Created on January 05, 2026

• The British pound rallied a bit on Friday but cannot seem to hang onto gains against the USD.

GBP/USD

The British pound rallied a bit during the early hours on Friday to test the 1.35 level yet again. This is an area that has been important multiple times, and I think it is worth watching very closely.

The market is likely to continue to see a lot of noise in this general vicinity with the possibility of breaking out to the upside. Breaking out to the upside opens up a move to the 1.37 level.

A breakdown from here, breaking below the hammer from the Wednesday session, could open up a test of the 50-day EMA, possibly even the 200-day EMA underneath there. All things being equal, I think this is a market that is trying to find the momentum to break out, but it just can’t seem to get over this 1.35 level.

Market Outlook and Volatility

We will probably make a more profound statement sometime later next week, but in the meantime, I think you have got a lot of choppy short-term back-and-forth trading ahead. I don’t like the idea of getting too heavily involved in the market at the moment, mainly due to the fact that liquidity and volume are still issues, and of course, we don’t really have momentum to deal with.

By the end of next week, though, I do anticipate that we probably have a real shot at some type of movement. I do think that the end of next week, with the jobs numbers coming out of the United States, could give you a little bit of momentum in this pair.

Between now and then, we are probably going to be very jittery and choppy, and with that, I look to short-term charts more as a range-bound trader as it continues to offer short-term opportunities, perhaps on something like the 15.

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Created on January 05, 2026

The US dollar initially jumped against the yen on Friday, but it is worth noting that the markets are still paying you to hold this pair to the long side.

USD/JPY

The US dollar initially did rally a bit during the trading session here on Friday, but we have given some of that back. It isn’t a huge surprise, nor do I think it really matters because, quite frankly, Friday is essentially a throwaway day as most traders won’t even be bothered trading until Monday at the earliest.

That being said, we are in the middle of consolidation, so the fact that we went up early and then turned around later in the same session really doesn’t surprise me. This is a market that continues to see the 158 yen level above offer resistance while 155 yen starts the floor. We have the 50-day EMA sitting right there as well, but I think the floor is a little thick here and therefore short-term dips almost certainly offer opportunities.

Market Sentiment and Outlook

If we can break above 158 yen, and I do expect that to happen eventually, we go looking to the 160 yen level. On a breakdown below the 50-day EMA, then the 153 yen level could be targeted for support.

I do expect to see a lot of choppy and erratic behavior, but over the longer term, this is a market that I think continues to be bullish mainly due to the fact that the Bank of Japan cannot tighten monetary policy seriously, and you will continue to get paid to hold onto this pair to the long side at the end of every session.

Granted, that interest rate differential might shrink a bit, and it takes away some of the momentum, but as things stand right now, I don’t see any reason to get short, at least not unless there’s some type of external shock that really throws a monkey wrench into risk appetite.

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Created on January 05, 2026

The EUR/USD pair ended the week in the red last week as many investors remained in a holiday mood. It was trading at 1.1720, down slightly from last year’s high of 1.1910 ahead of key events this week.

US Non-Farm Payrolls Data

The EUR/USD exchange rate will likely be volatile this week as investors react to the upcoming US Non-Farm Payrolls (NFP) data, which are scheduled on Friday.

The report is expected to show that the American economy added over 55k jobs in December after adding 64k in the previous month. Most notably, the report is expected to show that manufacturing jobs continued falling, mostly because of Donald Trump’s tariffs.

Economists expect the upcoming report to show that the unemployment rate dropped to 4.5% in December from the previous 4.6%. The unemployment rate has jumped in the past few months because of Donald Trump’s policy to purge thousands of government workers.

The upcoming jobs report comes a week after the Federal Reserve published minutes of the last monetary policy meeting. These minutes showed that most officials hinted that they were supportive of interest rate cuts if the country’s inflation continues falling.

The EUR/USD pair will also react mildly to the weekend events in which Donald Trump invaded Venezuela, took its leader, and charged him in a New York court. While Venezuela has vast oil resources, the amount of oil it ships to other countries is relatively lower than other countries.

The other major catalysts for the EUR/USD pair will be the upcoming macro data from Europe and the United States. For example, the ISM will publish the latest manufacturing PMI numbers, which will provide more data on the state of the sector.

Also, Eurostat will release the latest consumer price index (CPI) data on Wednesday, which will provide more information about the state of inflation and hints on what to expect from the European Central Bank.

EUR/USD Technical Analysis

The weekly chart shows that the EUR/USD pair has remained in a tight range in the past few weeks. It was trading at 1.1720 on Friday, down slightly from last month’s high of 1.1806.

