To The Moon

Year-end is usually a quiet period, when markets thin out and traders take time off—but hold on and get through this week first. For FX traders in particular, after several years of dull price action, the key that could set a major move in motion for 2026 may well be this week.​

More specifically, beyond the Bank of Japan’s impending rate hike, close attention also needs to be paid to possible shifts in monetary policy at the European Central Bank and the Bank of England. If the major G7 central banks all choose to bring their easing cycles to an end, while the United States—under a new Fed chair in the future—moves against that trend, then the trend driven by rate differentials/spread differentials could be enormous.​

The U.S. Dollar Index has already shown signs of weakening across 2025; so far, only 2 of the past 12 months have posted gains. Although the absolute decline is not particularly large, it may be a warm-up before a trend truly begins. In several prior policy cycles, the Fed and other major central banks generally moved in the same direction, differing mainly in timing. That dynamic kept FX markets relatively range-bound as expectations shifted. But after Donald Trump took office, that balance now appears close to being broken.​

Based on current information, the ECB is expected to keep rates unchanged, with no room to cut next year—and it may even hike. Meanwhile, after the Bank of England cuts by 25 basis points this week, that could also be its last cut. Under these expectations, the market’s focus will be on whether the two central banks provide clear signals for the coming year—especially given that the “handpicked” new Fed chair will most likely continue to assist “the Boss” in pushing an ultra-loose policy stance next year.​

The Dollar Index is now at a critical level: as a 15-year, long-cycle channel support, its importance speaks for itself. A break below the 97/96.2 support zone would mean that 90—or even lower—could be waiting for the dollar. Another factor should not be forgotten either: amid G2 friction, the dollar has also been pressured by headlines. In a negative loop, Trump is expected to go back on his word again and fall out with China. Interestingly, the renminbi has strengthened continuously this year; it cannot be said that “the East rises and the West falls” is inevitable, but the downside risk for the dollar is indeed significant.​

Of course, monetary policy does not fully determine exchange-rate moves. Take the yen: it naturally has a seesaw relationship with Japanese equities, but Sanae Takaichi’s aggressive maneuvering has effectively tied Japan’s stocks, bonds, and FX onto the same ship. Even with strong expectations for a hike this week, the yen has only managed a weak rebound. If, after the hike is delivered, the yen returns to weakness again, then a fresh low in the yen next year is likely only a matter of time.​

At a minimum, the yen needs to end the downtrend that has been in place since April this year before it has a chance to reclaim a place among safe-haven assets. Otherwise, that halo may very well shift to the Swiss franc next year.​

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Beyond the three central banks mentioned above, several smaller central banks (Thailand, Indonesia, Sweden, Norway, Mexico, Russia, and Hungary) will also announce their rate decisions this week. Conditions differ from country to country, and decisions will vary, but the overall direction can be compared. The FX market has suffered for a long time without a major trend; hopefully next year brings a double-digit, one-way move in the currency market.

$NQ100指数主连 2603(NQmain)$ $SP500指数主连 2603(ESmain)$ $道琼斯指数主连 2603(YMmain)$ $黄金主连 2602(GCmain)$ $日元主连 2603(JPYmain)$