As the US dollar strengthens, USD/CAD approaches 1.3700 due to lower oil demand.
The US Dollar has gained a bit against the Canadian Dollar, with the USD/CAD pair moving closer to 1.3700, rising by around 0.20% on Monday. This comes after the pair had been trading near a five-month low at 1.3640, showing only modest demand for the US Dollar at the start of the week, thanks to lower trading volumes.
Support for the Canadian Dollar from higher Oil prices is fading. West Texas Intermediate (WTI) Oil is recovering after recent dips, driven by ongoing geopolitical tensions in the Middle East. However, the Canadian Dollar is having a hard time holding onto its gains due to this loss of support.
EUR/USD pair declines for the fourth consecutive day amid low trading volume and cautious investor sentiment
EUR/USD is currently on a downward trend, pulling back from its pre-Christmas highs in a session with low trading volumes. The currency pair is hovering around 1.1760 after reaching just above 1.1800 last week. This shift is driven by the strengthening of the US Dollar and ongoing geopolitical tensions between China and Taiwan.
A recent meeting between US President Trump and Ukrainian President Zelenskyy has sparked hopes for peace in Ukraine, giving some support to the Euro. At the same time, speculation about the Federal Reserve potentially cutting interest rates next year is impacting the recovery of the US Dollar. Investors are closely watching the minutes from the Fed’s December meeting.
Economic Performance and Geopolitical Tensions
Increasing tensions from Chinese military exercises near Taiwan have heightened demand for the US Dollar as a safe investment. Economic data reveals that US Pending Home Sales for November are expected to rise by 1%. Additionally, the GDP for the third quarter surpassed estimates, showing a growth of 4.3% annually. Technically, EUR/USD is nearing support at 1.1755, where bearish traders see opportunities. Resistance is found around the 1.1805 level, with more bullish challenges at 1.1820. The Euro is influenced by key economic indicators, including GDP and trade balance figures. As of December 29, 2025, EUR/USD is retreating during this quiet holiday trading period. The downturn is influenced by short-term demand for the US Dollar due to rising military activities by China near Taiwan. This situation could lead to increased short-term volatility, even in low trading volume periods. For derivative traders, this creates an opportunity to prepare for possible price fluctuations in early January. According to Cboe’s EuroCurrency Volatility Index (EVZ), which typically rises during uncertain times, there has been a slight increase. This suggests that option premiums may become more expensive. Traders might consider buying near-term put options with a strike price below 1.1755 to hedge against or capitalize on further declines driven by geopolitical tensions.Central Banks and Market Strategy
However, the broader context is shaped by differing central bank policies. The Federal Reserve has cut rates this month and indicated more reductions are likely in 2026. This weakening long-term appeal of the US Dollar is confirmed by recent data from the CME FedWatch Tool, showing an 85% probability of at least two rate cuts in 2026. In contrast, the European Central Bank remains firm, with core inflation stable at 2.7% in November 2025. This economic backdrop supports a positive outlook for EUR/USD once holiday trading comes to an end and attention shifts back to monetary policy. A possible strategy for the upcoming weeks could be to sell out-of-the-money puts expiring in late January, taking advantage of premium collection based on the expectation that the 1.1700 level will serve as solid support. Alternatively, buying long-dated call options with a strike price above 1.1820 would position traders for a likely resumption of US Dollar weakness in the new year. We should exercise caution ahead of this week’s release of the Fed’s December meeting minutes. Any less dovish statements than expected could trigger a sharp, though temporary, rally in the US Dollar. Therefore, utilizing options strategies such as strangles or straddles might be wise, allowing traders to profit from significant price movements in either direction while managing risk effectively. Create your live VT Markets account and start trading now.Bears aim for 0.8700 support in EUR/GBP after retreating from 0.8740 resistance
The Euro is trading near two-month lows at around 0.8700 after struggling to maintain gains at 0.8740. In the typically quieter year-end market, the Pound is performing better than the Euro.
The EUR/GBP pair had a brief recovery earlier in the week but faced resistance before reaching 0.8740 and then dropped during the European session. The Euro is currently at 0.8710, just above its two-month low of 0.8705.
