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Key takeaways

2025 FX markets were defined by a tug of war between “US exceptionalism” and “US debasement”, with fiscal fears and erratic trade policy driving early dollar weakness, while Fed–global policy divergence intermittently revived USD strength.

The US dollar fell sharply in H1 2025 (-11.5%), rebounded briefly on renewed US exceptionalism, then settled into consolidation, ending the year down ~10% as the Fed shifted to a more balanced, mildly dovish stance.

Non-US currencies broadly outperformed the USD, led by EUR, CHF and AUD, supported by portfolio rebalancing, selective central bank restraint, commodity dynamics, and easing US-China tensions.

Improving global growth expectations threaten USD support in 2026, as rising economic surprises and potential pauses in non-US rate cuts could compress the US Treasury yield premium.

US liquidity is turning into a structural headwind for the US dollar, with the Fed ending QT and restarting Treasury bill buybacks, lifting net liquidity and historically increasing downside pressure on the USD.

Technically, EUR/USD and AUD/USD show bullish continuation signals, while USD/JPY appears vulnerable to a bearish reversal unless it breaks decisively above long-term resistance.

2025 recap - A tug of war between “US exceptionalism” and “US debasement”

Fig. 1: Year-to-date performance of the US dollar against major currencies as of 29 Dec 2025 (Source: TradingView)

Fig. 2: US Dollar Index long-term secular trend as of 29 Dec 2025 (Source: TradingView)

The defining narrative in the foreign exchange market for 2025 is a tug of war between "US exceptionalism – US dollar strong" and “US debasement – US dollar weak”.

At the start of 2025, market consensus leaned heavily toward a bearish outlook for the US dollar, anchored on the new Trump administration’s aggressive fiscal agenda. Deep corporate tax cuts were expected to further widen the US budget deficit, raising concerns over heavier Treasury issuance, weaker demand for US sovereign debt, and upward pressure on long-term yields—dynamics that underpinned the “US Debasement” trade narrative.

This view was reinforced by erratic US trade policy execution, which unsettled global markets. The announcement of sweeping “Liberation Day” tariffs on 2 April 2025 amplified fears that the administration might tolerate—or even encourage—a weaker dollar to enhance US export competitiveness as part of its ambition to reindustrialize the economy around high-tech manufacturing.

Against this backdrop, the US Dollar Index slid sharply by 11.5% in the first half of 2025 (1 January to 1 July) (see Fig. 1). The sell-off then stalled as the “US exceptionalism” narrative resurfaced, driven by widening monetary policy divergences between the Federal Reserve and other major developed-market central banks.

Into the third quarter, the Fed adopted a “wait-and-see” stance amid sticky inflation and a still-resilient US services sector. In contrast, the ECB and BoE struck a more dovish tone as the euro area wrestled with waning confidence tied to Germany’s industrial slowdown, while the UK faced stagflationary pressures. At the same time, commodity-linked currencies suffered a sharp terms-of-trade shock from renewed US-China geopolitical tensions, weighing on the CAD, AUD, and NZD.

The Japanese yen also remained under pressure despite inflation running above 2%, constrained by the Bank of Japan’s limited ability to normalise policy decisively amid political and administrative gridlock. With “US exceptionalism” back in focus, the US Dollar Index retraced part of its losses, narrowing its year-to-date decline from 11.5% to 8.4% between 1 July and 31 July (see Fig. 2).

That rebound proved short-lived. On 22 August 2025, the Fed’s guidance pivoted decisively dovish when Chair Powell, speaking at the Jackson Hole Symposium, warned that a weakening US labour market posed risks to growth. The dollar subsequently resumed its decline but failed to break the 1 July 2025 low, entering a sideways consolidation.

As of 29 December 2025, the US Dollar Index was down 10.3% year-to-date, reflecting the Fed’s more balanced policy stance even as it resumed easing in September with three 25 bps rate cuts, lowering the fed funds rate to 3.5%–3.75% from 4.25%–4.5%.

Below is a summary table highlighting the 2025 performance of key currencies and their main drivers.

