5 Currency pairs to watch in December: Fed, ECB, BOC & technicals

December is fast approaching, and as the year draws to a close, financial markets prepare for one last significant move. This month is crucial for major currencies, with a packed calendar featuring key interest rate decisions from the world's most influential central banks, including the Fed (FOMC), the European Central Bank (ECB), the Bank of Canada (BOC), and the Reserve Bank of Australia (RBA). The coming weeks will reveal whether central banks maintain their "wait-and-see" approach to cement price stability or shift in response to fragile economic signals. In this article, we analyze the fundamental drivers of these decisions, including persistent core inflation and changing labor market conditions. We then combine these insights with a technical overview, outlining key price action, support, and resistance levels for five important currency pairs — EUR/USD, EUR/CAD, USD/CAD, USD/CHF, and AUD/JPY — to help us identify setups and key levels to watch.

Remember, the end-of-year period often brings a liquidity squeeze as banks and financial institutions reduce balance sheets and increase cash holdings, mainly to meet regulatory requirements around December 31. This reduction in available funding raises the cost of borrowing in the interbank market and pushes short-term interest rates higher. In foreign exchange trading, this may widen the spread between buy and sell rates for currency pairs, as well as the higher rollovers, also known as swap rates or finance charges. In addition, major holidays such as Christmas and New Year's Day thin out trading liquidity. With fewer market participants, lower trading volume can amplify price volatility, increase the risk of order slippage, and may trigger sharp currency price moves even on small trades.

The Bank of Canada (BOC) faces a critical choice as its December rate decision approaches. On one hand, the labor market shows signs of softening, with employment growth cooling, and unemployment rising. On the other hand, core inflation remains persistent, indicating the goal of returning the Consumer Price Index (CPI) to 2% has not yet been achieved. The key factor will be Gross Domestic Product (GDP), if GDP contracts sharply or shows several negative quarters, the case for pausing rate cuts or even pivoting becomes stronger. If, however, economic activity remains more robust than expected despite high borrowing costs, the BOC will likely keep a hawkish stance to manage inflation expectations. Under this scenario, the overnight rate would probably hold steady as policymakers await the effects of the previous tightening.

As the European Central Bank (ECB) approaches its December 18 policy meeting, consensus (according to Bloomberg’s analysts’ surveys) expects it to maintain the deposit facility rate at 2.00%, signaling a strategic pause rather than a pivot. This reflects a cautious attitude, while the Eurozone economy is expanding, growth remains fragile. Q3 GDP rose just 0.2% quarter-on-quarter, indicating resilience but slow momentum, compounded by stagnant German industrial output. Headline inflation, now near 2.1% in October, nearly matches the ECB's target, while core inflation is stickier at 2.4%, mainly due to persistent price pressures in the services sector. The Governing Council’s decision is likely bolstered by continued labor market strength as unemployment holds at 6.3%. This robustness allows the ECB to maintain restrictive rates to contain inflation without risking a sudden demand collapse. Consequently, though the rate-cutting cycle that began earlier in 2024 has brought relief, the December decision will likely prioritize price stability over added stimulus, unless 2026 growth projections unexpectedly worsen.

As the December 10 FOMC meeting approaches, the Federal Reserve faces a tough decision between a "hawkish hold" and a final 25-basis-point insurance cut for the year. Mixed signals complicate the debate. After an improved Q2, President Trump said that he expects Q3 to be at an estimated 4.2% (annualized)¹. However, the labor market is weakening, with unemployment at 4.4% in September and job gains dropping to about 119,000 per month. Inflation adds further complexity; headline numbers are down, but Core PCE stands at 2.7%, which is above the 2% goal. Uncertainty remains due to data gaps from the government shutdown and the conflicting signs of strong overall growth but cooling jobs. The Committee may hold rates at 3.75%-4.00% to monitor whether the October easing helped stabilize the labor market without reigniting inflation.

Currently, according to the CME Fedwatch tool², 81% of participants expect the FOMC to cut interest rates by 25 bps on December 10, 2025.

The recent release of the minutes from the Federal Reserve’s late October meeting has introduced a notable layer of hawkish caution into the market narrative, signaling that the path to further easing is far from predetermined. While the committee delivered a 25-basis-point cut to the 3.75% – 4.00% range, the text revealed emerging fissures among policymakers regarding the urgency of future reductions.

