FOREX: USD Index Extends 2026 Rally, AUD Outperforms amid Equity Rebound
Jan-15 18:03
- Firmer risk sentiment/equities on Thursday have helped bolster the US dollar overall, with the ‘sell-US’ theme from earlier in the week attached to Fed independence concerns and geopolitical uncertainty dissipating somewhat. This has helped the USD index extend its strong run in 2026, with the index briefly rising to 99.50, a six-week high.
- This dynamic weighed on the likes of EURUSD and GBPUSD, which fell back to 1.16 and 1.34 respectively. The GBP move came despite a better-than-expected UK monthly GDP print, with the market looking through the data as much of it was payback after the soft October (itself driven by the cyberattack on Jaguar Land Rover, which hit manufacturing production). GBPUSD losses generally being led by the USD leg of the trade, but the YTD pullback in Gilt yields has led to a sell-on-rallies backdrop for GBP so far this year.
- The recovery for risk/equities has helped the Australian dollar outperform its G10 peers, with the overall optimistic backdrop for higher beta currencies remaining strong. This dynamic weighed on EURAUD earlier in January, prompting a notable breach of the 2025 June low of 1.7462. While downside momentum for the cross quickly stalled, it is worth highlighting that during a period of consolidation, EURAUD remained below this breakdown level, maintaining the bearish potential for the move.
- Sure enough, today’s 0.65% decline has seen us rapidly approach last week’s cycle lows at 1.7291. We highlight the next key target is 1.7248, the May 2025 low, before the medium-term objective of 1.7050, the March 2025 low.
- In similar vein, emerging market currencies have been happy to look through this spell of dollar strength, with carry/risk dynamics significantly supporting the likes of ZAR and MXN, with the latter extending notably to a fresh cycle high. This narrows the gap to next noted support at 17.6067 for USDMXN, the Jul 12 ‘24 low, a clearance of which would open 17.4466.
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EURUSD TECHS: Bull Cycle Extension
Dec-16 2025 18:00
- RES 4: 1.1919 - High Sep 17 and a key M/T resistance
- RES 3: 1.1848 High Sep 18
- RES 2: 1.1813 76.4% retracement of the Sep 17 - Nov 5 bear leg
- RES 1: 1.1804 High Dec 16
- PRICE: 1.1769 @ 16:18 GMT Dec 16
- SUP 1: 1.1649 20-day EMA
- SUP 2: 1.1591 Low Dec 2
- SUP 3: 1.1556 Low Nov 26
- SUP 4: 1.1491 Low Nov 21
A bull cycle in EURUSD remains intact and Monday’s gains reinforce this theme. The recent breach of key short-term resistance at 1.1656, the Nov 13 high and a bull trigger, highlighted a stronger reversal. Sights are on 1.1813 next, a Fibonacci retracement. Initial support to watch is 1.1649, the 20-day EMA and a pivot level. A clear breach of the EMA would be bearish and signal a possible reversal.
LOOK AHEAD: Wednesday Data Calendar: Regional Fed Data, Fed Speak, 20Y Re-Open
Dec-16 2025 17:54
- US Data/Speaker Calendar (prior, estimate). All times ET
- 12/17 0700 MBA Mortgage Applications (4.8%, --)
- 12/17 0815 Fed Gov Waller economic outlook (no text, Q&A)
- 12/17 0830 Chicago Fed CARTS Retail Indicator
- 12/17 0900 Manheim Used Vehicle Prices
- 12/17 0905 NY Fed Williams opening remarks FX conf, livestreamed
- 12/17 1130 US Tsy $69B 17W bill auction
- 12/17 1230 Atlanta Fed Bostic moderated discussion (no text)
- 12/17 1300 US Tsy $13B 20Y Bond re-open (912810UQ9)
- Source: Bloomberg Finance L.P. / MNI
OPTIONS: Limited Trade Includes Sonia Upside Buying Between Key UK Data Points
Dec-16 2025 17:52
Tuesday's Europe rates/bond options flow included:
- RXG6 126.50/124.50ps, bought for 27.5 in 6k
- ERM6 97.87/97.81ps vs 98.00/98.06cs, bought the ps for flat in 7.5k
- SFIZ6 96.90/97.00cs vs 96.30/96.20ps, bought the cs for half in 3k