Technical Indicators Mixed
On the 4-hour chart, technical indicators are mixed. The Moving Average Convergence Divergence (MACD) shows slight positivity, while the Relative Strength Index (RSI) is at 41, not able to break above 50. Support is found at 0.8707, while resistance sits around the 0.8740 level. The Euro faces pressure from the lack of big news from the Eurozone, ongoing tensions in Ukraine, and the issues between China and Taiwan. Even though the Euro shows some strength, the overall downtrend continues until it can break through the 0.8740 resistance. Today, the Euro shows mixed movements against major currencies, performing best against the New Zealand Dollar. It fell by 0.07% against the US Dollar but rose 0.14% against the Pound. As the EUR/GBP pair approaches the two-month low near the 0.8700 support level, there is a clear bearish sentiment for the Euro. The inability to stay above 0.8740 indicates that sellers are in control during these thin holiday trading conditions. This weakness could present an opportunity for traders looking for further declines.The Pound’s Relative Strength
The Pound’s strength comes from recent economic data, which appears stronger than that of the Eurozone. For example, UK inflation in November 2025 was 2.9%, slightly below expectations, while the Eurozone’s preliminary December rate stayed high at 3.2%. This difference lessens the need for possible rate cuts from the Bank of England compared to the European Central Bank. Geopolitical tensions impact the Euro more severely, as the Eurozone is vulnerable to energy markets, especially due to the situation in Ukraine. Recently, European natural gas futures (TTF) rose 6% in two weeks due to stalled negotiations, a situation that poses less risk to the UK economy. This external pressure helps explain why the Euro is struggling. For traders in derivatives, this scenario suggests buying put options with a strike price below the 0.8700 support level, possibly targeting 0.8670 in the coming weeks. Given that trading volumes typically drop by 35% in the last week of the year, any break of this key support could be sharp. This makes puts a smart choice to take advantage of a potential decline while managing risk. However, it’s essential to keep an eye on the 0.8740 level as a significant resistance. A clear break above this point would change the current bearish outlook. Traders might consider selling out-of-the-money call options near 0.8775 to generate income, anticipating that the pair’s upside is capped for now. With technical indicators showing limited momentum, the market may consolidate before making its next big move. Still, the easiest path seems to be downward. Therefore, it’s wise to set up trades that can benefit from gradual declines or quick breaks lower as liquidity returns in early January 2026. Create your live VT Markets account and start trading now.USD/CHF pair rises to around 0.7915 during the European trading session after recovering from 0.7860
The USD/CHF pair has risen to about 0.7915, despite a bearish outlook due to expected interest rate cuts by the Fed. The pair climbed from a three-month low of 0.7860, even though the Federal Reserve is predicted to lower rates by at least 50 basis points in 2026.
According to the CME FedWatch tool, there is a 73.3% chance this rate cut will occur. The Fed predicts the Federal Funds Rate will hit 3.4% by the end of 2026. Leadership changes at the Fed may also push for a more aggressive easing policy in 2026.
Swiss Franc Movement
At the start of the week, the Swiss Franc has slightly decreased. The USD/CHF pair trades higher near 0.7915, close to its low of 0.7830 from three months ago. The 20-day Exponential Moving Average (EMA) at 0.7966 is providing resistance, making it hard for prices to rebound. The 14-day Relative Strength Index (RSI) is at 31, indicating weak momentum. If prices stay under the 20-day EMA, bearish momentum will continue. A close below the September 17 low of 0.7830 could add more pressure to the downside. The current rise in USD/CHF toward 0.7900 appears to be a small correction within a larger downtrend. The Fed’s dovish approach is the main influence, with strong expectations for significant rate cuts in 2026. This situation makes it difficult to be optimistic about the US Dollar compared to the Swiss Franc. The Fed’s stance is supported by the latest US Personal Consumption Expenditures (PCE) data from November 2025, showing an annual rate of 2.6%, which is comfortably within range. This data backs the market’s belief in over a 70% chance of at least 50 basis points in cuts next year. Meanwhile, the Swiss National Bank, one of the first central banks to cut rates back in 2024, now faces less pressure to ease aggressively.Derivatives Trading Strategies
For those trading derivatives, this suggests strategies that profit from a falling or stable USD/CHF price. Consider buying put options or setting up bear call spreads, using the 20-day EMA around 0.7966 as a key resistance level for your strike prices. The low trading volume typical of the year’s end might offer good premiums, but be wary of sudden price shifts. A consistent break below the September 2025 low of 0.7830 would confirm the bearish trend and could lead to further declines. While the RSI is close to oversold at 31, hinting at possible short-term bounce opportunities, any strength is likely just a chance to sell as long as we stay below that key average. This weak momentum strengthens our bearish outlook as we enter the first weeks of 2026. Create your live VT Markets account and start trading now.The pound strengthens as the Bank of England takes action, leading to a slight decline in EUR/GBP.
