EURUSD Heading into 2026 on firmer footing
Source: www.tradingview.com
Daily EURUSD Trend
The daily EURUSD chart is turning constructive as we approach the new year. Chart 1 highlights a higher trough followed by a higher peak, signalling strengthening price action. The EMAs reinforce this with a clear bullish alignment. Just as important, the RSI (Chart 2) remains above 50; holding this level would confirm underlying positive momentum. A sustained drop back below 50, however, would be a negative signal.
Respective Monetary Policies
Chart 3 highlights the spread between the German 2-year note and the US 2-year note. The short end of the curve is often viewed as a proxy for monetary policy, and in this case the German note has been strengthening relative to its US counterpart. This is reflected in the spread's EMAs, which are in a bullish formation, suggesting the ECB is currently more hawkish than the Fed.
Chart 4 shows the correlation coefficient between EURUSD (Chart 1) and the spread in Chart 3. Notably, the correlation is positive, indicating that differences in respective monetary policies are indeed influencing the currency pair.
This is not surprising. The market is pricing in a 87% probability that the Fed cuts its target rate by 25 bps on Wednesday. On the European side, ECB's Isabel Schnabel said she's comfortable with markets expecting the ECB's next step to be a hike, albeit not soon, suggesting policy may have found its floor. Stronger spending, investment and fiscal outlays, she argued, tilt growth and inflation risks upward, with forecasts likely to rise.
Her remarks lifted the euro and German yields as traders cut easing bets.
Schnabel warned that sticky services inflation and wage growth remain hurdles, and noted the ECB must judge whether improving growth and looser fiscal policy are making current settings too soft.
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.