Forex News

• EUR/USD eases below 1.1730 from the two-month high at 1.1762 posted on Thursday.
• The increasing monetary policy divergence between the ECB and the Fed keeps the US Dollar on its back foot.
• Technical indicators suggest that Euro bulls are starting to lose steam following the rally of the last two days.

EUR/USD is going through a moderate correction, trading at levels near 1.1720 on Friday after pulling back from more than two-and-a-half months' highs at 1.1762. The pair, broader trend, however, remains bullish with the increasing monetary policy divergence between the European Central Bank (ECB) and the US Federal Reserve (Fed) limiting the US Dollar's (USD) rallies.

The Fed cut rates this week and pointed to one more rate cut in 2026. Investors, however, still expect that the US central bank will ease monetary policy at least two times, considering that Chairman Jerome Powell will likely be replaced by the more dovish-leaning Kevin Hassett. Hasset is the White House economic adviser and has repeatedly shown his inclination for significantly lower borrowing costs.

On the macroeconomic front, German consumer inflation data confirmed that price pressures accelerated in November, although the monthly inflation contracted. In the US, a batch of Fed policymakers will take the stage and might give further insight into the central bank's monetary policy.

Daily Digest Market Movers: US Dollar's weakness keeps Euro dips limited

• The Euro (EUR) continues drawing support from broad-based US Dollar weakness. The USD Index, which measures the value of the Greenback against a basket of six majors, has been trading at two-month lows near 98.00, as investors keep pricing further Fed cuts, while most major central banks are at the end of their easing cycles.
• Data from Germany released on Friday revealed that the Harmonized Index of Consumer Prices (HICP) accelerated to 2.6% in the year to November, from 2.3% in the previous month, while prices fell by 0.5% on the month. These figures confirm the preliminary numbers and, therefore, the impact on the Euro has been minimal.
• In the US, Jobless Claims data released on Thursday showed that first-time applications for unemployment benefits rose by 44,000 in the first week of December, to 236,000. This is the largest increase in more than four years and backs the idea that the Fed will be forced to lower interest rates further to support a deteriorating labour market.
• Later in the day, the focus will shift to Philadelphia Fed President, Anna Paulson, the Cleveland Fed President, Beth Hammack, the Chicago Fed President, Austan Goolsbee, and Kansas City Fed President, Jeff Schmid, who will make public comments during the American trading hours.

Technical Analysis: EUR/USD pulls back from overbought levels

The EUR/USD is correcting lower following a nearly 1.2% rally over the last two days that had pushed technical indicators into overbought levels. The 4-Hour Relative Strength Index (RSI) is at 63 after having hit highs past 70, and the Moving Average Convergence Divergence (MACD) indicator has turned flat, indicating a weaker bullish momentum.

Bears are now testing support at the October 17 high near 1.1730. Beyond here, Thursday's low, at the 1.1680 area, and the December 9 low at 1.1615 will come into focus. To the upside, Thursday's high at 1.1762 and the October 1 high at around 1.1780 are likely to challenge bulls. Further up, the target is the September 23 and 24 highs near 1.1820.

USD/JPY trades offered but lacks follow-through, as markets near full pricing of a 25bps BOJ hike on 19 December. Near-term support lies at 155.10–153.90, while any meaningful JPY recovery would require stronger guidance from the BOJ, fiscal prudence, and a softer USD. Pair was last seen around 155.98 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

USD/JPY is likely to consolidate in the interim

"USD/JPY continued to trade with an offered tone but seems to lack follow-through to test much lower. To be fair, markets have already come close to fully pricing in a BOJ hike on 19 Dec MPC."

"Mild bearish momentum on daily chart intact while decline in RSI moderated. We may see some consolidation in the interim. Support at 155.10, 154.40 (76.4% fibo retracement of 2025 high to low), 153.90 (50 DMA). Resistance at 156(21 DMA), 157 and 158.87 (previous high in 2025)."

"We believe USD/JPY is going into BOJ meeting looking for clues about 2026 not just about Dec meeting outcome. And we reiterate that any meaningful recovery in JPY would require not just the BOJ to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence and for the USD to stay soft."

USD recovered some of yesterday’s losses and trading close to the middle of its range in place since June. The MSCI All Country World Index rallied to a record high yesterday underpinned by Fed easing and resilient global economic activity. USD has room to edge down to the lower-end of its range as it converges towards the level implied by US-G6 rate differentials, BBH FX analysts report.

