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Eurozone PMI Manufacturing was finalized at 48.8 in December, down from November’s 49.6 and marking a nine-month low. Regional divergence remained pronounced. Greece (52.9) and Ireland (52.2) stayed in expansion, while the Netherlands held just above 50 at 51.1. France surprised on the upside at 50.7. However, weakness in the core was decisive, with Germany (47.0) and Italy (47.9) both sliding deeper into contraction and Spain (49.6) slipping back below the 50 threshold after a long expansion run.

According to Hamburg Commercial Bank, the manufacturing downturn has persisted almost continuously since mid-2022. Chief Economist Cyrus de la Rubia said 2025 brought some easing in the downturn but failed to generate a sustainable growth trajectory. Looking ahead, he pointed to Germany’s planned stimulus and rising defence spending across Europe as potential lifelines for 2026.

Input prices rose for a second consecutive month despite falling energy prices, driven instead by sharp gains in industrial metals and lingering supply-chain frictions. With delivery times lengthening and pricing power limited, the outlook remains challenging, leaving fiscal support as a key hope for reviving Eurozone manufacturing momentum in 2026.

Full Eurozone PMI manufacturing final release here.

Chinese Yuan extended its advance into the opening day of 2026, climbing to its strongest level against Dollar since May 2023. Part of the rally appears to reflect a knee-jerk reaction to the basket adjustment. China’s foreign exchange trade platform said the CFETS basket will be updated in 2026 as part of its routine annual reweighting based on trade flows, lowering the relative influence of both Dollar and Euro.

Specifically, Dollar weighting will fall to 18.307% from 18.903%. Euro weighting will edge down to 17.862% from 17.902%. While both remain the two largest components, their diluted weight reduces their influence on the daily fixing process, giving the People’s Bank of China slightly more flexibility in managing Yuan stability against a broader set of trading partners.

Another notable shift was regional. Korean Won overtook Japanese Yen to become the third-heaviest currency in the basket, reflecting the growing importance of China–South Korea trade, as diplomatic relations with Japan also turned sour. Weightings for Hong Kong Dollar and Thai Baht were also increased.

Still, price action suggests Yuan strength is confined to Dollar alone. EUR/CNH is showing renewed vulnerability, hinting that the move could be spreading beyond a mechanical basket adjustment.

Technically, EUR/CNH’s break below 8.2040 support signals that the rebound from 8.1660 has likely completed at 8.3004. That opens the door for a deeper fall toward 8.1660, with a firm break there extending the broader downtrend from 8.4638. In this case, next target is 38.2% retracement of 7.4886 to 8.4638 at 8.0913.

USD/CNH, meanwhile, is pressing key support near the 2024 low at 6.979. The downtrend from 7.4287 remains intact, though a critical Fibonacci level lies just ahead. That level sits at the 100% projection of 7.4287 to 7.1608 from 7.2224 at 6.9545. Strong support is expected there to trigger at least a corrective rebound. Firm break above 7.0140 resistance will signal short-term bottoming and opening a move back toward 55 D EMA (now at 7.0692).

However, sustained breaks below 6.9545 in USD/CNH and 8.1660 in EUR/CNH would suggest markets are pricing in something more structural than basket mechanics—potentially a shift toward a Yuan appreciation bias in 2026. In that scenario, USD/CNH could extend toward 138.2% projection at 6.8522.

In focus today

Over Christmas, markets have focused on geopolitical developments and the FOMC minutes released the day before New Year's Eve. Otherwise, markets have remained relatively calm ahead of the critical US and euro area figures set for release over the coming days.

For today, December manufacturing PMIs are set to be released for the US, euro area, Norway, UK and Canada. In the euro area, the flash estimate of 49.2 was released in very early December due to the holidays, so there could be a larger-than-usual revision.

Economic and market news

What happened this week

In geopolitics, US President Trump said the US has struck a facility inside Venezuela, significantly escalating the campaign against alleged drug trafficking operations. Additionally, the US struck vessels allegedly carrying drugs in international waters and imposed sanctions on four oil traders.

Following the meeting between US President Trump and Israeli President Netanyahu, Trump said that the United States would back Israeli strikes on Iran if Iran continued with its ballistic missile and nuclear weapon program. The president said he has heard Iran is "behaving badly" and is looking to restart its nuclear program, but he declined to provide additional details. Leading up to the meeting, Iranian President Pezeshkian said that Iran was in an "all-out war" with the US, Israel and Europe.

