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JPY remains near two-week low against US Dollar despite hawkish BoJ bets

  • The Japanese Yen holds onto two-week losses near 159.50 against the US Dollar.
  • The BoJ is highly anticipated to raise interest rates in the September policy meeting.
  • Investors await FOMC minutes, which will be released on Wednesday.

The Japanese Yen (JPY) trades close to its two-week low against the US Dollar (USD) in the Asian trading session on Tuesday at around 159.50. The USD/JPY pair is under pressure even as financial markets are confident about a Bank of Japan (BoJ) interest rate hike in the September meeting.

Yen outlook steadies as MUFG flags elevated BoJ hike odds

Analysts at MUFG highlight that market expectations for further BoJ tightening remain robust, with “the pricing for a 25bp hike at the next meeting in September remains elevated, implying around an 80% probability of a hike.” They argue that this firm rate-hike pricing, set against the backdrop of softer US data, should help limit renewed Yen selling in the near term despite Japan’s weaker-than-expected GDP.

In the latest BoJ Summary of Opinions (SoP), several board members favored further monetary tightening in the near term after leaving interest rates unchanged at 1%. One board member said that the central bank should increase the monetary tightening pace, citing upside inflation risks.

Meanwhile, Japan’s preliminary Q2 Gross Domestic Product (GDP) data has come in weaker-than-expected, an event that could act as headwind for firm BoJ hawkish bets.

Japan growth disappoints as net exports and government spending prop up GDP

Brown Brothers Harriman’s Elias Haddad notes that Japan’s Q2 performance was weaker than expected, with “real GDP rose 0.3% q/q (consensus: 0.5%) vs. 0.5% in Q1” and growth largely reliant on external and public sector support. He points out that the expansion was “driven by net exports (+0.5ppt), government consumption (+0.3ppt), and private inventories (+0.3ppt),” underscoring how net exports and fiscal spending are offsetting softer underlying domestic demand.

On the US Dollar front, the currency is expected to trade sideways as Federal Open Market Committee (FOMC) minutes of the July policy meeting takes the centre stage, which will be released on Wednesday.

In the policy meeting, the Fed left interest rates unchanged in the range of 3.50%-3.75%, as expected and didn’t deliver any forward-guidance on policy rates.

Investors will pay attention to FOMC minutes to get fresh cues regarding inflation and the economic outlook.

USD/JPY Technical Analysis

In the daily chart, USD/JPY trades at 159.51, holding below a dense Fibonacci retracement cluster that keeps the pair capped in the near term. Price sits under the 50.0% retracement at 159.64 and the 61.8% level at 160.67, suggesting topside attempts are vulnerable while these barriers remain intact.

The Relative Strength Index (14) at 44.70 is below the midline, hinting at waning bullish momentum and reinforcing a cautious, mildly bearish bias as the market consolidates after the recent pullback.

On the topside, immediate resistance is located at the 50.0% Fibonacci retracement at 159.64, followed by the 61.8% level at 160.67. Above there, the 78.6% retracement at 162.14 and the cycle high area marked by the 100.0% level at 164.01 define the next barriers. On the downside, initial support emerges at the 38.2% retracement at 158.61 ahead of the 23.6% level at 157.33, with deeper structural support anchored much lower by the extended Fibonacci projection near -46.01, which serves more as a distant reference than a practical downside target.

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AUD/JPY Price Strengthens to near 113.50, near-term outlook remain constructive

  • AUD/JPY gathers strength to near 113.40 in Tuesday’s early European session. 
  • The cross keeps the positive tone above the 100-day SMA, with bullish RSI momentum. 
  • The initial support level is seen at 113.00; the first upside barrier to watch is 113.88. 

The AUD/JPY cross trades in positive territory around 113.40 during the early European trading hours on Tuesday. The Japanese Yen (JPY) weakens against the Australian Dollar (AUD) amid mounting fiscal concerns and persistent inflationary pressures. Traders await the release of the Australian jobs data, which is due later on Thursday. 

Prime Minister Sanae Takaichi’s plan to cut the consumption tax on food to 1% for two years has raised market concerns, as the government has yet to identify an alternative revenue source and the measure is viewed as an ineffective way to combat inflation. Additionally, markets are also concerned about elevated energy costs, which are weighing on Japan’s oil-dependent economy and the Japanese Yen. 

Nonetheless, expectations have been mounting for the Bank of Japan (BoJ) to raise rates at its next policy meeting in September. Reuters in a report Friday said the Japanese central bank is considering a rate hike as soon as September. Overnight index swaps are pricing in an about 80% probability of a move by that month.

Yen narrative shifts as BoJ hike odds surge while Fed expectations fade

DBS strategist Philip Wee highlights a sharp repricing in relative policy expectations, noting that “market odds of a September Bank of Japan rate hike have surged to 81% from 21%, while expectations for a Fed hike have plummeted to 32% from 72%.” He argues that JPY bears may be underestimating the implications of this swing in market-implied probabilities, especially against the backdrop of a more supportive stance on higher interest rates from Prime Minister Sanae Takaichi, who is under growing domestic pressure to stabilize the Yen.