Next, we examine the key macro forces likely to shape the US dollar’s trajectory in 2026, followed by three currency pairs to watch from a technical analysis perspective.

Improved global growth prospects may reduce the US Treasury yield premium

Fig. 3: World Citigroup Economic Surprise Index as of 26 Dec 2025 (Source: MacroMicro)

Fig. 4: 2 YR & 10 YR US Treasury/sovereign bonds yield spreads with US Dollar Index as of 29 Dec 2025 (Source: TradingView)

The World Citigroup Economic Surprise Index has extended its upward trend, reaching a 20-month high of 26.80 as of 11 December 2025. Readings above zero indicate that global economic data are consistently outperforming expectations (see Fig. 3).

A rising Surprise Index points to improving global growth prospects, which could encourage greater capital allocation toward non-US assets and, in turn, place downside pressure on the US dollar in 2026. Stronger global growth may also lead developed-market central banks such as the ECB, RBA, and BoC to pause their rate-cut cycles, potentially pushing their sovereign bond yields higher.

As a result, the US Treasury yield premium, the spread between US yields and those of other major economies, could narrow further into 2026, creating a negative feedback loop for the US dollar. Consistent with this, the US Dollar Index has exhibited a strong positive correlation with the yield spread between 2-year and 10-year US Treasuries relative to an equal-weighted basket of sovereign bonds from Germany, the UK, Japan, Canada, Switzerland, Australia, and China (see Fig. 4).

An increase in US liquidity may increase the odds of a weaker US dollar

Fig. 5: US Net Liquidity Indicator with inverse of US Dollar Index as of 26 Dec 2025 (Source: TradingView)

The US Net Liquidity Indicator, constructed by netting the Federal Reserve’s balance sheet (liquidity injection) against the combined drains from the US Treasury General Account and the Fed’s overnight reverse repo facility, serves as a useful gauge of liquidity conditions in the US financial system. Historically, the indicator shows an inverse relationship with the US dollar, or a direct correlation with the inverse of the US Dollar Index.

In simple terms, improving liquidity conditions, reflected by a rising Net Liquidity Indicator, tend to weaken the US dollar, while tightening liquidity, signalled by a falling indicator, typically supports dollar strength. As shown in Fig. 5, the Net Liquidity Indicator surged during the COVID period from February 2020 to December 2021, coinciding with a sustained weakening of the US dollar over the same timeframe.

In early May 2022, the Fed announced it would shrink its balance sheet, launching its second round of quantitative tightening (QT) in June 2022. Even ahead of the announcement, the Net Liquidity Indicator had already turned lower between December 2021 and April 2022, which aligned with a sharp rebound in the US dollar from late 2021 through September 2022.

Since June 2023, the Fed’s second QT programme has kept US net liquidity largely range-bound, leaving the US Dollar Index trapped in a choppy, upward-sloping trading range over the same period. That backdrop shifted in late 2025.

At the 29 October 2025 FOMC meeting, the Fed announced the end of QT, effective 1 December 2025, and followed up at its 10 December 2025 meeting with an unexpected restart of Treasury buybacks under its reverse management programme, committing to purchase US$40 billion of short-term Treasury bills per month starting 12 December 2025.

In response, the US Net Liquidity Indicator rebounded from its range low of US$5.58 trillion in the week of 27 October 2025 to US$5.7 trillion as of 26 December 2025, alongside a renewed weakening in the US Dollar Index. If the Fed continues its Treasury bill buyback programme, net liquidity is likely to rise further, increasing downside risks for the US dollar.

EUR/USD exhibits positive elements to resume bullish leg within major uptrend

Fig. 6: EUR/USD major trend as of 29 Dec 2025 (Source: TradingView)

The 5-month sideways movement of the EUR/USD from June 2025 to early December 2025 is considered a potential consolidation within a three-year major uptrend phase since its low on 28 September 2022, rather than the start of a major topping process.