China launched large-scale military drills around Taiwan at the start of the week. Taiwanese markets reacted very calmly as the drills appear similar to what we have seen several times in the past. The drills followed a pattern of China 'retaliating' to events it deems as provocation, as they began less than two weeks after US announced USD 11.1bn arms sale to Taiwan. For the first time, China publicly stated that the goal of the drills is to serve as a warning not only to 'separatist forces' within Taiwan, but also for 'external interference forces.

In the US, the FOMC December minutes offered no big surprises and the participants' views remained divided on the outlook for interest rates. If anything, the tone was slightly dovish, given that the discussion on risks was mostly focused on the downside risks to labour markets. To quote, upside risks to inflation 'remain elevated' but downside risks to labour markets 'were elevated and had increased since mid-2025'.

Regarding the balance sheet, nothing was too striking either. The minutes emphasized flexibility for conducting reserve management purchases e.g. allowing the purchase amounts to vary depending on fluctuations of non-reserve liabilities (so around tax dates, debt ceiling debates etc.). The discussion specifically highlighted maintaining purchase amounts at elevated levels until the mid-April tax date and then cutting back thereafter as we have expected.

In the euro area, the flash estimate of December inflation in Spain was released in line with expectations at 2.9% y/y. Spain HICP inflation was at 3% y/y for December and is an early release ahead of the euro area data next week. We expect euro area HICP inflation to decline to 2.0% y/y in December from 2.1% y/y in November. Energy prices have declined since November due to the warm weather in Europe which is the main reason for the expected decline in headline inflation. We expect core inflation to remain steady at 2.4% y/y showing a similar momentum as previous months. Services inflation should remain elevated at 3.4% y/y due to the still strong wage growth.

In Sweden, the Riksbank minutes contained few surprises overall. All members agreed on holding steady the policy rate of 1.75% and the policy rate is expected to be on hold for the next quarters. Governor of the Riksbank Erik Thedéen said that he has confidence in the Riksbank's forecasts and emphasised that the Riksbank will be forward-looking this year and look through temporary declines in inflation from the VAT reduction on food. Thedéen also saw little room for a policy rate cut unless both the economy and inflation surprise on the downside.

In China, the private manufacturing PMI released in positive territory of 50.1, beating expectations of 49.8. Stronger factory activity and a modest uptick in domestic demand offset a decline in export sales. Business sentiment weakened as input cost inflation increased and employment declined.

Equities: Global equities recorded slight negative performance towards the end of the year, with the defensive sector beating the cyclicals by about 1% in the holiday season trading. The overall equity performance for 2025 ended at about 20% for MSCI world. Looking ahead, estimates for 2026 performance is concentrated in the range of 10% return (for the S&P500).

FI and FX: The EUR and the USD were outperformed by among others the Scandi currencies over the holiday season. The latter were aided by a rebound in stock prices with EUR/SEK falling to around 10.80 and EUR/NOK to around 11.80. EUR/USD hovered above 1.17. The 10Y US Treasury yield held steady with the FOMC minutes showing a committee split over what to do next. There was pressure on the US repo markets with SOFR fixing rising outside the Fed's target range before year-end. That prompted dealers to borrow USD75bn on the Fed's standing repo facility - a record amount. Oil prices were stable in the final weeks of December despite a lot of focus on geopolitics, including Russia-Ukraine peace talks.

Key Highlights

• USD/JPY started a fresh increase above the 156.50 zone.
• A bullish flag seems to be forming with resistance at 156.80 on the 4-hour chart.
• EUR/USD is consolidating gains above 1.1720.
• GBP/USD could aim for a fresh increase if it clears 1.3520.

USD/JPY Technical Analysis

The US Dollar started a fresh increase above 156.20 against the Japanese Yen. USD/JPY cleared the 156.50 resistance to enter a positive zone.

Looking at the 4-hour chart, the pair settled above the 156.50 level, the 200 simple moving average (green, 4-hour), and the 100 simple moving average (red, 4-hour). A high was formed at 156.99 and the pair is now consolidating gains.

There was a minor decline below 156.70, and the 23.6% Fib retracement level of the upward move from the 155.74 swing low to the 156.99 high. However, there is a bullish flag seems to be forming with resistance at 156.80.