The pair has remained slightly above the 50-week and 25-week Exponential Moving Averages (EMA), a sign that the bullish trend will continue. It has also remained above the Supertrend indicator.

However, a closer look shows that it has formed a double-top pattern at 1.1800 and a neckline at 1.1466. It also remains at the ultimate resistance level of the Murrey Math Lines tool.

Therefore, there is a likelihood that the pair will retreat this week as investors price in geopolitical risks. If this happens, it may drop to the key support level at 1.1600. A move above the resistance at 1.1800 will invalidate the bearish outlook.

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No news for GBPJPY pair until this moment due to its stability below 211.30 barrier, which forces it to provide new sideways fluctuated moves and delay the bullish rally in the current trading.

There are a chance for forming bearish corrective waves to target 210.40 level, reaching extra support near 209.70, while breaching the current barrier and holding above it, will provide a chance for a new bullish waves, to record extra gains by its rally towards 212.50 reaching the bullish channel’s resistance at 213.55.

The expected trading range for today is between 209.30 and 211.30

Trend forecast: Fluctuated within the bullish trend

US ISM Manufacturing PMI and Fed Speakers in Focus

Later on Monday, US private sector PMI figures are likely to influence demand for the US dollar and the USD/JPY pair. Economists forecast the ISM Manufacturing PMI to increase from 48.2 in November to 48.3 in December.

Typically, a less pronounced contraction, rising employment, and higher prices support a less dovish Fed policy stance, which would lift demand for the US dollar. While the sector accounts for around 10% of the US GDP, the underlying PMI data provide insights into the effect of tariffs and the higher interest rate backdrop on prices.

Last week, the less influential S&P Global US Manufacturing PMI revealed that tariffs continued to drive prices higher, suggesting a more hawkish Fed policy stance. However, the ISM Services PMI, due out on January 7, will be key, given that the sector accounts for roughly 80% of US GDP and is the key inflation contributor.

While the PMI data will influence US dollar demand, Fed commentary remains key for USD/JPY trends. Increased calls to cut rates to bolster the labor market would dampen demand for the US dollar, pushing USD/JPY lower.

According to the CME FedWatch Tool, the probability of a March Fed rate cut increased from 51.1% on January 2 to 54.0% on January 3.

Looking ahead, expectations of further BoJ rate hikes, a new Fed Chair, potentially favoring lower rates, and a cooling US labor market remain key drivers. These scenarios continue to support a bearish short- to medium-term outlook for USD/JPY.

Technical Outlook: USD/JPY on a Downward Trajectory

For USD/JPY price trends, technicals, and fundamentals will continue to require close monitoring.

Looking at the daily chart, USD/JPY traded above its 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias. While technicals remained bullish, bearish fundamentals are developing, outweighing the technical structure.

A break below the 155 support level and the 50-day EMA would indicate a bearish near-term trend reversal. A sustained fall through the 50-day EMA would expose the 200-day EMA. If breached, 150 would be the next key support level.

Crucially, a sustained fall through the 50-day and 200-day EMAs would reinforce the bearish price outlooks for USD/JPY.

I wrote on the 28^th December that the best trades for the week would be:

1. Long of the S&P 500 Index. This gave a loss of 1.12%.
2. Long of Silver with a quarter of the normal position size. This gave a loss of 2.72%.
3. Long of Platinum a quarter of the normal position size. This gave a loss of 3.46%.
4. Long of Gold with half the normal position size. This gave a loss of 2.32%.
5. Long of Palladium with a quarter of the normal position size. This gave a loss of 4.62%.

Overall, these trades gave a large loss of 14.24% (2.85% per asset), although this was less than the previous week’s amazing gain of 22.41%.

A summary of last week’s most important data:

1. US FOMC Meeting Minutes – this showed that the decision to cut rates last month was closer than expected, giving a very small hawkish tilt to future rates expectations. However, the CME FedWatch tool shows only two cuts are expected next year, as was the case at the start of last week.
2. US Unemployment Claims – a slightly lower number than was expected.

Last week’s data had very little impact on the markets.

Of course, last week saw the New Year holiday and as such markets were partially closed or mostly quiet with relatively thin liquidity.

The item which will dominate the news as we enter the new week is the American military action in Venezuela which has overthrown the Maduro regime – Maduro is now under arrest and facing potential criminal charges in New York. From the few weekend markets that exist, despite a lot of condemnation of the move, stock markets and risky assets are responding with minor positivity. This development might have the greatest effect in the WTI Crude Oil market, where prices are already low, and may now fall further. Venezuela is a major oil producer, and its oil exports were sanctioned by the USA. The new President is a supporter of the Maduro regime and it remains to be seen whether Venezuela now orients towards a more US-friendly position – in her initial comments, she says “we will not be slaves”, but what she will actually do remains to be seen.

