EUR / USD
EUR/USD weakened on the back of a stronger dollar, as US weekly jobless claims declined unexpectedly, suggesting ongoing strength in employment. This prompted the pair to reach the 1.1600 support area – a monthly low. The combination of firmer growth signals and upbeat earnings appears to be stalling the more dovish pricing that had crept into markets earlier in the month, with the forward swaps now pricing 48bps worth of cuts from the Fed for 2026.
From a technical perspective, EUR/USD has declined from approximately 1.164 to 1.161, with the RSI reading of 34 indicating approaching oversold conditions. The pair currently holds just above critical support near 1.16, with elevated volume during the selloff suggesting strong conviction behind the downward move.
The eurozone's fragile recovery, hampered by manufacturing weakness and structural challenges including German fiscal concerns, limits the euro's upside potential despite stabilizing growth data. Base case scenarios anticipate euro strength emerging only in the second quarter as eurozone fiscal stimulus gains traction and growth differentials begin narrowing, though near-term risks remain skewed to the downside should the 1.1600 support level fail.
USD / JPY
USD/JPY is navigating a complex environment shaped by the snap election scheduled for February, which could be a critical catalyst for directional movement, with markets pricing in a yen-weakening scenario should Prime Minister Sanae Takaichi secure a mandate to pursue expansionary fiscal policies.
This political uncertainty compounds existing concerns about Japan's unprecedented 230% debt-to-GDP ratio, creating an unusual disconnect where rising Japanese government bond yields at multi-decade highs have failed to support the yen. The Ministry of Finance has established 160 as a critical intervention threshold, with repeated verbal warnings constraining the pair's upside while simultaneously creating two-way volatility risk.
From a technical perspective, USD/JPY is trading well above key support levels, with the 20-day and 50-day moving averages clustered around 156-157, while facing resistance at the recent six-month high near 159. The daily RSI reading of 64.5 indicates moderately bullish momentum without reaching overbought territory, suggesting the uptrend driving the pair's gains over the past six months remains intact. However, upside potential is constrained by Japanese authorities' heightened vigilance against excessive yen depreciation, with the Ministry of Finance warning against "one-sided" weakness and maintaining intervention readiness near critical levels around 160 and above.
GBP / USD
The pound remains under pressure against the dollar, driven primarily by the dollar's strength. Both central banks are expected to implement approximately 40bps worth of cuts in 2026; however, the BOE is expected to do so in the beginning of Q2 2026, while the Fed is expected to remain on hold until July, creating fundamental pressure on sterling’s upside. Although November's UK GDP expansion of 0.3% exceeded forecasts, the growth was largely attributable to normalized Jaguar Land Rover production rather than genuine demand momentum, masking underlying economic fragility.
From a technical perspective, GBP/USD has declined to approximately 1.338, trading below critical levels including the 20-day SMA at 1.3465 and the 200-day SMA at 1.3406, while the daily RSI reading of 44 indicates weakening momentum. The pair faces a pivotal juncture, with nearby support at 1.333 representing a key defensive level for bulls, while a decisive break below could open the path toward deeper support near 1.304.
Next week's UK inflation data and employment figures will be critical determinants of whether the fundamental backdrop can shift, though the current outlook remains tilted toward continued sterling depreciation unless economic data surprises materially to the upside.
