Currency market dynamics

The USD gained some ground late last week, despite the absence of a clear catalyst. Overall, the market continues to range, awaiting a new development for the next sustained trend. The “short US dollar” remains the most crowded trade, requiring significant news to prompt expectations of more rate cuts.

The USD gained some ground late last week, despite the absence of a clear catalyst. Overall, the market continues to range, awaiting a new development for the next sustained trend. The “short US dollar” remains the most crowded trade, requiring significant news to prompt expectations of more rate cuts.

On Wednesday, attention turns to several major releases, including the US ADP Employment Change, US Q2 GDP figures, and the highly anticipated FOMC rate decision. The ADP report offers a preview of the official Non-Farm Payrolls, while GDP data will give a comprehensive look at economic growth. The FOMC decision, however, is expected to be the highlight, as any deviation from the expected stance could trigger significant market reactions.

On the JPY side, last week’s Tokyo CPI figures came in lower than expected and didn’t benefit the JPY, as a year-end rate hike was already priced in following the US-Japan trade deal. Further appreciation may require weak US data to increase dovish bets on the Fed or higher inflation figures in Japan to anticipate more rate hikes.

Usdjpy technical analysis and outlook

The USD gained some ground late last week, despite the absence of a clear catalyst. Overall, the market continues to range, awaiting a new development for the next sustained trend. The “short US dollar” remains the most crowded trade, requiring significant news to prompt expectations of more rate cuts.

On the daily chart, USDJPY is nearing the key 148.30 resistance level. This area is expected to attract sellers who will likely enter the market with a clearly defined risk positioned above this resistance. Their target will be a potential drop back towards the 142.35 support level. Conversely, buyers will be eyeing a breakout beyond this resistance to boost bullish bets, with the next target being the 151.20 resistance level.

Thursday brings the Bank of Japan’s rate decision, where any signs of policy shifts will be closely scrutinized. In the US, the release of the PCE Price Index, Jobless Claims, and Employment Cost Index will provide further data points on inflation and employment costs, both critical for Fed policy considerations.

On the JPY side, last week’s Tokyo CPI figures came in lower than expected and didn’t benefit the JPY, as a year-end rate hike was already priced in following the US-Japan trade deal. Further appreciation may require weak US data to increase dovish bets on the Fed or higher inflation figures in Japan to anticipate more rate hikes.