The coming week will finally see the world fully back online with strong liquidity, as the Christmas / New Year holiday finally comes to an end in the West.

New years often start with choppy trading and confusing trend reversals, so it can be a challenging time to trade.

This week’s most important data points, in order of likely importance, are:

1. US Average Hourly Earnings
2. US Preliminary UoM Inflation Expectations
3. US Non-Farm Employment Change
4. US JOLTS Job Openings
5. US Preliminary UoM Consumer Sentiment
6. US ISM Services PMI
7. US ISM Manufacturing PMI
8. Australian CPI (inflation)
9. Swiss CPI (inflation)
10. US Unemployment Rate
11. US Unemployment Claims
12. Canada Unemployment Rate

Tuesday is a public holiday in Italy.

Currency Price Changes and Interest Rates

For the month of December 2025, I made no forecast.

For the month of January 2026, I forecast that the USD/JPY currency pair will rise in value.

Last week, I made no forecast, as there were no recent excessive moves in currency crosses. I again make no forecast, as low volatility persists.

The US Dollar was the strongest major currency last week, while the New Zealand Dollar was the weakest. Directional volatility fell again last week, with only 4% of all major pairs and crosses changing in value by more than 1%.

Next week’s volatility will be considerably higher.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support and Resistance Levels

Last week, the US Dollar Index printed a bullish inside bar and closed quite near the high of its range. These are moderately bullish signs. The price action is again suggesting a weak long-term bullish trend with the price above its levels of both 13 and 26 weeks ago.

The FOMC Meeting Minutes showing a lot of doubt about rate cuts may have given a very slight hawkish tilt which helped the Dollar advance last week. The big selloff in precious metals might also have helped.

I take a weakly bullish bias on the US Dollar right now. However, not much is going on here, so it will probably make sense to consider other assets on their own over the coming week.

US Dollar Index Weekly Price Chart

The USD/JPY currency pair advanced last week, the move was relatively subdued. The price has not challenged the important recent swing high lately but may be building for another challenge.

The price chart below shows a strong long-term bullish trend that has started to run out of momentum. There is no reason it cannot reactivate, which is probably mostly due to a weak Japanese Yen with a central bank that wants to hike rates but cannot do so without risking a debt crisis.

The US Dollar has been consolidating lately but is again starting to show signs of strength.

I think that if we get a significant bullish breakout with a daily close above ¥157.75 then a long trade entry will be an interesting trade.

USD/JPY Daily Price Chart

After reaching a new record high the week before last week, the price action made a textbook moderate reversal pattern, and that continued during the past week.

The selloff was partially driven by the bursting of the precious metals bubble.

Last year’s performance was stellar, at over 15%, and even with this bearish turn new highs still look likely. However, it is the start of a new calendar year and trading can be very unpredictable, so it is best to wait for a new record high daily (New York) close at 6,940 or above.

More cautious traders might prefer to wait for the big round number at 7,000 to be broken before entering a new long trade.

S&P 500 Index Daily Price Chart

Silver’s wild, meteoric rise ended dramatically last Monday, as its price and the prices of all precious metals plummeted. Gold held up best, it was the minor / industrial precious metals that saw huge drops of more than 10% in one day.

What we have seen since Monday is classic “burst bubble” price action, with railroad tracks swinging up and down with gradually decreasing volatility.

This strongly suggests that we have seen the end of the former strong trend and the beginning of a longer consolidation.

However, it is possible that the trend could resume. I will enter a new long trade if we get a daily (New York) close above $80.

Some analysts suggest this was not a bubble but a panic due to China imposing export controls on Silver for the first time. I think this is very unlikely, as there should be a plentiful available supply at current prices.

Silver Daily Price Chart

Gold saw a sharp drop last Monday, as did all other precious metals. Interestingly, although new highs for any precious metal look unlikely to happen in the near future, Gold had the smallest of all bullish bounces in precious metals after the initial drop, looking at the daily price chart below. This might be a bearish sign.

I am prepared to enter another long trade if we do get a new record high daily (New York) closing price (above $4,533.21), but I really doubt that this will happen.

The bearish swing in the S&P 500 Index also makes me more bearish on Gold, as recent years have seen a strong positive correlation between these two assets.

Gold Daily Price Chart

I see the best trades this week as:

1. Long of the USD/JPY currency pair following a daily close above ¥157.75.
2. Long of the S&P 500 Index following a daily close above 6,940.
3. Long of Silver following a daily close above $80.
4. Long of Gold following a daily close above $4,533.21.

