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Q1 Outlook for Traders: Five Big Questions and Three Grey Swans.
John J. Hardy
Global Head of Macro Strategy
Strap yourself in for key market questions that must be answered in 2026.
The FX Trader: Fresh JPY pressure on snap election talk.
John J. Hardy
Global Head of Macro Strategy
Summary: The JPY devaluation trade found new fuel on talk that Japan PM Takaichi will look to call snap elections for as soon as February to capitalize on her popularity and secure a parliamentary majority for the LDP, which would give her party a freer hand for larger fiscal measures.
What to know
Japan’s yen weakened sharply again on rising anticipation that LDP Prime Minister Takaichi is set to call snap elections, possibly as soon as February if she dissolves parliament on January 23 when it convenes. Her popularity has soared in part on the confrontation with China over her comments on Taiwan and the former’s embargo of rare earth elements exports to Japan. This sent long Japanese yields soaring, with the 10-year JGB benchmark up a chunky 7.5 basis points in Tuesday’s session to 2.175%, a new modern high since the 1990’s as the market anticipates that an LDP majority would see a larger fiscal expansion. This sent USDJPY well clear of the local sub-158.00 area resistance and well on its way to 159.00 and likely eventually to test the modern highs near 162.00 if nothing in the dynamic shifts. Elsewhere, volatility remains extremely muted. The US dollar has come back after faltering on Monday on Fed Chair Powell being served with a subpoena that supposedly may see him indicted for perjury related to his testimony on cost overruns for renovations of Fed buildings. Trump’s coalition is faltering on this potential overreach by the president’s team via the MAGA attack dog Jeanine Pirro of the US attorney’s office in Washington DC. Treasury Secretary Bessent is said to have called the situation “a mess”. Chart focus: USDJPY
USDJPY is soaring well clear of the recent 157.89 resistance again after a brief stumble Monday on concerns for Fed independence (don’t worry, that issue will return). The weak JPY momentum is almost the only thing going on in currencies these days as EURJPY notched an all time high as well. Hard to see what stops a test of the almost 40-year highs (!) at 161.95. Past rhetoric has indicated that the Ministry of Finance in Japan is more concerned with the pace of JPY weakening than necessarily the level, so interesting to see if the market becomes unsettled if rate is allowed to run north of 160.00 without much comment from Japanese officialdom.
Technical and other observations for key pairs.
EURUSD – the modest backup on concerns for Fed independence was quickly erased, but volatility is so incredibly low that we’re without much of a signal here. Bulls are disappointed, but bears don’t get encouragement unless we start slipping below 1.1600, perhaps after the US CPI release today.
JPY pairs – the JPY to remain under pressure barring a loud policy signal from Japan that counters common knowledge or something that drives heightened anticipation of intervention in Fed policy from the Trump administration. EURJPY hit a new all-time high.
GBPUSD and EURGBP – an encouraging signal for EURGBP bears yesterday that reinforces the strength of the sub-0.8700 resistance. Next, can the 0.8644 level be overcome for a run toward 0.8600 and beyond. Sterling out-firmed the US dollar yesterday, rejecting the minor local lows below 1.3400 – but the 1.3500+ area has been a big hurdle.
AUDUSD and AUD pairs– the bearish reversal has not yet achieved traction lower, needing a plunge through 0.6660 to do so, leaving us in limbo here for now. Some further consolidation lower in AUDNZD, meanwhile.
USDCAD – PM Mark Carney is on his way to China to talk trade. Can only shield our eyes at the Trump response if he sends positive message on the prospect for future cooperation on almost anything. USDCAD is in limbo between the 1.4140 and 1.3640 extremes.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
It’s amazing that JPY is achieving a -8.6 reading (rare to see absolute magnitude of trends exceeding about 6 outside of precious metals) with an ATR ranking (daily trading ranges for JPY pairs) in the bottom 10% of the last 1,000 trading days – really demonstrates the degree to which the yen is an outlier here. Elsewhere, signals are muted, with SEK notable in the strong column, while AUD has faded slightly.
Table: NEW FX Board Trend Scoreboard for individual pairs. EURUSD, USDCAD, NZDUSD and USDCHF have joined the USD pairs “trending” in the US dollar’s favour, but the charts are all buried within recent ranges – so the signal quality is questionable here. Elsewhere, the EURSEK downtrend has intensified as the pair closed below 10.70 for the first time since late 2022.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..
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