Chart Analysis AUD/JPY

Technical Analysis: AUD/JPY maintains a constructive bias in the near term

In the daily chart, AUD/JPY retains a bullish near-term bias as price holds above both the 100-day simple moving average (SMA) and the Bollinger Bands middle line, suggesting a firm underlying demand zone. The Relative Strength Index (14) at 57.55 remains comfortably above neutral, hinting at constructive momentum without yet reaching overbought conditions.

On the downside, immediate support is seen at the 100-day SMA at 113.00, followed by the Bollinger middle band near 112.65. The next contention level is located at the lower band around 110.00. 

On the topside, the immediate resistance level emerges at the July 16 high of 113.88, en route to the July 27 high of 114.67. The next hurdle to watch is the Bollinger upper band near 115.25, where a daily close above this ceiling would open the door for a continuation of the uptrend.

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Trade of The Day – USD/CAD

Facts

  • USDCAD pulled back after Canada’s July CPI inflation data.
  • Gasoline prices in Canada rose by 25.7% year over year, compared with 20.5% in June.
  • CPI inflation increased by 3.0% versus a 2.9% forecast and 2.8% previously, while the monthly rate came in at 0.5% versus a 0.4% consensus.
  • The unemployment rate stood at 6.4%, while employment increased by 75.1 thousand.
  • Prices of travel tours rose by 15.2% year over year, while airfares increased by 12% year over year.
  • The preliminary GDP estimate points to annualized growth of 3.4% in Q2.

Recommendation Short position on USDCAD at the market price

  • Take Profit: 1.3582
  • Stop Loss: 1.3938

Opinion Against the backdrop of recent macroeconomic data, the balance of risks for USDCAD may gradually be shifting to the downside. U.S. CPI inflation came in line with expectations and the latest PPI report showed weaker price pressures, while Canada’s July CPI accelerated to 3.0% year over year and exceeded the consensus. Importantly, core inflation measures also came in above forecasts, which may limit the Bank of Canada’s room to pursue a more accommodative monetary policy. The pressure was not limited to fuel prices. CPI Core Trim rose to 1.9%, Core Median to 2.0%, and inflation excluding food and energy to 1.9% year over year. All three measures came in above consensus. At the same time, U.S. data did not provide a comparable inflationary impulse: CPI was in line with expectations, while PPI weakened.

This divergence may support the CAD if it begins to translate into relatively more hawkish expectations for the Bank of Canada compared with the Fed. The Canadian economy is also not currently sending unambiguous signals that would require rapid monetary easing: employment rose by 75.1 thousand, while the preliminary estimate points to annualized GDP growth of 3.4% in Q2. The market is pricing in the first possible BoC rate hike only in January, so a further series of stronger inflation readings could leave room for a shift in interest-rate expectations and additional support for the CAD. From a USDCAD perspective, this creates an argument for a possible further pullback, as the relative inflation path is beginning to look more favorable for the Canadian dollar. The key point is not the 3.0% CPI reading itself, as part of the increase came from fuel, transport and World Cup-related factors, but rather the fact that several core measures also exceeded expectations.

The Canadian dollar remains sensitive to oil prices, global risk sentiment and the condition of the U.S. economy, while a single CPI report does not determine a change in BoC policy. However, if subsequent data confirm more persistent inflation in Canada alongside further easing of price pressures in the U.S., relative expectations for the BoC and the Fed could increasingly favor the CAD, raising the risk of a further decline in USDCAD. Canada’s annual consumer inflation rate accelerated to 3.0% in July, exceeding market expectations of 2.9%. The renewed increase, following the slowdown to 2.8% in June, was driven primarily by sharp increases in fuel prices as well as higher travel and transport costs, supported by stronger activity around the football World Cup. Although inflation remains elevated, this does not automatically imply a return to hawkish expectations for rate hikes, so we recommend taking a short position in the pair with a relatively tight stop-loss level defined by the 200-period exponential moving average, EMA200, shown by the red line, and recent price reactions around 1.393, with a target level at 1.3582.

USDCAD chart (D1 interval)

Source: xStation5 Supporting graphics

Source: XTB Research

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Canadian Dollar edges higher as Fed rate hike bets recede, CPI data looms

  • USD/CAD declines to near 1.3860 in Monday’s early European session. 
  • Lower Fed rate hike expectations weigh on the US Dollar. 
  • Major financial institutions expect the BoC to remain on hold for the remainder of 2026.

The USD/CAD pair edges lower to around 1.3860 during the early European session on Monday. The US Dollar (USD) extends the decline against the Canadian Dollar (CAD) as traders pare bets on the US Federal Reserve (Fed) rate hikes. Canada’s Consumer Price Index (CPI) inflation data for July will take center stage later on Friday. 

