The Australian dollar rebounds strongly, and the Japanese yen faces intervention pressure【Forex Market Analysis】

Last Week’s Currency Trends Overview

In the past week (12/22-12/26), the US Dollar Index showed a downward trend, declining by 0.67%, benefiting most non-US currencies. Among them, the Australian Dollar’s increase was the most notable, rising 1.63% for the week. The Japanese Yen followed with a 0.74% gain, the British Pound increased by 0.88%, and the Euro also recorded a 0.52% rise.

Euro Hits Recent Highs, Federal Reserve Policy Expectations Are Key

Market Review

EUR/USD briefly broke above 1.1808 last week, creating a three-month high, and ultimately closed the week up 0.52%. The US Q3 GDP growth data was impressive, reaching 4.3%, well above market expectations. However, due to the lagging nature of this data, its impact on easing current employment market concerns was limited, and market expectations for rate cuts remain high.

Policy Expectation Analysis

According to data from the CME FedWatch Tool, the market currently assigns a 62.9% probability to the Federal Reserve starting rate cuts in April next year, with expectations of two cuts in 2026. Liquidity contraction during the Christmas holiday has temporarily increased risk appetite, but the upcoming New Year’s holiday is expected to continue this trend, and the market may remain volatile overall.

Outlook and Technical Analysis

Morgan Stanley offers a divergent view on EUR/USD in 2026: in the first half, driven by Fed rate cuts, narrowing US-EU interest rate differentials will benefit the euro, with a target of 1.23, and in optimistic scenarios possibly reaching 1.30; in the second half, signs of European economic weakening re-emerge, while US economic resilience persists, leading to a forecast of EUR/USD falling back to 1.16.

From a technical perspective, EUR/USD faced significant resistance around 1.18 and pulled back, with the 21-day moving average at 1.17 serving as an important support. If the pair cannot break above 1.18 substantially, downward pressure may increase; conversely, a successful breakout could see resistance around 1.186.

Key Focus This Week

Traders should closely monitor the release of the Federal Reserve meeting minutes and the December PMI data for the US and Eurozone. If signals of rate cuts from the Fed strengthen further, EUR/USD could be pushed higher; otherwise, its upward momentum may be suppressed.

Yen Under Pressure, Government Intervention Struggles to Reverse Depreciation

Weak Rebound of USD/JPY

Last week, USD/JPY declined by 0.74%, mainly driven by overall dollar weakness and rising expectations of Japanese government intervention. On December 22, Japanese Finance Minister Shunichi Suzuki emphasized that recent yen fluctuations lack fundamental support and are clearly speculative in nature, and Japan intends to take necessary measures. This statement quickly boosted market expectations of Japanese authorities stepping in, providing short-term support to the yen.

Medium-Term Trend Analysis

However, analysts from major institutions like JPMorgan Chase and BNP Paribas generally believe that USD/JPY could break through 160 in 2026. The underlying logic is that high interest rate differentials between Japan and the US, along with Japan’s negative real interest rates, are unlikely to improve in the short term, exerting long-term downward pressure on the yen. The consensus is that market interventions alone are unlikely to fundamentally reverse the yen’s depreciation trend unless the Bank of Japan adopts more aggressive monetary policies.

The overnight index swap market indicates that traders expect the next BOJ rate hike to occur in the second half of 2026.

Trading Tips for This Week

Traders should focus on US economic data and Japanese officials’ statements. Due to ongoing intervention expectations, USD/JPY’s upward potential may be limited under intervention risk.

From a technical perspective, USD/JPY is currently above the 21-day moving average, which has served as recent support. A break below this level could see the previous low around 154.3 become the next support zone; if the pair continues to stay above the moving average, a sideways upward movement is more likely, with resistance around 158.

Risk Reminder: The forex market is influenced by multiple factors including policies, data releases, and officials’ speeches. Traders are advised to develop trading strategies based on their own risk tolerance.