The US dollar to euro exchange rate volatility intensifies! Yen depreciation triggers intervention warning【Forex Weekly Review】

Last Week’s Market Overview December 15 to 19, the US Dollar Index rose by 0.33%, with significant divergence among non-US currencies. The Japanese Yen led the decline with a 1.28% drop, the Australian Dollar fell by 0.65%, the Euro declined by 0.23%, and the British Pound slightly increased by 0.03%. Under the intertwined influence of Federal Reserve policy expectations and central bank decisions from various countries, the USD/EUR and USD/JPY exchange rates are facing important turning points.

Yen Approaching Warning Line, Government Intervention Risks Rise

USD/JPY Breaks Through 157 Key Level

Last week, USD/JPY increased by 1.28%, approaching the 158 level. Although the Bank of Japan raised interest rates by 25 basis points as scheduled, Governor Ueda’s comments leaned towards a dovish stance, cooling market expectations of policy tightening. More critically, Prime Minister Kishida’s cabinet announced a fiscal stimulus package totaling 18.3 trillion yen, which effectively offset the tightening effect of the central bank’s rate hike.

Divergence Among Institutions on Yen Outlook

JPMorgan highlighted a key risk: if USD/JPY breaks through the 160 threshold in the short term, the probability of government intervention will significantly increase, signaling a “sharp exchange rate fluctuation” in the market. Sumitomo Mitsui Banking Corporation predicts the Yen could further depreciate to 162 in Q1 2026, while Nomura Securities holds the opposite view, believing that with the Fed cutting rates, the dollar will continue to weaken, and the Yen may appreciate to 155.

Technical Signals Indicate Buying Pressure

From a technical perspective, USD/JPY has stabilized above the 21-day moving average, with MACD indicating a buy signal. Breaking through the 158 resistance level would open upward space; conversely, if it repeatedly faces resistance below 158, support levels around 154 should be watched.

This Week’s Focus: Closely monitor Governor Ueda’s policy statements and whether Japanese officials escalate verbal intervention measures, as these will directly influence the USD/JPY direction.

USD/EUR Continues Adjustment, ECB Maintains Neutral Stance

EUR/USD Rises then Falls

EUR/USD last week showed a pattern of rising then falling, ultimately closing down 0.23%. The European Central Bank maintained interest rates as expected, but President Lagarde did not deliver the more hawkish tone market had anticipated, disappointing euro bulls.

US Data Quality Questioned by Investment Banks

US economic data presented mixed signals: November non-farm payrolls were average, and November CPI was below expectations. However, investment banks like Morgan Stanley and Barclays warned that these data are heavily distorted by technical issues and statistical biases, making it difficult to accurately reflect the true economic trend. The market still expects the Fed to cut rates twice by 2026, with a 66.5% probability of a rate cut in April.

Institutions Optimistic on Euro Mid-term Performance

Danske Bank believes that the Fed’s rate cut cycle combined with the European Central Bank holding steady will push up the euro in the USD/EUR exchange rate. After inflation adjustments, the real interest rate differential between the US and Europe is expected to narrow, which favors the euro. Additionally, the recovery of European assets, increased hedging demand against USD risk, and declining confidence in US policies globally could all support euro appreciation.

Technical Outlook Still Shows Upside Potential

From a technical standpoint, EUR/USD remains above multiple moving averages, with opportunities for short-term gains. The previous high of 1.18 acts as resistance; if it pulls back, the 100-day moving average around 1.165 is an important support level.

This Week’s Focus: US Q3 GDP data and geopolitical developments are key. Better-than-expected GDP will support the dollar and pressure EUR/USD, while weaker data will favor the euro.

Summary

The core focus in the forex market this week is the volatility driven by central bank policy differences. The Yen faces depreciation pressure and government intervention risks, while the USD/EUR exchange rate is gradually adjusting amid Fed rate cut expectations. Investors should pay close attention to policy speeches, economic data, and whether there are any new official intervention signals.