Forex February 2026 Outlook: Dollar selling looks to continue
As January 2026 concludes, currency traders look towards continued dollar weakness amid central bank policy divergence and technical developments. Since delivering 175 basis points worth of cuts since September 2024, the Federal Reserve is at the crossroads. At the same time, the European Central Bank (ECB) has concluded its easing cycle, while the Bank of Japan (BoJ) looks to embark it’s first meaningful tightening cycle in decades. All said, the result has been U.S. dollar weakness and the forecast is appearing to paint the same picture as U.S. growth slows and confidence continues to tumble.
Technically, the U.S. dollar is performing poorly against major currencies and is near multi-month lows. In this article, we will take a look at the greenback versus the USD/JPY, EUR/USD and GBP/USD from both a fundamental and technical perspective.
USD/JPY Weekly Chart
Source: https://sigmanomics.com/forex-markets/usdjpy
USD/JPY is currently trading in the 150’s to date after rejecting what appears to be a double top near 160. Indeed, the pair remains supported by a rising trend line that has been intact since January 2021; however, deepen bearish RSI divergence is apparent, warning of losses in the greenback in coming months.
Key technical levels lie at 160 mentioned earlier, while floor is apparent in the 148-150 zone. Bears should keep a close eye on a weekly close below said level, which will then open 138 and follow overall market sentiment of dollar selling.
EUR/USD Weekly Chart
Source: https://sigmanomics.com/forex-markets/eurusd
The EUR/USD is trading at critical resitsance level in the 1.19 area. This level not only represents a psychological overhead, but also equal legs when looking at it from a Fibonacci sequence standpoint. With no clear bearish divergence, traders should not rule out a break above 1.20 which will then open the door to 1.30 in the coming months. This forecasts aligns with overall bearish dollar sentiment.
Goldman Sachs maintains a year-end target of 1.25, noting what they exclaim as fading U.S. exceptionalism and a structural diversification trend away from dollar assets. Similarly, J.P. Morgan predicts a move higher in the pair as well, but has noted a target of 1.20 to date.
GBP/USD Daily Chart
Source: https://sigmanomics.com/forecasts
The sterling’s strength against the greenback is largely due to weakness in the dollar rather than pound strength. JP Morgan’s Nelligan waarns that strength in Sterlinig is more likely to come in the first half of the year, wit the seecond half seeing fiscal fears coming back into focus.
GBP/USD forecasts follows the same overall sentiment of this article, predicting higher levels in the medium term according to the Sigmacast ensemable by Sigmanomics classical models. At the same time, the pair has slipped and closed above key descending trend line that was holding upside pressure on the pair since beginning of 2025.
Ronald Francois, Senior Strategist
Ronald is a senior market strategist at Sigmanomics.com, bringing over a decade of hands-on experience in equity markets and three years of specialized expertise in options trading. Known for his sharp fundamental analysis and deep understanding of macroeconomic trends, Ronald provides readers with actionable insights that bridge the gap between institutional strategy and individual investor needs. Featured in fxstreet.com