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USD/JPY Forecast for 2026

So now that we have the backdrop here, where do we go in 2026? What’s the outlook for all of the key components?

The first one, of course, is the Federal Reserve’s gradual easing, but yields will remain elevated. And I think the keyword here is gradual. I don’t think the Fed’s going to panic, at least not anytime soon. The Bank of Japan may continue to creep towards normalization, but there’s a big question with that. And of course, the yield differentials will remain strongly positive for the US dollar.

Intervention risk is by the Japanese, but I don’t think that’s likely. Inflation in Japan should moderate, limiting some of the Bank of Japan’s urgency. And a short-term driver for this pair, which I think is secondary to yields, will be the risk sentiment of global traders. That’s almost always the case with this pair anyway.

Bullish Scenario

So, let’s lay out both scenarios. The bullish case, which is pretty much my base case, certainly the higher probability, is that yields in the United States remain relatively high despite rate cuts. We’ve already seen that play out. Normalization in Japan remains incremental at best and probably fragile. Global capital continues to favor US dollar assets. I see that in other markets, not just this one, and the carry trade demand remains strong. This is a market that I think continues to grind higher with short-term sharp reversals. In other words, it’s going to behave much as it has over the last three or four months.

Bearish Scenario

The bearish case scenario, which I think is about a 30% chance at this point, is that the U.S. weakens or, for that matter, growth slows sharply, and it compresses yields. I don’t see that happening. I think it’s a very low likelihood. The Bank of Japan accelerates normalization unexpectedly. I think there’s almost no real risk of that. But if we do get a sustained risk-off environment, that does favor the yen. So that is probably the most likely of scenarios that trigger a bearish move.

Coordinated intervention has happened in the past when the yen starts to get too strong or too weak, but I don’t think we’re anywhere near that. The United States dollar would correct lower against the Japanese yen, but likely to remain within a bullish structure longer term. So, I think the bearish case is at best going to be a quarter of the year.

We may see something like that, but overall, I still think without some type of unforeseen external circumstance, the base case scenario is still bullish. Yield differentials, I believe, will remain the primary driver in this pair. Almost every year, that’s the case. It does stay very structurally supported. Pullbacks continue to be temporary and a value that traders can look for. Volatility, of course, will increase right around policy meetings, but again, that’s nothing new.

In 2025, the pair has been driven almost entirely by yield differentials and the Bank of Japan’s reluctance to normalize its policy. Heading into 2026, I think the structural imbalance remains intact, thereby continuing more of the same.

Levels to Watch

A couple of the levels that I am watching from a technical analysis standpoint would be the 158 yen level. If we can break above there, it opens up 160, possibly even 162. Short-term pullbacks, I think, are very likely, but when you look at the last couple of years, we have formed a massive W pattern. Now all we need is something to kick this thing off to the upside.

Another level that I’ll be watching closely is the 153 yen level, because if we break down below there, we may go back to the 150 yen level, which, as I mentioned previously, has acted like a magnet. I would be very interested in buying the dollar down there. It’s almost like getting a redo of the last three or four months.

At this point, I suspect the base case scenario for this is bullish, and traders will continue to look at every short-term pullback as a potential buying opportunity in what I think is one of the easiest pairs to hold on to, especially as you get paid at the end of every session to do so.

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Created on January 02, 2026

• The Canadian dollar has rallied on Wednesday, only to continue to see a bit of selling pressure near the 114.60 yen level.
• The Canadian dollar has rallied quite nicely during the trading session against the Japanese yen, only to find selling pressure again at 114.60 yen.
• This is an area that has been difficult to overcome for the last week or two, but ultimately, I do think we are going to make a serious play at the 115 yen level.

Short-term pullbacks should be buying opportunities, with the 113.50 yen level being a bit of a floor. After that, you have the 112 yen level, which is also attracting the 50-day EMA.

Market Outlook and Potential Targets

Breaking above the 115 yen level would, of course, be very positive, and a lot of people would look at that through the prism of a sign that we are going much higher, and therefore that is what I am waiting for as well.

I still like the idea of buying dips because I do not like the yen. It isn’t so much about Canadian dollar strength, although it is worth noting that the Canadian dollar has held its own against the US dollar as of late. The reality is, this is all about Japan.

If oil starts to pick up, that will send the Canadian dollar much higher against the Japanese yen because, unlike against the US dollar, Japan is not a producer of crude oil. That makes this more of a pure play on the petroleum markets. When you look at longer-term charts, it is very possible we could be going as high as 119 yen, but I don’t think that is something that happens very quickly or easily. I think that is just a potential destination in what has been a very strong uptrend.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.