The EUR/GBP currency pair began the week slightly down, trading at about 0.8715 on Monday. The Pound Sterling is supported by expectations of gradual interest rate cuts from the Bank of England (BoE). Meanwhile, the Euro’s decline is limited due to the nearing end of the European Central Bank’s (ECB) rate-cutting cycle.
BoE Governor Andrew Bailey recently said that future interest rate cuts will be small, leaving limited room for further reductions. UK inflation dropped to 3.2% in November, still above the BoE’s target of 2%. Additionally, GDP grew by 0.1% in the third quarter, which matches forecasts.
ECB’s Monetary Policy Outlook
In contrast, the ECB has maintained steady rates, suggesting that major cuts may be over. Money markets show there is less than a 10% chance of a 25-basis-point cut by the ECB in February, indicating potential stability for the Euro in the short term. As New Year celebrations approach, trading conditions are likely to remain stable due to lower market liquidity. The EUR/GBP pair might hold steady, supported by a consistent Eurozone monetary policy and the BoE’s cautious easing. Considering the current situation, we expect the Pound Sterling to stay strong since the BoE is likely to cut interest rates only gradually in 2026. Recent data shows UK core inflation at 4.1% in November, considerably above the 2% target. The Bank’s careful strategy, having recently reduced the policy rate to 3.75%, indicates they are still addressing inflation. The Euro is also seeing support from the idea that the ECB may have finished its rate-cutting cycle for now. The latest Eurostat estimate showed Eurozone inflation steady at 2.4% in December 2025, giving the ECB reason to pause and evaluate. Thus, money markets are pricing in less than a 10% chance of a rate cut in February 2026, which helps bolster the Euro.Trading Environment and Strategies
For derivative traders, the low trading volume as we head into the New Year suggests a period of low volatility for EUR/GBP. The one-month implied volatility for the pair has dipped to about 4.8%, indicating expectations for calm market conditions. This scenario could make short-range strategies, like selling strangles with strikes outside of an expected 0.8680-0.8750 range, attractive for the first week of January 2026. However, the underlying pressures favor the Pound, suggesting a slow decline in the EUR/GBP pair. In the options market, one-month risk reversals show a slight advantage for GBP calls against the Euro, indicating a subtle preference for Sterling strength. Traders may consider buying puts on EUR/GBP or setting up bearish call spreads to position for a decline towards the 0.8650 level in the upcoming weeks. This perspective is reinforced by positioning data from the week ending December 23, 2025, which revealed a slight increase in speculative net-long positions on Sterling. This indicates that traders are growing more confident in the Pound’s strength. Therefore, any short-term rallies in EUR/GBP could be viewed as chances to establish positions that profit from a stronger Pound in early 2026. Create your live VT Markets account and start trading now.The Pound Sterling stays stable against major currencies as the BoE is expected to ease monetary policy moderately.
The Pound Sterling is stable against major currencies, trading around 1.3500 against the US Dollar as the year wraps up. It remains steady because people expect the Bank of England to start moderate interest rate cuts in 2026.
The Bank of England is not likely to cut interest rates significantly since UK inflation is still above the 2% target. In November, inflation decreased to 3.2% year-on-year, down from 3.8% in the July-September period.
