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The EUR/USD pair declined to around 1.1700 after the European Central Bank (ECB) left key interest rates unchanged, a widely anticipated decision that provided little fresh directional impetus for the single currency.

As expected, the main refinancing rate was held at 2.15%, with the deposit facility rate unchanged at 2.0%. ECB officials reiterated their commitment to a meeting-by-meeting, data-dependent approach.

During the subsequent press conference, President Christine Lagarde stated that policymakers did not discuss either a rate hike or a cut at this juncture. She emphasised that the ECB does not have a pre-set path for interest rates and, given the prevailing high uncertainty, cannot provide forward guidance on future policy moves.

In parallel, the central bank released its latest quarterly economic projections. Growth forecasts were revised upwards to 1.4% for 2025, 1.2% for 2026, and 1.4% for 2027. The inflation outlook for 2026 was also adjusted higher, primarily driven by persistent price pressures in the services sector.

Technical Analysis: EUR/USD

H4 Chart:

On the H4 chart, the pair completed a corrective rebound to 1.1760 and is now forming a downward impulse targeting 1.1706. A break below this level is anticipated, which would set the next local bearish target at 1.1640.

This scenario is technically confirmed by the MACD indicator. Its signal line is positioned above zero but is pointing sharply downwards, reflecting sustained bearish momentum and the potential for a further extension of the downtrend.

H1 Chart:

On the H1 chart, the market has finished a first decline to 1.1705, followed by a correction to 1.1755. A second downward impulse towards 1.1705 is currently developing. A clear break below this support would signal the potential for a third wave of decline, targeting the 1.1645 level as a local objective.

This outlook is supported by the Stochastic oscillator, whose signal line is below the 50 level and trending firmly downwards.

Conclusion

The euro remains range-bound following a largely uneventful ECB meeting, with the central bank's cautious, data-dependent stance offering little support. The technical structure points to further downside risk, with a break below immediate support at 1.1705 likely to trigger a move towards the 1.1640 area.

Key takeaways

BoJ policy supportive for equities: The BoJ’s expected 25bp hike to 0.75% and guidance for a gradual, data-dependent tightening path into 2026 signal policy normalization without destabilising financial conditions, reducing downside risks for Japanese equities.

Stronger JPY no longer a headwind: Domestic-oriented Nikkei 225 stocks are outperforming export-heavy names, indicating that modest JPY strength and improving consumer confidence can coexist with a sustained equity uptrend.

Technical backdrop constructive: The Nikkei 225 is showing signs of a minor bullish reversal after a shallow pullback, with momentum indicators improving and key supports holding, suggesting limited risk of a major corrective decline.

The Bank of Japan (BoJ) has hiked its overnight policy rate by 25 basis points (bps) to 0.75% on Friday, 19 December 2025, as expected, its highest level in 30 years.

In its policy statement, the BoJ said it will continue raising the policy rate as long as economic activity and inflation evolve in line with its projections, signalling a conditional bias toward further tightening. Policymakers noted that the probability of achieving the baseline outlook has increased, underscoring growing confidence that inflation is becoming more entrenched rather than transitory.

The BoJ also reaffirmed its commitment to achieving the 2% inflation target in a sustainable and stable manner, while guarding against overly aggressive tightening that could disrupt financial conditions. Officials highlighted that wages and prices are expected to rise at a moderate and coordinated pace, reinforcing the view that inflation is increasingly underpinned by domestic demand rather than one-off cost shocks.

In essence, the BoJ is signalling its intention to continue a gradual rate-hiking path into 2026, with a clear emphasis on managing volatility in the Japanese Government Bond (JGB) market. Policymakers are wary that a rapid, one-way rise in 10-year and 30-year JGB yields could tighten financial conditions prematurely and undermine Japan’s economic growth prospects.

Markets now await further clarity from BoJ Governor Ueda’s press conference at 0630 GMT on how cautiously the BoJ intends to proceed into 2026 and beyond.

The Nikkei 225 advanced for a second straight session, up 0.8% intraday at the time of writing, rebounding after a four-day pullback that began on Friday, 12 December 2025.