The recent price action of the EUR/USD has managed to stage a rebound after a close retest of the key 200-day moving average (around 1.1470) and has reintegrated back above the 50-day moving average in early December 2025 (see Fig. 6).

In addition, the weekly RSI momentum indicator has also staged a corresponding rebound after a retest at its 50 level, which suggests a potential revival of upside momentum for the EUR/USD.

Watch the long-term secular support of 1.1230 on the EUR/USD, and a clearance above 1.1940 sees the next major resistances coming at 1.2270 and 1.2540.

On the flipside, failure to hold at 1.1230 invalidates the bullish bias for a deeper corrective decline to expose the next major supports at 1.0940 and 1.0495 (also the lower boundary of the long-term secular ascending channel).

AUD/USD major bullish breakout from 4-year descending resistance

Fig. 7: AUD/USD major trend as of 29 Dec 2025 (Source: TradingView)

The AUD/USD has managed to clear above a major hurdle after 4 months of choppy range consolidation from July 2025 to November 2025 (see Fig. 7).

After a retest on its key 200-day moving average in late November 2025, the AUD/USD has staged a major bullish breakout on the week of 1 December 2025, with a weekly close above a former long-term secular descending trendline resistance from February 2021 swing high now turns pull-back support at 0.6605.

The weekly MACD trend indicator reinforces the AUD/USD’s major bullish breakout, having produced a bullish crossover above its centreline, signalling a potential shift from a sideways phase into a sustained uptrend.

Watch the 0.6400 key long-term pivotal support on the AUD/USD, and right now, it has staged a clearance above 0.6700, where the next major resistances are coming in at 0.6940 and 0.7140 in the first step.

However, a break and a weekly close below 0.6400 invalidates the bullish tone for a resumption of the choppy corrective decline phase to retest the next major support zone of 0.5990/0.5810 (COVID period swing low of March 2020).

USD/JPY potential bearish reversal towards major range support

Fig. 8: USD/JPY major trend as of 29 Dec 2025 (Source: TradingView)

Since hitting a 38-year high of 161.95 in July 2024, the USD/JPY has been trapped in a wide sideways range of 15%.

The USD/JPY hit the bottom of the range at 140.25 at the end of April 2025 (ex-post US President Trump’s “Liberation Day” tariffs announcement) and drifted upwards towards the upper boundary of the major sideways range in the second half of 2025.

Right now, it is coming to the tail end of the upper boundary of the major range, with the weekly RSI momentum indicator shaping a bearish reaction at its descending resistance that coincides with its overbought region.

These observations suggest that the multi-month up move of the USD/JPY from April 2025 to December 2025 is losing upside momentum, which increases the odds of a bearish reversal back towards the middle part of the range in the first step (see Fig. 8).

Watch the 161.95 key long-term secular pivotal resistance on the USD/JPY, with the medium-term support zone coming in at 148.65/145.85 (also the 200-day moving average). A break below 145.85 exposes the major range support zone of 140.25/137.35.

On the other hand, a clearance with a weekly close above 161.95 invalidates the bearish reversal scenario for the continuation of its major bullish impulsive up move sequence towards the next major resistance of 170.70 in the first step.

Key Highlights

• EUR/USD started a steady increase above the 1.1720 zone.
• A key bullish trend line is forming with support at 1.1750 on the 4-hour chart.
• GBP/USD is currently consolidating gains above 1.3450.
• Gold extended its rally and climbed to a new all-time high above $4,530.

EUR/USD Technical Analysis

The Euro found support and started a fresh increase above 1.1680 against the US Dollar. EUR/USD climbed higher above 1.1720 to enter a positive zone.

Looking at the 4-hour chart, the pair settled above 1.1750, the 200 simple moving average (green, 4-hour), and the 100 simple moving average (red, 4-hour). A high was formed at 1.1806 before there was a pullback.

The pair dipped below the 23.6% Fib retracement level of the upward move from the 1.1708 swing low to the 1.1806 high. On the downside, there is key support at 1.1750. There is also a bullish trend line forming with support at 1.1750. A downside break below the trend line might spark bearish moves.