On the downside, there is key support at 156.35 and the 50% Fib retracement. It is also close to the 100-SMA. A downside break below the 100-SMA might spark bearish moves. The next major support could be 156.00, below which the pair might dive and test 155.50.

Immediate resistance sits near 156.70. The first key hurdle is seen near 157.00. A close above 157.00 could open the doors for a move toward 157.50. Any more gains could set the pace for a steady increase toward 158.00.

Looking at EUR/USD, the pair is consolidating gains and could aim for another increase if it manages to clear the 1.1800 resistance.

Upcoming Key Economic Events:

• Euro Zone Manufacturing PMI for Dec 2025 – Forecast 49.2, versus 49.2 previous.
• US Manufacturing PMI for Dec 2025 – Forecast 51.8, versus 51.8 previous.

EURJPY: ⬆️ Buy

• EURJPY reversed from support area
•  Likely to rise to resistance level 184.85

EURJPY currency pair recently reversed from the support area between the pivotal support level 183.25 (former resistance from the start of December) and the 50% Fibonacci correction of the upward impulse from December.

The upward reversal from this support zone continues the active impulse wave iii – which belongs to the higher order impulse waves 3 and (5).

Given the clear daily uptrend, EURJPY currency pair can be expected to rise to the next resistance level 184.85 (top of the previous impulse wave iii).

S&P 500: ⬇️ Sell

• S&P 500 reversed from strong resistance level 6935.00
• Likely to fall to support level 6710.00

S&P 500 index recently reversed from the resistance area between the strong resistance level 6935.00 (which has been reversing the price from the end of October) and the upper daily Bollinger Band.

The downward reversal from this resistance area stopped the previous sharp upward impulse wave 3 of the intermediate impulse wave (3) from November.

Given the strength of the resistance level 6935.00 and the overbought daily Stochastic, S&P 500 index be expected to fall to the next strong support level 6710.00 (low of the previous wave 2).

US initial jobless claims fell -16k to 199k in the week ending December 27, well below expectation of 215k. Four-week moving average of initial claims rose 2k to 219k.

Continuing claims fell -47k to 1866k in the week ending December 20. Four-week moving average of continuing claims fell -20k to 1874k.

Full US jobless claims release here.

• The return of American exceptionalism will help the greenback.
• The yen will start the new year with interventions, and the RBA with a rate hike.

The US dollar ends 2025 with its worst performance in nearly a decade. By mid-September, fears for the fate of the US economy due to tariffs and expectations of Fed rate cuts had caused the USD index to plummet to its lowest level in 3.5 years. However, the greenback then recovered thanks to large-scale investments in artificial intelligence, GDP growth and capital inflows into the stock market.

At the end of the year, divergence in monetary policy between the Fed and other central banks caused the USD index to fall. Goldman Sachs believes that the downward trend for the US dollar will continue in 2026, albeit on a smaller scale. The main drivers of the greenback's decline will be accelerating economic growth abroad and lower federal funds rates. The consensus forecast of major Wall Street banks is for EURUSD to rise to 1.2 and GBPUSD to 1.36 by the end of 2026.

What could go wrong? A Supreme Court ruling that the White House tariffs are illegal would sow chaos in financial markets and force investors to buy the US dollar as a safe-haven asset. A big and beautiful tax cut bill, coupled with investments in artificial intelligence, will boost GDP and bring back the theme of American exceptionalism to the markets. As a result, the Fed will have less reason to ease monetary policy. The federal funds rate will be cut only once in 2026, if at all.

If the factors of divergence in monetary policy and the narrowing gap in economic growth between the US and the eurozone do not work, investors' views on the fate of the US dollar will change radically. History may play in favour of the greenback. In 2017, Donald Trump's first year as president, the USD index weakened significantly. However, in 2018, it recovered some of its lost ground.

The yen will start 2026 under the sign of intervention. The government is unhappy with the USDJPY rally, and the Bank of Japan has failed to break the bulls' back by raising the overnight rate to its highest level since 1995. Either a rapid continuation of the cycle of monetary restriction or Tokyo's intervention in the Forex market is required.

The Australian dollar appears to be the favourite thanks to expectations of a key rate hike by the Reserve Bank and the Chinese economy's adaptation to US tariffs.