With "strongly differing views"³ on the persistence of inflation and a clear reluctance to commit to a mechanical cutting cycle, the Fed is effectively tapping the brakes on market expectations

• Market structure – Breakout and throwback: The pair is currently navigating a classic breakout and retest scenario.
• The breakout: Price has recently broken out of a short-term descending channel (marked by the blue and black downward sloping lines). This implies the correction that started in October may be over.
• The throwback: As annotated on the chart, the price has performed a "throwback" to retest the broken resistance levels, which are now acting as support. The fact that price is stabilizing around 1.15720 suggests buyers are defending this breakout zone.

Key support and resistance:

• Pivot support: The price is currently trading above the weekly pivot (P) at 1.15429. This is the critical "line in the sand" for the immediate bullish bias. As long as price holds above this level, the recovery is valid.
• Overhead resistance: The bulls face immediate resistance at the weekly R1 (1.15947). A clearance of this level opens the path toward the significantly stronger resistance at the monthly pivot (1.16122).

Broader context (broadening wedge):

• Zooming out, the price action is contained within a massive broadening formation or "megaphone" pattern (indicated by the diverging red lines). This pattern typically signals high volatility and market indecision. The pair is currently trading in the lower half of this range, suggesting there is significant room to the upside if the recovery gains traction.

Momentum indicators:

• RSI (14): The RSI is reading 48.78, sitting just below the neutral 50 mark. It has recovered from oversold levels, and a push above 50 would confirm that momentum has shifted back to the bulls.
• Stochastic: The stochastic oscillator is rising from the lower zone, supporting the case for a short-term upward push.

• Trend reversal and breakout: The major structural shift on this chart is the breakout above the long-term descending blue trendline. After a prolonged period of lower highs, the pair formed a rounded bottom (or complex Inverse Head and Shoulders) over the summer, indicated by the curved blue lines. The price has successfully transitioned into a medium-term uptrend, characterized by a series of higher highs and higher lows.
• Momentum divergence (warning signal): Despite the bullish price structure, there is a distinct negative bivergence (N.Div) visible on the RSI (5) oscillator. While price action pushed to new highs in early November, the RSI made a lower high. This suggests that bullish momentum is exhausting, and the current rally is "tired," increasing the probability of a pullback or a period of sideways consolidation before any further move.

Key support and resistance

• Pivot zone (support): The price is currently testing a critical confluence zone. It is hovering just above the weekly Pivot (P) at 1.40688. As long as the daily candles close above this pivot and the 50-day MA (orange line), the bullish bias remains intact.
• Resistance: To resume the uptrend, bulls need to clear the recent swing high and the weekly R1 at 1.41661. A break above that opens the door to the weekly R2 at 1.42284.
• Moving averages: The chart shows a bullish configuration, with the 50-day moving average (orange) diverging above the 200-day moving average (green). This "Golden Cross" orientation suggests buying on dips, as the longer-term trend has shifted in favor of the bulls.
• The USD/CAD is in a bullish consolidation phase. The breakout is valid, but the RSI divergence warns against chasing the price at these levels. Traders will likely look for a successful retest of the 1.40688 pivot level to enter long positions, whereas a close below 1.4000 (Weekly S1) would signal a deeper correction back toward the broken trendline.

• The pair has transitioned from a sharp downtrend (indicated by the descending blue channel on the left) into a consolidation phase. The price action is currently compressing within a symmetrical triangle or rising wedge formation defined by the converging red trendlines. Notably, the market has printed a series of higher lows since late September (marked by the blue curved lines), suggesting building bullish pressure or potential accumulation.
• Key support and resistance levels: Price is currently hovering around 0.80620, trading just above the yearly S2 support level (0.80417).
• Support: Immediate support is found at the monthly pivot (P) at 0.79982. As long as price holds above this pivot, the near-term bias remains constructive.
• Resistance: The immediate upside barrier is the upper red trendline, followed closely by the monthly R1 resistance at 0.81234.
• Momentum: The RSI (14) is currently reading 56.58, which is in neutral-bullish territory. The indicator is holding above the midpoint (50) and trending slightly upward, confirming that momentum currently favors the buyers, though it is not yet in overbought territory.
• The USD/CHF pair is at a decision point. Traders will be watching for a definitive breakout from the current wedge structure. A clear daily close above the upper red trendline and the Monthly R1 (0.81234) would suggest a bullish reversal, while a drop below the Monthly Pivot (0.79982) would invalidate the recovery setup.

