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.

Ready to trade our Weekly Forex forecast? Check out our list of the best Forex brokers in the world.

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.

For a look at all of today’s economic events, check out our economic calendar.

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.

Ready to trade our CAD Forex forecast? Here’s some of the top trading account in Canada to check out

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.

The 1.18 level continues to be a very difficult ceiling to break, and I think that’s your theme going forward. I’m not looking for big moves. I just recognize that there is a bit of a ceiling above that the market can’t seem to rise above, and as a result, I think we probably drift a little bit lower in the short term, but again, not a big move.

GBP/USD Technical Analysis

The British pound continues to see the 1.35 level offer quite a bit of resistance, and as a result, I think we’re getting to the top of a potential range as well. Again, keep in mind Monday is going to be a lot more realistic read on the environment than Friday, but it does look a bit like the British pound is trying to do everything it can to top out here.

If we were to break above the 1.36 level, that would open up the floodgates to a move to 1.3750, which is possible, but probably not immediately. As things stand right now, I look at this as a market that is in danger of at least rolling over a little bit. I don’t think we fall apart to the downside either, I just think it’s more likely of two scenarios.

EUR/GBP Technical Analysis

The euro is slightly negative against the British pound, but we’re in a very tight range, have been for five or six days now. Quite frankly, this is a market that continues to look at the 0.8750 level as a bit of a ceiling. The 50-day EMA sits there as well and of course, the pound has been stronger than the euro in general, so this is not a huge surprise. I do think we will eventually go lower here and therefore look at short-term rallies as potential selling opportunities in this particular pair.

For a look at all of today’s economic events, check out our economic calendar.

Created on January 02, 2026

• The US dollar rose against the Japanese yen to close out 2025 as we continue to see a lot of back-and-forth action here.
• Ultimately, this is a market that I think continues to see a lot of noise and choppy behavior, but I also recognize that the interest rate differential continues to favor the United States dollar.

The Bank of Japan is in a situation where it simply cannot tighten monetary policy too much because of the massive amount of debt that the Japanese are currently suffering from. With this being the case, I think you’ve got a situation where you remain buy on the dip as far as your attitude is concerned.

Technical Levels and Outlook

The 50-day EMA reaching the 155 yen level is likely to see quite a bit of support, just as the 158 yen level above is significant resistance. If we can break above there, then it could open up the possibility of a move to the 160 yen level, and I do think that happens sooner or later.

Ultimately, this is a market that I think will continue to be very noisy, but again, as you get paid at the end of every day to hang on to the US dollar against the Japanese yen, I think you need to keep that in the back of your mind.

The market breaking down below the 50-day EMA opens up the possibility of a move down to the 153 yen level, but I don’t think that is the most likely of outcomes. Ultimately, I look at this as a market that continues to favor quite a bit of momentum, but in the meantime, we are just simply working off some of that momentum that we had built up over the last couple of months. I continue to favor the US dollar over the Japanese yen despite the fact that the Federal Reserve is likely to cut rates again.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

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.

Created on January 02, 2026

• The Euro fell again as we continue to see quite a bit of negative pressure near the 1.18 level.
• The 1.18 level is an area that I think will continue to be a bit of a ceiling in this market, extending all the way to the 1.1875 level.

If we could break above the 1.1875 level, then it would be a very bullish sign for the Euro. While I’m not necessarily super bullish on the Euro itself, I can make an argument about how that would happen. Currently, traders around the world are anticipating that the Federal Reserve is going to continue to cut this year, and if that’s going to be the case, they will likely try to punish the US dollar.

Choppy Range-Bound Trading

That being said, it should also be thought that if we do in fact see aggressive cuts, that’s not a good look for the world economy. After all, loose money does help, but if it’s a bit of a panic, that will have people quite concerned and often will have them running to the US dollar for safety. Ultimately, I think we are still range-bound and I don’t really see anything pushing the Euro higher significantly at the moment, but I can also say that I don’t see anything pushing it a lot lower at the moment either.

The 50-day EMA currently sits at the 1.1672 level and is rising, and I think that makes a nice target for any pullback. Anything below there opens up 1.16, possibly even 1.15, but I think ultimately, we’ve got a scenario where you’re probably looking at choppy and back-and-forth range-bound trading on not only short-term charts but long-term charts. In other words, if you wait long enough, the market will move in your direction. It looks like a market that has nowhere to be.

Ready to trade our daily Forex analysis? We’ve made this forex brokers list for you to check out.

