the upside path in play.

After disappointing in October, Chinese exports returned to their growth path in November, rising again by 5.9% year-on-year. Exports in November were therefore not slowed down by the fact that the USD/CNY had recently fallen, reaching its lowest level since last summer – which means a stronger Chinese Yuan (CNY), Commerzbank's FX analyst Volkmar Baur notes.

Producer price deflation keeps China’s real CNY competitive

"In the current quarter, the CNY has even gained against all G-10 currencies so far and is only behind a handful of major currencies such as the South African rand and the Malaysian ringgit. One reason why this nominal appreciation of the CNY does not seem to be weighing on exports could be provided by the data to be released on Wednesday: the inflation figures."

"Despite the nominal appreciation of the CNY, the real CNY still looks somewhat different. Inflation, especially on the producer side, is still very low in China, which continues to benefit Chinese exporters despite a slight nominal appreciation of the CNY."

"For example, producer prices fell by 2.1% over the last 12 months, while they rose by 2.7% in the US. With an unchanged exchange rate, this development alone would therefore mean a cost advantage of around 5%. In real terms, the CNY therefore continues to weaken, still offering exporters a favourable environment."

• Euro recovery attempt against the Pound remains capped below 0.8750.
• Upbeat German Industrial Production and Eurozone sentiment figures have failed to boost the Euro.
• The Pound maintains a moderately bid tone with BoE speakers on tap.

The Euro is picking up from six-week lows around 0.8725 on Monday, but remains capped below a previous support area at 0.8750 so far. A mild improvement in Eurozone investors’ sentiment and the unexpected increase in German Industrial Production have failed to provide any significant support to the Euro.

The Eurozone Sentix Investors’ Sentiment Index picked up to -6.2 in December from -7.4 in November, according to figures released earlier on Monday. The Current Situation Index has risen to -16.5 from -17.5 in the previous month, while the Economic Expectations Index has shown the largest improvement to a reading of 4.8, from 3.3 in November.

Earlier in the day, data from Destatis revealed that German Industrial Production grew 1.8% in October, against the market consensus, which had anticipated a 0.4% contraction, and following a 1.1% rise in September. 

Also on Monday, ECB Executive Board member Isabel Schnabel affirmed that she feels comfortable with investors' bets that the central bank's next move will be a rate hike, as, in her opinion, the economy “has been much more resilient than could have been expected.” Later on, ECB member and Bank of Finland Governor Olli Rehn took a more neutral stance, calling for a “meeting by meeting” approach.

In the UK, the calendar has been void during the London session, which keeps the GBP on a mildly positive trend against most of its peers. Investors' relief triggered by the UK’s tax-rising budget is still in play, ahead of the speeches of Bank of England officials Alan Taylor and Clare Lombardelli, due later on the day.  

US Dollar (USD) is likely to trade in a range between 154.80 and 155.80. In the longer run, for a sustained decline, USD must first close below 154.65, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

A sustained decline may appear below 154.65

24-HOUR VIEW: "USD fell to 154.49 last Thursday and then rebounded. When USD was at 155.15 on Friday, we indicated that 'there is room for USD to rebound further, but any advance is likely part of a higher range of 154.65/155.60'. The subsequent price movements did not turn out as expected. USD dropped sharply, but briefly, to 154.32 before rebounding to close higher by 0.17% at 155.34. The brief drop did not result in any increase in downward momentum. Today, we expect USD to trade in a range, most likely between 154.80 and 155.80."

1-3 WEEKS VIEW: "In our most recent narrative from last Thursday (04 Dec, spot at 155.20), we highlighted that 'for a sustained decline, USD must first close below 154.65'. On Friday, USD briefly dropped to 154.32 and then rebounded to close at 155.34 (+0.17%). There has been no increase in downward momentum, and our view remains unchanged for now."

Although the major US labour market report was not published on Friday, figures from Canada were released. With roughly 53,000 jobs added in November, the figures were positive once again. As in the previous month, economists surveyed by Bloomberg had expected a slight decline in employment, only to be disappointed once again. Over the past three months, the Canadian economy has created roughly 180,000 jobs, following several months of weak performance, Commerzbank's FX analyst Volkmar Baur notes.

BoC likely to keep rates steady after positive jobs report

"Economists had also expected the unemployment rate to rise slightly to 7%, but it declined significantly to 6.5%. This is partly due to the lower-than-expected participation rate, but also because the labor supply has been growing more slowly for several months. Following the pandemic, there were enormous increases in labor supply, but a shift in policy towards stricter immigration rules has normalized this situation. Consequently, stronger job growth is reflected more quickly in a lower unemployment rate than in 2023/24."

"Unsurprisingly, the Canadian dollar has benefited significantly from these figures. After three months of such positive surprises, it is becoming increasingly difficult to consider this an outlier. Rather, the labor market seems to be indicating that the US tariff shock has been absorbed. It is also helpful that the 10 percentage point increase in US tariffs, announced by the US President following a TV advertisement by the Canadian province of Ontario, has not yet been implemented."

"Prior to the Bank of Canada's (BoC) latest decision in response to the initial positive labor market report, we advocated a wait and see stance, but at that time, the BoC opted for another interest rate cut. However, for the next meeting on Wednesday, there are many indications that interest rates will remain at 2.25%. Decision-makers may even signal that the key interest rate is likely to remain unchanged for the foreseeable future. In such a scenario, the Canadian dollar (CAD) could strengthen again, even though expectations of interest rate hikes in the coming year are already looking optimistic."

