Central Bank Intensive Decision Week! Yen and Euro Exchange Rates Will Surge, Forex Trends Enter a Critical Moment

Central Bank Drama Begins: Two Major Decisions Impact Global Forex Markets

This week’s financial markets will迎來一場“central bank feast.” On December 18th, the European Central Bank, and on December 19th, the Bank of Japan will announce their interest rate decisions. These two meetings will profoundly influence global forex trends, especially the euro and yen exchange rates. For investors关注外汇市场, this week’s data and speeches will be key in determining short-term movements.

Last Week’s Market Performance: Divergence in Non-USD Currencies Intensifies

Entering the second week of December (12/8-12/12), the US dollar index retraced 0.60%, reflecting market expectations of a shift in Federal Reserve policy. Specifically, the euro appreciated by 0.84%, the yen depreciated by 0.29%, the British pound rose slightly by 0.34%, and the Australian dollar increased by 0.18%. Behind this divergence is the re-pricing of expectations for各央行政策.

Fed Policy Shift Supports Euro, ECB Decision Becomes Key

Dollar Under Pressure, Euro Gains Momentum

EUR/USD closed up 0.84% last week, mainly driven by the market’s “dovish” reaction to the Fed. The Fed cut interest rates by 25 bps as expected and announced the start of the Reserve Management Purchase (RMP) program, purchasing $40 billion of short-term government bonds monthly. The market interprets this as a new round of quantitative easing (QE). Coupled with Chairman Powell’s relatively dovish tone, the dollar index declined for two consecutive days.

It’s noteworthy that the latest dot plot shows only one rate cut expected in 2026, but the market still bets on two rate cuts next year. This divergence in expectations is putting压力 on the dollar.

ECB Meeting Will Reshape Forex Trends

The December 18 ECB decision is expected to keep rates unchanged, but focus will shift to President Lagarde’s speech and the latest quarterly economic forecasts. Markets are looking for clues on when the ECB might shift towards tightening. According to Morgan Stanley’s forecast, amid ongoing divergence in monetary policies between Europe and the US, EUR/USD could rise to 1.23 in Q1 2026.

From a technical perspective, EUR/USD has broken above the 100-day moving average, with RSI and MACD indicators still showing strong bullish momentum. Short-term target prices are around 1.18; if broken through, next resistance is at the previous high of 1.192. Conversely, if it pulls back from highs, support will be near the 100-day moving average at 1.164.

The main drivers of forex movements this week will be the ECB meeting and the US November non-farm payroll data. Weak non-farm data would further weaken the dollar and push EUR/USD higher; if data exceeds expectations, EUR/USD may face short-term correction.

Bank of Japan Rate Hike Expectations Fully Priced In, Focus on Hawkish Signals

Rate Hike Is a Done Deal, Focus on Language

USD/JPY rose 0.29% last week, reflecting market views on the BOJ’s rate hike expectations. On December 19, the BOJ will announce its rate decision, with widespread expectations of a 25 bps hike to 0.75%, reaching the highest level in three decades.

Since the rate hike itself has been fully priced in, the focus shifts to Governor Ueda’s guidance on future rate hikes, especially his stance on the “neutral interest rate.” Nomura Securities believes Ueda may maintain a cautious tone to preserve policy flexibility. This meeting is unlikely to signal a more hawkish pace or higher terminal rates than already priced in.

Nature of Rate Hike Will Determine USD/JPY Direction

Analysis from US banks indicates that if the BOJ shows “dovish rate hike” characteristics, USD/JPY will stay elevated, possibly pushing towards 160 early next year. However, if a truly “hawkish rate hike” signal is released, it could trigger yen short covering, and USD/JPY might fall back toward 150. The probability of the latter is relatively low.

From a technical standpoint, USD/JPY has broken below the 21-day moving average. Continued pressure below this level would increase downside risk, with support near 153. Conversely, if it reclaims the 21-day MA, resistance is at 158.

This week, expectations for rate hikes or cuts by the US and Japan will be key factors influencing USD/JPY forex movements.

Key Dates Investors Should Watch

• December 18th: ECB interest rate decision and Lagarde’s speech
• December 19th: BOJ interest rate decision and Ueda’s speech
• Later this week: US November non-farm payroll data

These three pieces of information will redefine expectations for future forex trends, and investors should monitor closely.