Current Trade Outlook
The Pound Sterling has a flat trade outlook, with low trading activity expected due to the upcoming New Year holiday. Today, the GBP is performing strongest against the New Zealand Dollar. People believe the Federal Reserve will cut interest rates by 50 basis points in 2026, contrary to earlier predictions of only one cut. This raise in expectations suggests a more lenient monetary policy with the Fed’s new leadership. In technical terms, GBP/USD is above the 20-day Exponential Moving Average at 1.3488, signaling an upward trend. A break above the 61.8% retracement at 1.3495 could push the price toward 1.3626. As of December 29, 2025, the Pound is stable against the Dollar at around 1.3500. Current trading is thin due to holiday conditions, leading to low liquidity. This quiet period can be misleading, as minor trades could lead to larger price movements.Monetary Policy Expectations
The Bank of England has a clear outlook, with expectations of only moderate rate cuts in 2026. With inflation at 3.2% in November 2025, the central bank is likely to be cautious, as observed during the 2023-2024 timeframe when UK inflation was more persistent than in other G7 countries. This steady approach from the BoE should support the Sterling. The biggest opportunity lies with the US Dollar, where there’s a significant gap between what the market expects and the official stance. The market is anticipating at least two rate cuts by the Federal Reserve in 2026, while the Fed projects just one. This discrepancy is likely to fuel trends and is currently putting pressure on the Dollar. Given the expected rise in GBP/USD but uncertainty around timing, buying call options makes sense. This strategy allows us to benefit from a possible move above the key 1.3500 level while limiting risk to the premium paid. With quiet year-end markets, implied volatility on these options may offer a good entry point. We need to be cautious about liquidity during the week between Christmas and New Year’s. Historically, this time can see sudden price changes on low volume, similar to the currency “flash crash” in early January 2019. Any leveraged positions should be managed carefully until trading volumes normalize. Everyone is watching for this Tuesday’s FOMC minutes. These notes will give us the first real indication of whether the Fed aligns more with the market’s dovish view or its own hawkish forecasts. A dovish tone could drive GBP/USD towards the 1.3626 target. Create your live VT Markets account and start trading now.USD/JPY stays stable above 156.00 as the dollar weakens, following the BoJ’s Summary of Opinions
The US Dollar dropped slightly against the Japanese Yen, staying above 156.00 after the Bank of Japan released its Summary of Opinions. The Yen gained strength following the bank’s meeting minutes, which showed that policymakers are cautious about monetary policy and its economic effects.
In December, the Bank of Japan raised its benchmark interest rate by 0.25% to 0.75% but may consider rate cuts in 2026. Concerns remain that the Japanese Prime Minister’s stimulus measures could worsen the fiscal deficit and debt crisis, which would hurt the Yen’s recovery.
Federal Reserve Rate Cuts
The US Dollar is under pressure as the Federal Reserve is expected to cut rates in 2026, even though it initially planned just one cut. The upcoming release of the December meeting minutes might shape the USD/JPY exchange rate in the short term. The Bank of Japan aims for 2% inflation and has maintained a very loose monetary policy since 2013. This approach involved Quantitative and Qualitative Easing and controlling bond yields until March 2024, when rates began to rise. The Yen’s depreciation was mainly due to differing policies with other central banks until this change. Currently, the USD/JPY pair remains supported above the 156.00 level, presenting a delicate balance for the next few weeks. The Bank of Japan is indicating a tighter policy, but concerns about government finances are overshadowing this positive signal for the Yen. This creates uncertainty, making sharp price movements possible in either direction. The recent rate hike to 0.75% by the Bank of Japan is a crucial move, responding to persistent inflation, with Japan’s core CPI for November 2025 staying at 2.8%. This continues the slow normalization process that began in March 2024. However, some Bank of Japan members are calling for caution, making the path to higher rates in 2026 unclear.Impact of Policy Divergence
Meanwhile, the US Dollar faces challenges as we expect the Federal Reserve to cut rates at least twice in 2026. This is supported by recent data showing that US Core PCE inflation dropped to 2.4% in November 2025, moving closer to the Fed’s target. The upcoming Fed meeting minutes will be crucial for confirming this dovish outlook. The difference in policies, with a tightening Bank of Japan and a loosening Federal Reserve, would usually strengthen the Yen. However, Japan’s fiscal policy complicates this. With Japan’s debt-to-GDP ratio exceeding 265%, Prime Minister Takaichi’s stimulus plans may overshadow the Bank of Japan’s efforts and keep the Yen weak. This situation suggests that traders should prepare for volatility and consider using options strategies to take advantage of price swings instead of betting on a clear direction. It’s important to remember that Japanese authorities intervened in currency markets during 2022 and 2024 when the Yen weakened significantly. Now that we are trading above 156.00, we are in a range that has caught official attention in the past, adding risk for those holding long USD/JPY positions. The potential for intervention creates a cap on the pair, making range-trading or volatility-based derivatives more appealing. Create your live VT Markets account and start trading now.AUD/USD pulls back to around 0.6700 after reaching 0.6727 amidst hawkish RBA expectations
US Dollar Index and Fed Effects
