Quarterly Outlook
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.
USD poised at major resistance
John J. Hardy
Global Head of Macro Strategy
Summary: USD looks firm even as US yields fell all along the curve late last week. The dollar outlook is poised at important resistance this week as we look for potential breaks higher against EUR and JPY.
Risk appetite rolled over late last week, supposedly on discouraging comments from the Trump administration officials on the status of US-China trade negotiations and President Trump’s announcement that he would not be meeting Xi Jinping before the March 1 negotiation deadline.
US yields are also lower all along the yield curve as the market begins to game the timing of the Federal Reserve’s first rate cut – currently only about 25% odds of a cut at the December Federal Open Market Committee meeting priced in thus far. The USD is very firm and broadly so, with EURUSD opening this week poised just above the 1.1300 area and nominal mostly intraday lows below that level. USDJPY also failed to correct lower – an interesting sign of resilience, as we discuss below.
This week, the chief focus will be on that broad US dollar picture and whether resistance gives way for another leg higher, driven by preference for the liquidity of the US dollar as the global outlook remains concerning on all fronts. The risk remains that investors are unwilling to commit to a breakout until we see what emerges from US-China trade negotiations and Brexit.
Given that implied volatilities for major USD pairs (outside of GBPUSD) remain very low, the market is not showing symptoms of enormous pent-up energy and long USD volatility, regardless of direction, offers compelling potential reward for the risk, assuming something eventually breaks loose after the March 1 timeframe. Given the enormous shock administered to global markets in December, it’s hard to believe we can revert to abject complacency.
Elsewhere this week, we have pivotal event risks for NZD and SEK, with the Reserve Bank of New Zealand and Riksbank set to make their latest announcements. The commodity dollar trio was punished last week on a variety of developments that pointed the needle back to the downside, particularly if we are set for further rough seas in global asset markets.
The Swedish krona, meanwhile, saw its lowest weekly close versus the US dollar since late 2016 (that weekly close in USDSEK, in turn, was the highest since 2002). We would argue that the RBNZ is set to wax increasingly dovish in line with collapsing short-term interest rates in NZ and the Riksbank has every reason to do the same – and has long raised using the currency as a tool to provide easing.
Chart: EURUSD
EURUSD is mere pips away from the key range low toward 1.1300, and a solid break could finally open up for more volatility this week. Inconveniently, however, we continue to await news from US-China trade negotiations and Brexit, so will traders long caught whipsawed by prior breakouts in both directions be willing to chase a move lower? Don’t know, but the price action looks heavy and some may decide that they need exposure to the breakout if one develops and have to chase it. Next levels lower will likely zero in on 1.1000, given the pair’s affinity for big round levels.
US yields are also lower all along the yield curve as the market begins to game the timing of the Federal Reserve’s first rate cut – currently only about 25% odds of a cut at the December Federal Open Market Committee meeting priced in thus far. The USD is very firm and broadly so, with EURUSD opening this week poised just above the 1.1300 area and nominal mostly intraday lows below that level. USDJPY also failed to correct lower – an interesting sign of resilience, as we discuss below.
This week, the chief focus will be on that broad US dollar picture and whether resistance gives way for another leg higher, driven by preference for the liquidity of the US dollar as the global outlook remains concerning on all fronts. The risk remains that investors are unwilling to commit to a breakout until we see what emerges from US-China trade negotiations and Brexit.
Given that implied volatilities for major USD pairs (outside of GBPUSD) remain very low, the market is not showing symptoms of enormous pent-up energy and long USD volatility, regardless of direction, offers compelling potential reward for the risk, assuming something eventually breaks loose after the March 1 timeframe. Given the enormous shock administered to global markets in December, it’s hard to believe we can revert to abject complacency.
Elsewhere this week, we have pivotal event risks for NZD and SEK, with the Reserve Bank of New Zealand and Riksbank set to make their latest announcements. The commodity dollar trio was punished last week on a variety of developments that pointed the needle back to the downside, particularly if we are set for further rough seas in global asset markets.
The Swedish krona, meanwhile, saw its lowest weekly close versus the US dollar since late 2016 (that weekly close in USDSEK, in turn, was the highest since 2002). We would argue that the RBNZ is set to wax increasingly dovish in line with collapsing short-term interest rates in NZ and the Riksbank has every reason to do the same – and has long raised using the currency as a tool to provide easing.
Chart: EURUSD
EURUSD is mere pips away from the key range low toward 1.1300, and a solid break could finally open up for more volatility this week. Inconveniently, however, we continue to await news from US-China trade negotiations and Brexit, so will traders long caught whipsawed by prior breakouts in both directions be willing to chase a move lower? Don’t know, but the price action looks heavy and some may decide that they need exposure to the breakout if one develops and have to chase it. Next levels lower will likely zero in on 1.1000, given the pair’s affinity for big round levels.
The G-10 rundown
USD – the broad USD picture looks positive with the rather odd exception of resilient emerging market urrencies, especially given the weaker CNY as China’s markets return from holiday. USD interest picks up if the EURUSD supermajor can break out of the range this week.
EUR – the German 10-year bund benchmark notched a new low for the cycle last week below 10 basis points, underlining the terrible outlook across the EU. Don’t see what has any chance of shoring up the euro’s prospects in the near term.
JPY – the yen hasn’t cooperated with the idea that it will outperform across the board if both risk appetite and global bond yields fall as the USDJPY chart remains very well supported here and the pair is banging on 110.00 and possibly looking for more short-term gains. Elsewhere, we would still suspect JPY resilience if global risk sentiment continues to worsen (especially for EM – think carry trades).
