Last week gave us one of those messy markets where nothing quite breaks but nothing quite holds either. The U.S. Dollar Index closed under pressure without collapsing entirely. Broad but uneven selling kept it from gaining ground, though it still managed to look stronger than the chronically weak Japanese yen, which isn't saying much.
Risk sentiment was all over the place. Tech and AI-related equities took a beating, while more traditional, value-oriented sectors held their ground. This mix provided support for high-beta currencies but stopped well short of a full "risk-on" capitulation where everyone dumps dollars for anything that moves.
Here's what actually mattered for currency traders: U.S. rates suddenly repriced higher. Ten-year yields snapped up after briefly testing key technical support, and the move had less to do with economic data and more to do with policy-risk reassessment. Markets started questioning the future Fed leadership and whether the easing cycle everyone's been pricing in will actually prove durable.
That shift threw a wrench into the clean bearish dollar story that had been building momentum. Meanwhile, policy divergence continued dominating the narrative across other currencies. The Swiss Franc stayed bid after the SNB pushed back against premature easing expectations. The Euro gained ground, though mostly because the dollar weakened rather than any improvement in Europe's own economic story.
The New Zealand Dollar held up reasonably well, supported by relative central bank hawkishness. The Aussie lagged behind on softer labor data and fading rate hike expectations. The British pound traded lower on weak growth data and an increasingly vulnerable domestic backdrop.
Technical Setups Worth Watching
GBP/SGD
This pair broke out of tight consolidation that lasted through most of November and rallied toward 1.73170. But after hitting that key level, momentum fizzled. The trend now risks a fadeout and potential correction back to last month's lows. That thesis becomes more likely as long as the price doesn't close above the previous high on the daily chart. Sometimes the failure to follow through tells you more than the initial breakout.
EUR/NZD
After pulling back significantly from the year's highs, this pair found support right at the October lows. The overall trend remains bullish, particularly if the price can overcome short-term resistance at 1.8303. If that level breaks, watch for a potential spike toward the key level of 1.85160, which would present an interesting opportunity for positioned traders.
What's Coming This Week
The critical question is whether U.S. yields can sustain last week's rebound. A durable break higher in 10-year rates would give the dollar a floor and could trigger position-squaring among crowded shorts, especially against the Euro and Swiss Franc. If yields fail to follow through, the broader dollar downtrend revives and high-beta currencies get another leg up.
On the data front, U.S. inflation and labor market releases will matter primarily for how they validate or challenge the recent repricing of the Fed path. But the real action comes from central banks: The Bank of England is expected to cut by 25 basis points, the Bank of Japan to hike by 25 basis points, while consensus expects the ECB to hold steady at 2.15%.
Three different central banks, three different policy directions. That's the kind of divergence that creates trading opportunities and headaches in roughly equal measure. The currency markets should have plenty to digest.