The US Dollar Index is stable at approximately 98.00 as markets await the FOMC minutes. The Fed recently cut interest rates by 25 basis points and hinted at one more cut in 2026. However, the CME FedWatch tool indicates a 73.3% chance of a 50 basis point cut. The Australian Dollar (AUD) is influenced by RBA interest rates, China’s economy, and Iron Ore prices. Higher RBA rates tend to boost the AUD, while the health of China’s economy and Iron Ore prices also play a role. Additionally, Australia’s Trade Balance affects the AUD; a positive balance strengthens the currency by increasing foreign demand.Commodity Exports and Trade Balance
The AUD’s drop to 0.6700 should not be seen as a change in trend but rather as a brief pause in an overall upward movement. This profit-taking creates a good opportunity for traders expecting further gains. Our analysis focuses on the differing monetary policies between a strict Reserve Bank of Australia (RBA) and a more flexible US Federal Reserve. We think the market’s belief in a firm RBA is reasonable. Recent inflation data shows that monthly CPI for November was 3.8%, with persistent service inflation above 4%. This ongoing pressure increases the chances of another RBA rate hike in 2026, which should support the AUD. On the other hand, the US Dollar’s potential appears limited, making the AUD/USD pair more appealing. Although the Fed has indicated just one rate cut for 2026, recent US economic reports, like slowing job growth in the last Non-Farm Payrolls, support the idea of quicker rate easing. According to the CME FedWatch Tool, there are strong expectations for at least two rate cuts next year, creating a disconnect between market expectations and Fed guidance, which weighs on the US Dollar. Australia’s essential commodity exports also strengthen the AUD. For instance, Iron ore futures have remained strong, trading above $135 per tonne in late 2025 due to steady demand from China’s infrastructure projects. This boosts Australia’s trade balance and, subsequently, the AUD. The upcoming release of the FOMC minutes is crucial and may create short-term volatility. Traders might consider buying short-dated options straddles to benefit from a significant market move in either direction without needing to predict the outcome. If the minutes indicate greater concern about economic slowdown, this could accelerate the AUD/USD upward beyond recent highs. For those with a preferred direction, purchasing AUD/USD call options is a smart choice. Buying calls with a strike price near 0.6800 for late January 2026 allows traders to take advantage of the expected uptrend. This strategy offers considerable upside potential while keeping the risk limited to the premium paid in case the current stabilization lasts longer than anticipated. Create your live VT Markets account and start trading now.Manufacturing output in India rose from 1.8% to 8% in November.
India’s manufacturing sector saw output jump from 1.8% to 8% in November. This growth shows a revival in industrial activity and gives a positive outlook despite global economic issues.
Manufacturing is vital to India’s economy, contributing to GDP and creating many jobs. Analysts believe that the increase in output is driven by stronger domestic demand and better export performance.
Impact on Economic Growth Projections
A steady rise in manufacturing could change India’s economic growth outlook in the upcoming months. Market experts and policymakers are paying close attention to these trends to gauge the overall health of the economy. The increase in manufacturing is encouraging, especially when other sectors are struggling. It may prompt the government to rethink its fiscal and monetary policies to continue supporting the manufacturing sector. With the strong manufacturing output in November 2025, we view the Indian market positively as we approach the new year. The 8% growth well exceeds expectations, suggesting that the economy is on solid ground. This has led us to explore potential profit opportunities, especially in index derivatives.Strategy for the Indian Market
We believe there is value in buying Nifty 50 index call options or taking long futures positions for January 2026. The S&P Global India Manufacturing PMI for November was confirmed at 57.5, which supports this optimistic outlook. This data indicates that leading industrial and banking stocks in the index are likely to perform well. In addition to the index, we are looking at call options for specific stocks in the capital goods and automotive sectors. These companies will likely benefit directly from increased industrial activity and consumer demand. In the past, strong manufacturing growth periods, like we saw in late 2023, have led to significant gains in these sectors. This economic strength should also help the Indian Rupee. Foreign institutional investors became net buyers of over $2 billion in the last two weeks of December, and we expect further appreciation of the currency. Therefore, shorting USD/INR futures or buying INR call options for the near term seems like a smart strategy. However, we should keep an eye on possible inflation, as the Consumer Price Index (CPI) increased slightly to 5.1% in November. While this is within the Reserve Bank of India’s acceptable range, sustained high growth might lead them to adopt a harsher stance in their February 2026 meeting. This adds a risk factor, so it’s wise to use options to manage risk or apply tight stop-losses on futures positions. Create your live VT Markets account and start trading now.India’s industrial output increased to 6.7% in November, up from 0.4% previously.
India’s industrial output jumped to 6.7% in November, a significant increase from the previous month’s 0.4%. This growth highlights a rebound in the manufacturing sector, showing positive economic progress as the country moves past pandemic-related challenges.
This rise is likely to create more jobs and boost consumer spending, which can further benefit the economy. Market watchers will be keen to see upcoming economic data to assess how sustainable this trend is.