GBP – busy calendar today for the UK, but traders aren’t going to commit capital to trades until we get the important Brexit developments we are all waiting for. The noise level on a vote to avoid a cliff-edge on March 29 will increase in the days ahead.
CHF – risk off, lower yields and a creeping rise in EU existential risks at the margin are driving EURCHF back lower, but SNB likely to get busy if the pair approaches the 1.1200 area again.
AUD – iron ore goes limit up overnight in Asia on the supply risks from Brazil – interesting to see how little the bump in the mining giants and the milder than expected outcome of the Royal Commission inquiry has been felt in AUD, where the negative focus is on the housing market bubble unwind and RBA beginning to raise the white flag on its guidance.
CAD – USDCAD posted a bullish reversal last week and we look for follow up price action to the upside until proven otherwise. A few housing-related event risks this week, with the January Teranet/National Bank home price index up mid-week.
NZD – RBNZ this week the obvious focus for kiwi as rate expectations collapsed last week on the latest jobs and earnings data. Kiwi has escaped weakness as the market has preferred to use AUD as the Antipodean whipping boy – this week an important test of that tendency.
SEK – a pivotal week for SEK, which has run away to the downside recently. What signal will the Riksbank send – if the bank tilts to a more cautious stance, there is little to nothing to work with on the interest rate policy front, leaving QE and the currency (the Riksbank has been very happy to bring the krona into the discussion as a policy tool).
NOK – a weak CPI print this morning adds further energy to the squeeze back higher in EURNOK this morning. Still assuming the highs from over the holiday period are too big a hurdle for the pair to overcome until proven otherwise. Last resistance levels ahead of the cycle top look like 9.90 and then 10.00.
Upcoming Economic Calendar Highlights (all times GMT)
• 0930 – UK Q4 GDP Estimate
• 0930 – UK Dec. Visible Trade Balance
• 0930 – UK Dec. Manufacturing Production
• 1400 – ECB’s Knot to Speak
• 0030 – Australia Dec. Home Loans
• 0030 – Australia Jan. NAB Business Surveys
USD – the broad USD picture looks positive with the rather odd exception of resilient emerging market urrencies, especially given the weaker CNY as China’s markets return from holiday. USD interest picks up if the EURUSD supermajor can break out of the range this week.
EUR – the German 10-year bund benchmark notched a new low for the cycle last week below 10 basis points, underlining the terrible outlook across the EU. Don’t see what has any chance of shoring up the euro’s prospects in the near term.
JPY – the yen hasn’t cooperated with the idea that it will outperform across the board if both risk appetite and global bond yields fall as the USDJPY chart remains very well supported here and the pair is banging on 110.00 and possibly looking for more short-term gains. Elsewhere, we would still suspect JPY resilience if global risk sentiment continues to worsen (especially for EM – think carry trades).
GBP – busy calendar today for the UK, but traders aren’t going to commit capital to trades until we get the important Brexit developments we are all waiting for. The noise level on a vote to avoid a cliff-edge on March 29 will increase in the days ahead.
CHF – risk off, lower yields and a creeping rise in EU existential risks at the margin are driving EURCHF back lower, but SNB likely to get busy if the pair approaches the 1.1200 area again.
AUD – iron ore goes limit up overnight in Asia on the supply risks from Brazil – interesting to see how little the bump in the mining giants and the milder than expected outcome of the Royal Commission inquiry has been felt in AUD, where the negative focus is on the housing market bubble unwind and RBA beginning to raise the white flag on its guidance.
CAD – USDCAD posted a bullish reversal last week and we look for follow up price action to the upside until proven otherwise. A few housing-related event risks this week, with the January Teranet/National Bank home price index up mid-week.
NZD – RBNZ this week the obvious focus for kiwi as rate expectations collapsed last week on the latest jobs and earnings data. Kiwi has escaped weakness as the market has preferred to use AUD as the Antipodean whipping boy – this week an important test of that tendency.
SEK – a pivotal week for SEK, which has run away to the downside recently. What signal will the Riksbank send – if the bank tilts to a more cautious stance, there is little to nothing to work with on the interest rate policy front, leaving QE and the currency (the Riksbank has been very happy to bring the krona into the discussion as a policy tool).
NOK – a weak CPI print this morning adds further energy to the squeeze back higher in EURNOK this morning. Still assuming the highs from over the holiday period are too big a hurdle for the pair to overcome until proven otherwise. Last resistance levels ahead of the cycle top look like 9.90 and then 10.00.
Upcoming Economic Calendar Highlights (all times GMT)
• 0930 – UK Q4 GDP Estimate
• 0930 – UK Dec. Visible Trade Balance
• 0930 – UK Dec. Manufacturing Production
• 1400 – ECB’s Knot to Speak
• 0030 – Australia Dec. Home Loans
• 0030 – Australia Jan. NAB Business Surveys
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Q1 Outlook for Investors: “AI” party hangover needs discipline and diversification
Charu Chanana
Chief Investment Strategist
2026 is a high-valuation, high-dispersion year: the AI story matures, policy becomes less predictabl... -
Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Q4 Outlook for Traders: The Fed is back in easing mode. Is this time different?
John J. Hardy
Global Head of Macro Strategy
The Fed launched a new easing cycle in late Q3. Will this cycle now play out like 2000 or 2007? -
Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity
John J. Hardy
Global Head of Macro Strategy
After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting... -
Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: Commodities rally despite global uncertainty
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ... -
Quarterly Outlook
Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever
Jacob Falkencrone
Global Head of Investment Strategy
Disclaimer