Australian dollar soars, risk of yen intervention still exists【Foreign Exchange Weekly Report】

Market Review Last week (12/22-12/26), the US dollar index fell by 0.67%, while non-US currencies generally rose. Among them, the euro rose by 0.52%, the Japanese yen by 0.74%, the Australian dollar by 1.63%, and the British pound by 0.88%. 1. Euro Surges and Then Retreats, Focus on Federal Reserve Meeting Minutes Last week, the EUR/USD rose to 1.1808, reaching a three-month high, and ultimately closed up by 0.52%. Data showed that the US GDP grew by 4.3% in the third quarter, far exceeding expectations. However, due to the lagging nature of this data, it did not fully dispel market concerns about the job market, and expectations for interest rate cuts remain high. According to the CME FedWatch Tool, the market currently expects a 62.9% probability of the Federal Reserve cutting rates in April next year, with two rate cuts anticipated in 2026. 【Source: CME FedWatch Tool】 Market liquidity was weak during the Christmas holiday, and risk appetite increased. This week, the market is likely to remain calm due to the influence of the New Year holiday. Looking ahead to 2026, Morgan Stanley believes that the EUR/USD will rise initially and then fall. Against the backdrop of the Federal Reserve cutting rates, the narrowing of the interest rate differential between the US and Europe in the first half of 2026 will support the EUR/USD rising to 1.23, and in a bullish scenario, it could even rise to 1.30. However, in the second half of the year, as Europe's weak fundamentals become apparent again and the US economy shows resilience, the euro against the dollar is expected to fall to 1.16 by the end of 2026. This week’s focus: This week, attention will be on the Federal Reserve meeting minutes, as well as the December PMI for the US and Eurozone. If expectations for Federal Reserve rate cuts rise further, it will be beneficial for the EUR/USD to rise; conversely, it will negatively impact the EUR/USD trend. From a technical perspective, the EUR/USD encountered resistance and retreated near 1.18. If it cannot break through this level this week, the likelihood of a downward movement increases, with support seen around the 21-day moving average at 1.17. Conversely, if it breaks above 1.18, it will open up greater upward potential, with resistance seen around 1.186. ![](https://imageproxy.pbkrs.com/https://resource.mistorebox.com/insights/cms_uploads/uedimg/20251229/17670030887735.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format, jpg) [Source: TradingView; Euro/US Dollar (EUR/USD) trend] 2. Intervention Difficult to Reverse Depreciation Trend, Yen May Fall Below 160 Last week, the US Dollar/Japanese Yen (USD/JPY) fell by 0.74%, mainly due to a weak dollar and risks of intervention by the Japanese government. On December 22, Japanese Finance Minister Shunichi Suzuki clearly stated that the recent fluctuations in the yen are not based on fundamentals and exhibit obvious speculative characteristics, emphasizing that Japan has the discretion to take decisive action in this regard. Market expectations for intervention by Japanese authorities in the foreign exchange market have increased, providing short-term support for the yen exchange rate. However, major institutional strategists, including those from JP Morgan and BNP Paribas SA, predict that due to high US-Japan interest rate differentials and negative real interest rates, the USD/JPY may break through the 160 level by 2026. The market generally believes that without aggressive monetary policy support, simple foreign exchange intervention is unlikely to fundamentally reverse the structural depreciation trend of the yen. Overnight index swaps indicate that the market expects the Bank of Japan's next interest rate hike to occur in the second half of 2026. This Week's Focus: This week, attention will be on US data and comments from Japanese officials. Due to ongoing intervention risks, the upside potential for USD/JPY may be limited. From a technical perspective, USD/JPY is above the 21-day moving average. If it falls below this moving average, the next support level is around the previous low of 154.3. Conversely, if it remains above this moving average, it may oscillate upwards, with resistance at 158. [Source: TradingView; US Dollar/Japanese Yen (USD/JPY) trend]