EUR / USD
EUR/USD is navigating a nuanced macro backdrop, shaped primarily by diverging monetary policy trajectories between the Federal Reserve and the European Central Bank. Softer US inflation, with headline CPI easing to 2.7% in November, has reinforced expectations for Fed rate cuts in 2026, while the ECB has maintained a firmer stance, holding its deposit rate at 2.00% for a fourth consecutive meeting.
Upgraded ECB growth and inflation projections underline a greater resistance to easing relative to the Fed, providing fundamental support for the euro. From a technical standpoint, the pair remains underpinned above key moving averages, including the 200-day SMA near 1.16, signalling underlying strength. However, an RSI reading of 64 points to moderately overbought conditions, suggesting some caution is warranted near current levels.
Near term, the technical focus rests on the 1.171 area. A sustained hold above this level would keep the path open towards 1.180, while a break lower could prompt a corrective move back towards the 30-day VWAP around 1.16. Looking further ahead, the growing perception that the ECB may consider rate hikes rather than cuts in 2026, in contrast to a more accommodative Fed, is likely to remain a key directional driver.
USD / JPY
USD/JPY continues to trade with a firm tone, holding above its key moving averages, including the 200-day SMA at 148.8 and the 50-day SMA at 154.9, despite the Bank of Japan’s recent 25bp rate increase to 0.75%.
Yen weakness persists largely due to the still-wide interest-rate differential between the US and Japan. Even after the latest hike, Japanese rates remain deeply negative in real terms, limiting the immediate impact of policy normalisation. Technically, the pair retains upside potential, with a break above resistance at 157.7 exposing the yearly high at 158.5.
Near-term direction is likely to be shaped by Governor Ueda’s guidance on the neutral rate path, estimated at between 1.0% and 2.5%. Until there is clearer evidence of a sustained tightening trajectory, price action suggests USD/JPY remains biased to the upside, supported by carry dynamics.
GBP / USD
GBP/USD has experienced heightened volatility following the Bank of England’s decision to cut rates from 4.00% to 3.75%, with the narrow 5–4 vote highlighting increasing divisions within the MPC. The pair moved sharply higher, reaching 1.344 intraday, supported by softer-than-expected US inflation, which printed at 2.7% against a 3.1% forecast.
Technically, the pair is consolidating between key moving averages, with support around the 20-day moving average near 1.33 and resistance at the 200-day moving average close to 1.34. Ongoing structural weakness in sterling, alongside uncertainty surrounding the finalisation of US–UK trade negotiations, continues to temper upside enthusiasm.
The technical outlook remains mixed. RSI at 62 indicates moderate bullish momentum, while a sustained break above 1.344 would strengthen the case for a move towards 1.35. On the downside, failure to hold above 1.33 would bring the 1.30 level back into focus. Near-term price action is likely to be guided by upcoming UK retail sales and public sector finance data.