The first major support is 1.1710 and the 100 simple moving average (red, 4-hour). The next support could be 1.1650 and the 200 simple moving average (green, 4-hour), below which the bears might aim for a move toward 1.1610.

Immediate resistance sits near 1.1800. The first key hurdle is seen near 1.1820. A close above 1.1820 could open the doors for a move toward 1.1850. Any more gains could set the pace for a steady increase toward 1.1920.

Looking at Gold, the bulls remain in action and might soon aim for a move above the $4,550 level in the near term.

Upcoming Key Economic Events:

• US Pending Home Sales for Nov 2025 (YoY) - Forecast +1%, versus +1.9% previous.

The Christmas holidays made for a quiet and shortened trading week, with fewer big moves in the markets. In the U.S., GDP data for Q3 was revised much higher, showing the economy grew at an annual rate of 4.3%, the fastest pace in two years. At the same time, U.S. consumer confidence fell for a fifth month in a row, as people became more worried about jobs and business conditions.

The U.S. dollar weakened during the week, which helped gold surge to new record highs as the strong uptrend continued. USD/JPY moved lower after Bank of Japan Governor Ueda signaled the central bank is ready to raise interest rates further next year. The yen was also supported by verbal warnings from Finance Minister Katayama, while the 10-year Japanese government bond yield rose to 2.04%.

Stock markets in both the U.S. and Japan moved slightly higher, but gains were limited due to low holiday trading volumes. With no major surprises, most price action reflected year-end positioning rather than strong conviction, leaving markets ready to react to new data in the weeks ahead.

Markets This Week

U.S. Stocks

The Dow Index has returned to record highs as the U.S. economy continues to grow better than expected, easing fears of a sharp slowdown. With markets winding down for the year, trading is likely to remain quiet, making range trading the preferred strategy for those who choose to stay active. Resistance is seen at 49,000 and 50,000, while support is located at 48,000, 47,500, 47,000, 46,500, and 46,000.

Japanese Stocks

The Nikkei index edged slightly higher, supported by gains in U.S. stocks and the continued weakness of the yen. Price is holding above the 50,000 level, but the sideways-sloping 10-day moving average suggests that range-bound trading is likely to continue this week. Resistance is seen at 51,000円, 51,500円, and 52,000円, while support is located at 49,000円, 48,000円, and 47,000円.

USD/JPY

USD/JPY held firm near the yearly highs after the sharp rally triggered by the Bank of Japan’s monetary policy statement the previous week. This week, Bank of Japan Governor Ueda said further interest rate hikes are likely next year, while government comments suggesting the yen remains too weak encouraged continued selling pressure. Support held near the 10-day moving average, and rising long-term Japanese bond yields point to ongoing concerns about Japan’s public finances, keeping yen sellers active. With strong resistance around 158 and no direct intervention from the Bank of Japan so far, yen weakness may persist. In the short term, range trading between 155 and 158 looks like the most suitable strategy. Resistance is at 158, 159, and 160, while support is at 156, 155, and 154.5.

Gold

The strong uptrend in gold extended last week, with prices surging to fresh record highs as traders and investors continued to buy. There was no single news event driving the move, but the ongoing weakness in the U.S. dollar provided support. In the short term, gold is overbought, with prices trading above the upper Bollinger Band, but fighting the uptrend remains risky. The preferred approach is to wait for a pullback closer to the 10-day moving average before looking for buying opportunities. Resistance is seen at $4,600, $4,700, and $4,800, while support is located at $4,450, $4,380, $4,350, and $4,300.

Crude Oil

WTI crude held the yearly lows, encouraging some short-term speculative buying, with strong U.S. GDP data also providing support. However, resistance at $60 held, and the broader trend remains downward. As long as prices stay below $60, the focus remains on selling opportunities. Resistance is seen at $60, $65, $66.50, $70, and $75, while support remains at $55 and $50.