There is scope for New Zealand Dollar (NZD) to test 0.5800 before the risk of a pullback increases. In the longer run, the price action continues to suggest a higher NZD; the levels to watch are 0.5800 and 0.5835, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Price action continues to suggest a higher NZD

24-HOUR VIEW: "We expected NZD to 'trade between 0.5745 and 0.5775' last Friday. However, NZD rose to a high of 0.5787. Despite advancing, NZD has not gained much momentum. That said, there is scope for NZD to test 0.5800 before the risk of a pullback increases. On the downside, support levels are at 0.5765 and 0.5755."

1-3 WEEKS VIEW: "We have expected a higher NZD since late last month. In our most recent narrative from last Thursday (05 Dec, spot at 0.5760), we stated that 'the price action continues to suggest a higher NZD'. We pointed out that 'the levels to watch are 0.5800 and 0.5835'. We will maintain the same view as long as 0.5735 (‘strong support’ level was previously at 0.5725) is not breached."

The Reserve Bank of Australia (RBA) is widely expected to keep interest rates unchanged, with markets already pricing in the decision ahead of tomorrow’s announcement. Despite a higher-than-expected inflation print in November, the RBA is unlikely to signal any imminent rate hikes, potentially limiting further Australian Dollar (AUD) gains, Commerzbank's FX analyst Michael Pfister notes.

AUD bulls may face disappointment

"Early tomorrow morning (European time), the Australian central bank (RBA) will announce its final interest rate decision of the year. All the economists surveyed by Bloomberg expect interest rates to remain unchanged. Decision-makers already rejected the idea of a further interest rate cut in November, and not much has changed since then. Instead, the first full monthly inflation report came as a further surprise on the upside, moving further away from the upper limit of the 2-3% target range at 3.8% year-on-year."

"The actual interest rate decision is likely to have been fully priced in, given current expectations. However, it is questionable whether there will be any indications in the coming months that would support expectations of interest rate hikes in the next year. These expectations only really emerged last month and were certainly one of the factors behind the higher AUD/USD levels."

"Nevertheless, we do not expect the central bank to signal a rate hike more clearly tomorrow, given that it recently still delivered rate cuts. You never know, but that would be an extremely quick turnaround for a G10 central bank. Some AUD bulls could therefore be disappointed tomorrow, which would hurt the Aussie."

• The Eurozone Sentix Index improves slightly in December, while the ECB’s Isabel Schnabel strengthens growth expectations.
• The unexpected rebound in Germany’s Industrial Production in October supports the Euro.
• The JPY weakens after Japan’s Q3 GDP is revised lower, even as rising wages maintain expectations of a BoJ rate hike.

EUR/JPY trades around 181.10 on Monday, up 0.15% at the time of writing, as fundamental momentum turns more favorable for the Euro (EUR) at the start of the week. Investors are reacting to a series of encouraging indicators from the Eurozone, contrasting with a more complex environment for the Japanese Yen (JPY), caught between a weakening economy and rising expectations of monetary tightening.

The Euro (EUR) receives initial support from the modest improvement in the Eurozone Sentix Investor Confidence Index, which rose to -6.2 in December from -7.4 in November. The Current Situation index also improved to -16.5, while Expectations strengthened significantly to 4.8, signaling a less pessimistic economic outlook.

This recovery comes as comments from European Central Bank (ECB) Executive Board member Isabel Schnabel reinforced the idea that growth forecasts could be revised higher at the December meeting. Schnabel said she feels “comfortable” with markets pricing the next ECB move as a rate hike, giving the Euro an immediate boost.

A stronger-than-expected rise in German Industrial Production further supported the currency. Output increased by 1.8% in October, beating expectations of a 0.4% contraction, after a 1.1% rise in September. These figures help ease concerns about the momentum of the region’s largest economy and tend to add upward pressure on EUR/JPY.

In Japan, the picture is more mixed. Gross Domestic Product (GDP) for the third quarter was revised down to -0.6% from -0.4%, pointing to a deeper contraction. On an annualized basis, the economy shrank 2.3%, its sharpest drop since Q3 2023, weakening the Japanese Yen by raising doubts about Japan’s ability to absorb rapid monetary tightening.

Still, stronger-than-expected growth in nominal wages, up 2.6% in October, continues to fuel speculation of a Bank of Japan (BoJ) rate hike at the December meeting. Persistent wage gains, even in a weakening economy, support the idea that the conditions for policy normalization are gradually taking shape.

At the same time, Japanese Government Bond (JGB) yields remain near multi-year highs, supported by market speculation and by the expansionary fiscal stance of Prime Minister Sanae Takaichi’s government. This environment limits the scale of Japanese Yen depreciation, even if the currency remains under pressure against the Euro.

EUR/JPY Technical Analysis

In the 4-hour chart, EUR/JPY trades at 181.10, little changed on a daily basis, down 1 pip from the day open. The 100-period Simple Moving Average (SMA) rises to 180.66, with price holding above it, which suggests buyers retain control. The SMA’s upward slope reinforces a bullish bias. The Relative Strength Index (RSI) stands at 56, above the neutral 50 line, indicating firm momentum.

A descending trend line from 182.01 caps gains, with immediate resistance at 181.27. On the downside, the rising trend line from 179.78 supports near 180.16. Horizontal support appears at 178.98. A close above the trend barrier could extend the recovery, while a drop through the rising support would open the way to a deeper pullback.

(The technical analysis of this story was written with the help of an AI tool)