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.

Created on January 02, 2026

• The British Pound had a tough session on Wednesday again as the 1.35 level continues to be a barrier.
• With that being the case, I think it’s worth watching very closely the 1.35 level as it is a large round psychologically significant figure and a level that a lot of people will be watching very closely.
• If we can break above the 1.3550 level, it opens up the possibility of a move to the 1.37 level.

Federal Reserve and Bank of England

If we break down below the lows of the Wednesday session, we probably go looking to the 50-day EMA, perhaps the 200-day EMA after that, and then eventually the 1.32 level. In general, this is a market that I think continues to be very noisy and, of course, will be driven by the US Dollar more than anything else.

While the Federal Reserve is expected to cut rates next year, the reality is that a lot of the economic numbers coming out of the United States are stronger than people are comfortable with, as far as cutting twice. We’ll see whether or not that ends up being the case, and of course, we’ll have to watch the Bank of England because they just cut. Now the question is, will they have to cut more?

I do think there is potential for either direction at this point, and we’ll just have to watch how things play out over the next couple of trading sessions. The early part of next week will be a bit thin, but as we get later in the week, I think you start to see a little bit more liquidity, a little bit more reality when it comes to this market. Keeping in mind that on Friday there will be trading, but it will be in very thin conditions, so I wouldn’t read too much into this market until at least Monday of next week.

Ready to trade our daily GBP/USD Forex forecast? Here’s some of the best forex broker UK reviews to check out.

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.

Morgan Stanley presents the most bullish scenario, projecting GBP/USD at 1.47 by end-2026, with upside extensions toward 1.50 if US growth decelerates sharply. Their base case assumes three additional Fed cuts in the first half of 2026, driving the fed funds rate toward 3.00% and compressing US rate differentials. Still, even Morgan Stanley has moderated its earlier conviction, acknowledging that dollar weakness may prove more measured and front-loaded.

MUFG adopts a middle-ground approach, projecting GBP/USD near 1.40 by mid-2026, consistent with a gradual rather than disorderly dollar decline. Importantly, MUFG has revised forecasts higher for the dollar relative to earlier expectations, reflecting its resilience despite easing.

Bank of England: Sterling’s Limiting Factor

If the Fed sets the ceiling for GBP/USD, the Bank of England likely defines the floor. After cutting rates five times in 2025, bringing Bank Rate to 4.00%, markets expect further easing. Consensus forecasts see rates falling to 3.25% by Q3 2026, with several institutions calling for 3.00% or lower by year-end.

The rationale is straightforward. UK growth remains weak, GDP contracted in October 2025, and unemployment has risen to 5.0%. At the same time, inflation remains elevated at 3.6%, leaving the BoE balancing fragile growth against incomplete disinflation. Morgan Stanley expects rates as low as 2.75%, a move that would materially erode Sterling’s carry support.

This aggressive easing bias limits Sterling’s ability to outperform, even in a weakening dollar environment. Unlike earlier cycles, GBP’s upside is unlikely to be driven by yield differentials and instead relies on relative economic resilience and capital flows.

Risk Scenarios: What Moves the Needle

Upside risks for GBP/USD are overwhelmingly dollar-centric. A sharper-than-expected US slowdown could force the Fed into faster or deeper cuts, pushing GBP/USD toward the upper end of forecasts. Similarly, a policy misstep that tightens financial conditions into labor market weakness would likely weigh on the dollar.

Sterling-specific upside is harder to justify but not impossible. A stabilization in UK growth, improved productivity trends, or credible fiscal signaling could help GBP outperform expectations, though these remain secondary drivers.

Downside risks remain meaningful. Sticky US inflation could stall Fed easing and preserve dollar yield support. In the UK, fiscal scrutiny is likely to intensify ahead of future budget cycles, particularly if debt dynamics worsen. A global risk-off episode would also favor the dollar, regardless of valuation arguments.

Technical and Positioning Context

From a technical standpoint, GBP/USD faces heavy resistance in the 1.38–1.42 zone, an area that capped rallies in prior cycles. Support near 1.30–1.32 has held consistently, suggesting a broad trading range rather than a trending market.

Positioning remains elevated following Sterling’s 2025 performance, increasing vulnerability to pullbacks if underlying momentum fades. Sustained breaks above 1.38 would likely require either pronounced US weakness or a material improvement in UK fundamentals, neither of which sits in the consensus base case.