Bitcoin

Bitcoin had a quiet week as speculative selling continued following the drop back below $100,000, which has weakened market sentiment. Price remains range-bound, but risks are skewed toward further downside if additional speculative positions are liquidated. In the short term, the focus remains on selling opportunities rather than chasing rebounds. Key levels remain unchanged, with resistance at $95,000 and $100,000, while support is at $85,000, $80,000, and $75,000.

This Week’s Focus

• Monday: U.S. Pending Home Sales
• Tuesday: U.S. S&P Case-Shiller home price index, Chicago PMI and FOMC Minutes
• Wednesday: China Manufacturing PMI
• Friday: U.S. S&P Global US Manufacturing PMI

This is a shortened trading week with even fewer economic releases than last week, as New Year holidays around the world further reduce market activity. With low liquidity, large moves are unlikely, but surprises are always possible, especially in gold and USD/JPY, which remain popular with both short-term and long-term traders.

Monday, Dec 29, 2025

Tuesday, Dec 30, 2025

Wednesday, Dec 31, 2025

Thursday, Jan 1, 2026

Friday, Jan 2, 2026

Just four days ago, we reported on the record breakout above the $4,400 level. The bullish gold market is now providing a new reason for analysis. As the XAU/USD chart shows, the gold price has risen above $4,530 today, marking a new all-time high.

The fundamental backdrop supporting demand for the metal is driven by expectations of monetary policy easing by the Federal Reserve in 2026, a weaker US dollar, and rising geopolitical tensions.

Technical analysis of the XAU/USD chart

The previously established ascending channel has changed in width but has maintained its angle of inclination. In this context:

→ the upper boundary is acting as resistance;

→ the channel median is providing market support.

Note that:

→ following the breakout above the $4,350 level (as indicated by the arrow), the price advanced steadily towards $4,400;

→ however, in recent days the RSI indicator has been forming bearish divergences, suggesting that bullish momentum may be losing strength.

Under these conditions, the market appears vulnerable to the formation of a corrective pullback.

Indeed, after an approximate 70% rally since the beginning of the year, profit-taking from long positions looks increasingly attractive. Nevertheless, given the holiday period, we may see gold price fluctuations simply fade near the newly reached record, with market activity resuming in the new year.

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Key takeaways

Global equities stayed resilient in 2025, absorbing tariff-driven trade shocks and US-China tensions, with the iShares MSCI All World Index on pace for a strong third consecutive double-digit annual gain.

Asia and several emerging markets led performance, with South Korea, Brazil, and Hong Kong topping year-to-date returns, while the US outperformed only when measured from the April 2025 post-selloff reversal.

Rotations and valuation resets shaped regional winners, as capital shifted out of expensive US mega-cap tech into cheaper opportunities across Europe and Asia, with Hong Kong and Japan boosted by supportive liquidity and policy tailwinds.

Macro signals now favour a more dovish Fed in 2026, supported by falling inflationary expectations and weaker oil prices, conditions that lower the risk of reigniting inflation and widen the runway for rate cuts.

China’s deflation risks are easing, as core CPI stabilises, an improving backdrop that could extend Hong Kong’s multi-month uptrend, particularly if the Hang Seng Index breaks above the long-capped 27,500 resistance.

Technical setups point to potential leadership changes, with the Dow Jones Industrial Average positioned for catch-up gains amid a steeper yield curve and strengthening value factors, while Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index remain in major bullish structures.

Global stock markets have extended their bullish momentum from 2024 into 2025, navigating a year marked by significant macro and geopolitical shocks. Chief among them was the US administration’s imposition of reciprocal tariffs on all major trading partners, effectively igniting a new phase of the global trade war.

Tensions between the US and China also escalated, with tit-for-tat tariffs and sanctions targeting strategically critical sectors. These included advanced semiconductor chips used for cutting-edge AI models, as well as rare earths essential for magnets in the automotive, electronics, defence, and renewable energy industries.

Despite these headwinds, global equities have remained resilient. As of 25 December 2025, the iShares MSCI All Country World Index ETF is on track to finish the year up 21%, marking a potential third consecutive annual gain above 15%, following returns of 17.5% in 2024 and 22.3% in 2023.