We will now highlight several technical factors that support the BoJ’s current gradual and bit-sized monetary tightening policy, which, in turn, leads to a stronger JPY, and is unlikely to trigger a significant major corrective decline sequence in the Nikkei 225.

Gone are the days when a broad major bullish trend of the Nikkei 225 requires a weak JPY to support it.

Japan’s equities with high domestic exposure are outperforming exporters

Fig. 1: Nikkei 225 Domestic Exposure & Global Exposure indices major trends as of 18 Dec 2025 (Source: MacroMicro)

A stronger JPY is likely to negate the current higher cost-of-living squeeze in Japan, in turn, further boosting consumer confidence, which leads to an increase in domestic spending.

Within the Nikkei 225, stocks with a higher reliance on domestic Japanese sales are outperforming export-heavy names, particularly technology equipment and automobile manufacturers with greater overseas exposure.

Since 9 December 2025, the Nikkei 225 Domestic Exposure 50 Index (domestic sales) has outperformed the Nikkei 225 Global Exposure 50 Index (international sales), where its ratio jumped by 5.4% as of Thursday, 18 December 2025 (see Fig. 1).

Hence, this observation supports the view that a gradual BoJ rate-hiking cycle is unlikely to trigger a major corrective decline in the Nikkei 225.

Preferred trend bias (1-3 days) of Nikkei 225 – Minor bullish reversal in progress

Fig. 2: Japan 225 CFD Index minor trend as of 19 Dec 2025 (Source: TradingView)

Watch the 49,130 short-term pivotal support on the Japan 225 CFD Index (a proxy of the Nikkei 225 futures), and a clearance above near-term resistance of 49,850 (also the 20-day and 50-day moving averages) is likely to reinforce a potential minor bullish reversal towards the next intermediate resistances of 50,490 and 50,985 in the first step (see Fig. 2).

Key elements

• The recent 4-day decline has stalled at the 76.4% Fibonacci retracement of the prior minor bullish impulsive up move sequence from 21 November 2025 low to 12 December 2025 high.
• The hourly RSI momentum indicator has continued to flash bullish momentum conditions since the emergence of a bullish divergence signal on 18 December 2025 at its oversold region.

Alternative trend bias (1 to 3 days)

A break below 49,130 invalidates the bullish bias on the Japan 225 CFD Index to expose the 48,450 key medium-term pivotal support next.

As the XAU/USD chart shows, gold rallied yesterday to near its October all-time high around the 4,380 level, before pulling back (as indicated by the arrow).

The surge in volatility was driven by a combination of factors:

→ Expectations of US rate cuts. According to media reports, data released yesterday showed that inflation slowed to 2.7% in November, below the 3.1% forecast, while core CPI eased to 2.6%, the lowest reading since March 2021. Markets are currently pricing in roughly a 25% chance of a rate cut in January, with a cut by April seen as almost certain.

→ Geopolitical tensions. Traders are closely monitoring developments linked to Venezuela, where the risk of an armed conflict involving the United States has increased. Market participants also reacted to statements from UK and European politicians ahead of the EU summit.

On 5 December, we:

→ noted that the lack of a clear trend had resulted in the formation of a symmetrical triangle, with its midline around $4,205;

→ suggested that this pattern on the XAU/USD chart could act like a “compressed spring”, eventually leading to a volatility breakout.

Such a volatility surge materialised on 11–12 December, when gold broke out of the triangle and posted a high near $4,340.

Since then, a new triangle has begun to form, with a central axis around $4,316, reflecting a developing balance between supply and demand. In this context, it is worth highlighting that:

→ yesterday’s rally and subsequent reversal can be interpreted as a false bullish breakout, signalling strong selling pressure near the record high and suggesting that gold may retreat towards the lower boundary of the emerging triangle;

→ the approaching holiday period is typically associated with thinner market liquidity, which often amplifies price swings. In such conditions, gold could still surprise traders with another push to fresh record highs.

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In the bigger picture, rise from 0.8221 medium term bottom is still seen as a corrective move. Upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Sustained trading below 55 W EMA (now at 0.8605) should confirm that this corrective bounce has completed. However, decisive break of 0.8867 will suggest that EUR/GBP is already reversing whole decline from 0.9267 (2022 high). That should pave the way back to 0.9267.

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