Fed reappointments highlight continuity

"The Federal Reserve Board of Governors unanimously reappointed 11 of the 12 regional Fed presidents to new five-year terms which begins on March 1, 2026. Atlanta Fed President Raphael Bostic previously announced he would retire at the end of his term on February 28, 2026. The reappointments underscore institutional continuity, and ease worries about political interference at the Fed."

"Philadelphia Fed President Anna Paulson (2026 FOMC voter) speaks on the economic outlook. Paulson leans cautiously dovish. In her last November 20 speech, she noted 'On the margin, I’m still a little more worried about the labor market than I am about inflation'. Staunch hawk Cleveland Fed President Beth Hammack (2026 FOMC voter) speaks half-an-hour later, followed by Chicago Fed President Austan Goolsbee (2025 FOMC voter). Goolsbee voted to keep rates on hold at this week’s FOMC meeting."

"In our view, the Fed will deliver more than the one cut it has penciled in for next year. US labor demand is weak and upside risks to inflation are not martializing. Next week is key with November non-farm payrolls and CPI on deck. Fed funds futures fully price-in 50bps of total easing in the next twelve months."

• USD/JPY rebounds to near 156.00 even as the BoJ is expected to raise interest rates next week.
• BoJ’s Ueda stated last week that there is uncertainty on how much the central bank can raise interest rates further.
• This week, the Fed lowered interest rates by 25 bps to 3.50%-3.75%.

The USD/JPY pair snaps a two-day losing streak and rebounds to near 156.00 during the European trading session on Friday. The pair attracts bids as the Japanese Yen (JPY) underperforms across the board, despite traders remaining confident that the Bank of Japan (BoJ) will raise interest rates in its monetary policy meeting next week.

The major reason behind firm BoJ hawkish bets is expectations that inflation in Japan is on tract to return sustainably to the 2% target.

Last week, BoJ Governor Kazuo Ueda stated that the central bank will continue raising interest rates, however, there is “uncertainty on how far we can eventually raise them”.

The pair recovers even as the US Dollar (USD) is under pressure since the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. In the policy meeting, the Fed reduced interest rates by 25 basis points (bps) to 3.50%-3.75% and signaled that there will be one more in 2026. Contrary to Fed’s outlook, investors anticipated before the policy outcome that the Fed will signal no further interest rate cuts.

Going forward, investors will focus on the United States (US) Nonfarm Payrolls (NFP) data for November, which will be released on Tuesday. On the same day, investors will also focus on the Retail Sales data for November and preliminary S&P Global Purchasing Managers’ Index (PMI) data for December.

Investors will closely monitor the employment data to get cues about the current status of labour demand.

Following the Federal Open Market Committee (FOMC) meeting, the US Dollar (USD) softened broadly while risk proxies, non-USD currencies, precious metals, and even crypto assets saw constructive moves. DXY last seen around 98.46 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risk assets and precious metals gain

"Post-FOMC market reaction has remained constructive for risk proxies, precious metals, non-USD FX and even crypto assets while USD traded broadly softer. We continue to expect USD to trade moderately softer as Fed easing erodes carry advantage while US exceptionalism fades."

"We reiterate that non-USD FX (especially those central banks likely to be on extended hold or seen as chance of a hike next year.. i.e. EUR, AUD, NZD and JPY) should continue to trade better bid as FOMC event risk fades."

"Bearish momentum on daily chart intact for now while RSI fell closer to oversold conditions. Support at 98.10, 97.60 (23.6% fibo). Resistance at 98.40/60 levels (100 DMA, 38.2% fibo), 99.10/30 levels (21, 50, 200 DMAs, 50% fibo retracement of May high to Sep low) and 99.80 levels (61.8% fibo)."

The Central Bank of Turkey (CBT) surprised markets with a 150bp cut to the policy rate, lowering it to 38% as headline inflation for November came in better than expected, ING's FX analyst Frantisek Taborsky notes.

Future Turkish rate moves to remain data-dependent

"At the last rate-setting meeting of this year, the Central Bank of Turkey delivered a larger rate cut of 150bp in comparison to the more cautious 100bp reduction at the October MPC. This followed a better-than-expected reading on headline inflation for November. The consensus was evenly balanced between 100bp and 150bp ahead of the meeting. The move pushes the policy rate down to 38% from 39.5% while the interest corridor remains unchanged at 450bp."

"While the bank emphasised that future rate decisions will remain data-driven and assessed on a meeting-by-meeting basis, it provided little clarity regarding near-term rate actions."

"In this context, inflation expectations, the outcome of the 2026 minimum wage negotiations, and the anticipated adjustment to automatic tax rates – promised by Finance Minister Mehmet Simsek – will be key for the outlook, alongside considerations regarding dollarisation and reserve levels, in our view."