Against this backdrop, we now turn to a review of the 2025 performances of key global benchmark stock indices and the main drivers behind their moves.

The global snapshot of diverging positive trajectories

Fig. 1: Year-to-date performance of global benchmark stock indices as of 25 Dec 2025 (Source: MacroMicro)

Fig. 2: Global benchmark stock indices performance from 7 April 2025 to 25 Dec 2025 (Source: MacroMicro)

Global benchmark stock indices are posting gains across two key reference periods: year to date as of 25 December 2025, and from the “US Liberation Day” market reversal on 7 April 2025 to 25 December 2025. The latter followed a sharp global equity drawdown of roughly 18% from the 18 February 2025 peak to the 7 April 2025 trough, triggered by the US administration’s announcement of sweeping reciprocal tariffs on 2 April 2025.

On a year-to-date basis, Asia-Pacific and emerging markets dominate performance. South Korea’s KOSPI leads with a surge of 71.2%, followed by Brazil’s Bovespa (+33.4%) and Hong Kong’s Hang Seng Index (+28.7%). These gains comfortably outpaced US benchmarks, including the Nasdaq 100 (+22.1%), S&P 500 (+17.9%), Dow Jones (+14.5%), and Russell 2000 (+14.3%) (see Fig. 1).

Looking at performance from 7 April to 25 December 2025, South Korea’s KOSPI (+76.5%) and Japan’s Nikkei 225 (+61.9%) remain leaders, while the Nasdaq 100 (+47.2%) ranks among the top four global outperformers (see Fig. 2).

In short, 2025 has been a strong year for global equities, but leadership has been uneven. Asia and parts of Europe have outperformed, while US markets have rallied with narrower leadership concentrated in AI-driven, high-productivity themes.

What drove the gains

Regional rotation and valuation appeal outside the US: Early in 2025, investors rotated out of stretched US large-cap technology stocks into cheaper value opportunities elsewhere. Europe benefited from more attractive valuations and renewed confidence in fiscal expansion and defence spending.

Macro and liquidity tailwinds in Asia: Improved liquidity conditions, supportive policy settings, and signs of regional economic recovery underpinned strong equity performance in markets such as Hong Kong and Japan.

Below is a summary of the key performance drivers across the major global benchmark stock indices.defensive/ dividend-oriented demand in an uncertain global environment.

Next, we break down the key macro forces that are likely to shape global equity performance in 2026.

Macro signals point to a potential dovish Fed in 2026

Fig. 3: US 5-YR & 10-YR breakeven rates with WTI crude oil as of 26 Dec 2025 (Source: TradingView)

The US Federal Reserve resumed its rate-cutting cycle in September 2025 after a nine-month pause, delivering three 25-basis-point cuts that brought the federal funds rate to 3.50%–3.75% as of 2 December 2025. According to the CME FedWatch Tool at the time of writing, futures markets expect the easing cycle to extend into 2026, with at least two additional 25-bp cuts priced in, lowering the policy rate to around 3.00%–3.25%.

The macro backdrop heading into 2026 is increasingly consistent with a more accommodative Fed. Both the 5-year and 10-year US breakeven inflation rates—key measures of long-term inflation expectations—have eased to around 2.24%, down from peaks of 2.62% and 2.42% in February 2025. This contrasts sharply with the inflation surge that culminated in mid-2022 and underscores that inflation expectations are now well anchored (see Fig. 3).

At the same time, the US 10-year Treasury yield has rolled over from its October 2023 highs and continued to trend lower through 2024 and 2025, signalling softer growth momentum that no longer justifies a restrictive policy stance. Crude oil prices have also weakened steadily, trading closer to the mid-US$50s. Historically, sustained declines in energy prices tend to dampen headline inflation and ease cost-push pressures.