• Trend analysis: The pair is trading within a well-defined ascending channel (indicated by the teal parallel lines), confirming that the primary trend remains bullish. The price is currently trading at 101.639, maintaining its position above the weekly pivot (101.201) and the 9-day EMA, which signals immediate structural strength.
• Momentum warning (bearish divergence): Despite the upward price action, there is a significant warning signal. The RSI (Relative Strength Index) is showing clear negative divergence (N.Div), marked by the red trendline on the sub-chart. While price has made higher highs or traded flat, the RSI is making lower highs. This indicates that buying momentum is fading and a correction or reversal could be imminent. The chart highlights two upward gaps, which alleviate the concern, however, the gap type is yet to be determined.

Key levels to watch:

• Resistance: The immediate ceiling is the weekly R1 at 102.251, followed by the monthly R1 at 102.581. A break above these levels would invalidate the bearish divergence.
• Support: Immediate support rests at the channel midline and the weekly pivot (101.201). A breakdown below the channel's lower trendline would expose the weekly S1 at 99.911.
• MACD status: The MACD histogram is flat and hovering near the zero line, with the signal lines tightly compressed. This lack of expansion confirms the consolidation seen in the recent candlesticks and aligns with the indecision suggested by the RSI divergence.
• While the structural trend is up, the bearish divergence suggests the bulls are losing steam. Traders should be cautious of a potential "bull trap" near the channel top and watch for a high-volume break below 101.20 to confirm a bearish reversal.

• Chart pattern –Inverse head and shoulders: The most prominent feature currently developing is a potential Inverse head and shoulders pattern, which is a bullish reversal structure. The chart shows a distinct left shoulder (late October), a head (early November), and a developing right shoulder (mid-November), indicated by the red curved lines.
• The trigger: The price is currently testing the "neckline" or baseline resistance, which coincides closely with the weekly R1 (1.63067). A decisive daily close above this level is critical to confirm the pattern.

The broader trend remains bullish, contained within a large ascending blue channel.

• Support: The price is holding above the monthly Pivot (P) at 1.62559, which serves as the immediate floor. As long as price stays above the Right Shoulder low (1.6200), the bullish thesis remains valid.
• Moving averages: The price is tangling with the 9-day EMA and MA Cross, indicating a possible compression of energy prior to a potential move.

Momentum indicators:

• RSI (14): The RSI is at 54.22, sitting above the 50 midline. This indicates that bullish momentum is present, but not yet overextended (overbought).
• Stochastic: The stochastic oscillator is rising (~71.67), suggesting that short-term momentum is currently favoring the buyers as they approach the resistance zone.
• The EUR/CAD is winding up for a potential breakout. The market is effectively waiting for a "pop" above the 1.63067 handle. If buyers clear this hurdle, the path of least resistance points toward the monthly R1 at 1.63713 and potentially the monthly R2 at 1.65835.

The technical and fundamental analysis across these five pairs for December 2025 underscores a market in strategic transition. While long-term trends remain generally intact — such as the bullish channels in AUD/JPY and EUR/CAD, and the prolonged uptrend in USD/CAD — immediate price action is characterized by consolidation, critical resistance tests (USD/CHF), and pattern breakdowns (EUR/USD).

The key narrative driving the next directional phase will be the December central bank meetings. Policymakers are universally opting for a cautious "hold" to ensure the final mile of disinflation is achieved, a stance that could amplify short-term technical volatility.

Traders should therefore exercise risk management, paying close attention to the pivotal price zones, particularly the monthly/weekly pivots and major confluence levels, as a decisive break from these junctures will determine whether the technical patterns remain valid and whether the major currencies close out 2025 with a final, significant trend move.

Footnotes:

1 - https://www.google.com/url?q=https://www.whitehouse.gov/videos/president-trump-delivers-remarks-at-the-america-business-forum-miami/&sa=D&source=docs&ust=1764174272797435&usg=AOvVaw2l91ik07mfC9KbaFY-G6Ph

2- https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

3 - https://www.google.com/url?q=https://www.federalreserve.gov/monetarypolicy/fomcminutes20251029.htm&sa=D&source=docs&ust=1764169760916038&usg=AOvVaw2tkwnEXkgsNnyb1vmQ8Kw5