Taken together, these conditions reduce the risk of a policy-driven inflation resurgence and strengthen the case for further easing. The Fed appears to have both the justification and the flexibility to pursue a more assertive easing path in 2026 to support growth without undermining price stability. A dovish Fed heading into 2026 is therefore likely to remain a key tailwind for the ongoing major bullish trend in global equity markets.

We now turn to the technical outlook for three major global stock indices that are likely poised to outperform in 2026.

Laggard Dow Jones Industrial Average shows potential outperformance over AI-driven Nasdaq 100

Fig. 4: US Wall Street 30 CFD Index, momentum, value factors, US Treasury yield curve as of 26 Dec 2025 (Source: TradingView)

Fig. 5: US Wall Street 30 CFD Index major trend as of 26 Dec 2025 (Source: TradingView)

Financials account for the largest sector weight in the Dow Jones Industrial Average, at roughly 27%, which helps explain its relative underperformance versus the Nasdaq 100 in 2025. The Nasdaq 100, with around 64% exposure to the Technology sector, has been the primary beneficiary of the AI-driven productivity narrative.

Looking ahead, a continuation of the Fed’s rate-cut cycle into 2026 could set the stage for a rotation within US equities. Lower interest rates tend to favour non-technology stocks with more attractive valuations and resilient earnings growth, raising the likelihood of a catch-up rally as the AI-centric advance broadens beyond mega-cap technology.

Rates and factor signals are already hinting at this shift. The US Treasury yield curve (10-year minus 2-year) has re-steepened from 0.48% on 29 October 2025 to 0.53% on 7 November 2025, coinciding with a bullish breakout in the ratio of the S&P 500 Enhanced Value ETF (with a 35% weighting in Financials) relative to the S&P 500 ETF (see Fig. 4). In contrast, the ratio of the S&P 500 Momentum ETF (36% weighted toward Information Technology) versus the S&P 500 ETF broke down on 3 November 2025, signalling waning relative leadership from momentum-heavy tech.

Taken together, a re-steepening yield curve and the emerging outperformance of the value factor point to improving relative prospects for the Dow Jones Industrial Average in 2026. To preserve its major uptrend, the US Wall Street 30 CFD Index (a proxy for Dow futures) needs to hold above the 44,975/44,260 long-term pivotal support zone (see Fig. 5) for a fresh bullish impulsive move, opening up scope for the next major resistances to come in at 49,220/49,670, 51,630, and 53,140/53,590.

Conversely, a failure to defend the 44,260 key support level would threaten the broader uptrend and raise the risk of a deeper corrective decline toward the next major supports at 40,830 and potentially 36,620.

Next, we turn to what may lie ahead for the Hong Kong and Japanese stock markets in 2026.

Japan's economy strengthens with robust positive earnings revisions

Fig. 6: Japan Citigroup Economic Surprise Index as of 22 Dec 2025 (Source: MacroMicro)

Fig. 7: Japan Citigroup Earnings Revision Index as of 19 Dec 2025 (Source: MacroMicro)

Japan’s economic momentum has strengthened steadily since the start of the year. As of 22 December 2025, the Citigroup Economic Surprise Index (ESI) for Japan has surged to 60.30, its highest level since 9 October 2023, rebounding sharply from a trough of -52.2 on 6 December 2024 (see Fig. 6). The ESI gauges how incoming economic data compares with market expectations, with readings above zero indicating consistent upside surprises.

In parallel, analyst sentiment toward Japanese corporates has turned increasingly positive. Citigroup’s Earnings Revision Index (ERI) for Japan, which measures the balance of upward versus downward EPS forecast revisions, stands at 0.38 as of 19 December 2025, higher than 0.26 recorded on 5 December 2025, according to MacroMicro. Japan now leads major regions on this metric, ahead of the US (0.0), Europe (-0.36), and the UK (0.13), underscoring Japan as the market with the strongest earnings optimism at present (see Fig. 7).

Long-term secular Nikkei 225 bulls are still in control

Fig. 8: Japan 225 CFD Index major trend as of 26 Dec 2025 (Source: TradingView)

Price action in the Japan 225 CFD Index (a proxy for Nikkei 225 futures) has remained firmly within a major bullish trend since its decisive breakout from a 12-month consolidation in early August 2025 (see Fig. 8).

The index went on to register a fresh all-time high of 52,664 on 4 November 2025, before undergoing an 8.8% multi-week medium-term correction that bottomed at 48,011 on 21 November 2025.

Notably, the pullback found support at the rising 50-day moving average and the lower boundary of the ascending channel originating from the 7 April 2025 low of 30,343, signalling that the broader uptrend remains intact.

Watch the 45,955 key long-term pivotal support; as long as it holds, the major bullish impulsive up move sequence remains intact, and a break above 52,840/53,310 sees the next major resistances coming in at 56,540/57,130, and 58,520.

Conversely, a decisive weekly close below 45,955 would invalidate the bullish bias and raise the risk of a deeper corrective decline toward the next major support zone at 42,520/41,620, also near the 200-day moving average.

Deflationary risk has subsided in China

Fig. 9: China inflation and housing price trends as of Nov 2025 (Source: MacroMicro)

China grappled with the risk of a deflationary spiral from 2020 to 2024, driven by the pandemic’s aftershocks, the bursting of the property bubble, and a period of less business-friendly policy toward the private sector, most notably the e-commerce industry. These deflation fears fed a negative feedback loop in both China and Hong Kong stock markets, leading to pronounced underperformance versus global peers over the past four years.

More recently, however, targeted accommodative measures from Beijing appear to be gaining traction. China’s three-year decline in consumer prices excluding food and energy has reversed, with core CPI rising 1.2% y/y in November 2025, its fastest pace since February 2024, after steadily recovering from a trough of -0.1% in February 2025 (see Fig. 9).

The heart of China’s deflation risk remains the property sector, given the powerful wealth effect where real estate accounts for roughly 70% of household retirement assets. A sustained turnaround in property prices would likely lift consumer confidence, revive domestic demand, and reinforce the nascent recovery in core inflation. Against this backdrop, an improving macro environment in China increases the likelihood that the major bullish trend in Hong Kong equities, which began in January 2024, can be sustained.

Watch the 27,500 key resistance on the Hang Seng Index

Fig. 10: Hong Kong 33 CFD Index major trend as of 24 Dec 2025 (Source: TradingView)

The Hong Kong 33 CFD Index (a proxy for Hang Seng Index futures), has extended its multi-month rally to a year-to-date high of 27,401 on 29 September 2025, just shy of its major resistance at 27,500, a long-term descending trendline that has capped previous bullish advances since the all-time high of 33,495 on 29 January 2018 (see Fig. 10).

A weekly close above 27,500 would signal a potential major bullish breakout, with the next key resistance levels at 29,420 and 31,120. On the flipside, failure to hold the pivotal long-term support at 22,670 could trigger a deeper corrective decline, potentially targeting the next support zone between 19,700 and 19,030.

As the AUD/USD chart indicates, the pair updated its yearly highs today, reaching levels above 0.6710. Since the beginning of December, it has risen by approximately 2.45%.

Key bullish drivers include:

→ Central bank policy divergence. While the Federal Reserve is cutting interest rates, the Reserve Bank of Australia is seriously discussing the possibility of rate hikes in 2026 (as reflected in the minutes of the latest RBA meeting).

→ Record-high gold prices. As the Australian dollar is a commodity currency, it shows a strong correlation with prices of key export commodities.

Technical analysis of the AUD/USD chart

In December, price action continued to form an ascending channel. In this context:

→ the price found support near the lower boundary between 18 and 22 December;

→ the median line regained its role as support (as indicated by the arrow).

However, bulls have a serious reason for concern.

After breaking above the September high near the 0.6707 level, a Double Top pattern appears to be forming. From a Smart Money Concept perspective, this setup may be interpreted as a bearish liquidity sweep.

Given the above, we can assume that the median line may still act as support. Nevertheless, if bears manage to seize control, the AUD/USD exchange rate could decline towards the lower boundary of the channel and attempt a downside breakout.

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