The pair declines to the lowest since June 3 after a soft run of US economic data, including an unexpected drop in Retail Sales. Signs of easing inflation in the US have prompted the market to give up bets for an imminent rate hike from the US central bank. A rate hike next month is now priced at 30%, down sharply from about 40% a week earlier, according to the CME FedWatch tool.

“This points to a material slowdown in real consumer spending growth in the third quarter,” said Sal Guatieri, a senior economist at BMO Capital Markets. “This, together with a weaker jobs report and subdued core CPI inflation, raises the odds of the FOMC staying patient again in September,” Guatieri added.

The Bank of Canada (BoC) left its key overnight interest rate unchanged at 2.25% during its July policy meeting, marking the sixth consecutive hold. BoC Governor Tiff Macklem emphasized that while the Canadian central bank is looking through near-term energy shocks, it “will not let higher energy prices become persistent inflation.”

The BoC will hold the next policy meeting on September 2. RBC Economics and CIBC expect that the central bank will remain on hold for the remainder of 2026 to fully monitor economic conditions.

Canada inflation seen contained as BoC pause expectations firm

Strategists at Brown Brothers Harriman expect the upcoming Canada July CPI report to underscore subdued underlying price pressures and support an extended BoC pause. They look for headline CPI to edge up to “2.9% y/y vs. 2.8% in June,” while stressing that “underlying inflation [is] contained under 2%.” BBH forecasts “core CPI (ex. food & energy) … at 1.8% y/y vs. 1.8% in June,” with “core CPI (average of trim and median) … projected at 1.85% for a second straight month,” reinforcing the view that core inflation remains firmly anchored below the BoC’s 2% threshold.

Chart Analysis USD/CAD

Technical Analysis: USD/CAD

In the daily chart, USD/CAD remains under pressure, holding beneath the 100-day simple moving average (SMA) and the Bollinger middle band, which keeps the near-term bias bearish despite a modest rebound off the lower band. Price is hovering just above the Bollinger lower band, while the Relative Strength Index (14) sits in oversold territory around 28, hinting that downside momentum is stretched but not yet reversed.

On the topside, initial resistance is located at the 100-day SMA around 1.3920, with a stronger cap at the Bollinger middle band near 1.4010; a daily close above these levels would be needed to ease the current downside bias, with the upper band at 1.4170 acting as a subsequent barrier. On the downside, immediate support is aligned with the Bollinger lower band at 1.3855; a clear break below this floor would open the way to further weakness, while holding above it would signal an attempt to consolidate after the recent slide.

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EUR/JPY Price Tests rising wedge bottom near 184.00

  • EUR/JPY tests the lower boundary of the rising wedge around 184.10.
  • The 14-day Relative Strength Index at 50 indicates neutral momentum.
  • The initial resistance lies at its 50-day EMA near 184.49.

EUR/JPY depreciates after two days of gains, trading around 184.20 during the Asian hours on Monday. The technical analysis of a daily chart indicates that the spot remains within a rising wedge, signaling that the upward trend is losing momentum and that the wedge typically acts as a bearish reversal.

The EUR/JPY cross retains a constructive near-term tone as it holds above the nine-period Exponential Moving Average (EMA), keeping price supported despite last week’s pullback from the highs. The 14-day Relative Strength Index (RSI) around 50 suggests neutral momentum after the prior correction, hinting that directional conviction is still tentative while the broader uptrend structure remains intact.

The EUR/JPY cross tests the immediate support at the lower boundary of the rising wedge around 184.10, followed by the nine-day EMA of 183.78. A decisive break below this confluence support zone would revive the bearish bias, potentially pressing the currency cross down toward its eight-month low of 179.37, recorded on August 3. If downward momentum continues, the next key technical target lies at the nine-month low of 175.70.

On the upside, the primary resistance lies at its 50-day EMA near 184.49, followed by the upper boundary of the rising wedge around 185.80. A sustained break above the wedge could signal a broader bullish resurgence, opening the path for the currency cross to retest the area surrounding its all-time peak of 187.95 set on April 17.

Chart Analysis EUR/JPY
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AUD/JPY Edges higher above 113.00, bullish bias prevails above 100-day SMA

  • AUD/JPY gathers strength to around 113.00 in Monday’s early European session. 
  • Japan’s economy expanded annually by 1.1% in Q2, weaker than expected. 
  • The cross holds a constructive bullish bias while holding above the 100-day SMA. 
  • The first downside target emerges at 112.21; the immediate resistance level is seen at  113.88. 

The AUD/JPY cross trades in positive territory near 113.00 during the early European session on Monday. The Japanese Yen (JPY) softens against the Australian Dollar (AUD) amid weaker-than-expected Japanese Gross Domestic Product (GDP) data.

Japanese GDP for the second quarter (Q2) expanded at an annualised 1.1%, according to the Cabinet Office on Monday. This figure came in below the market consensus of 2.0% and the first quarter’s reading of 1.8% growth, compared to a 0.5% growth recorded in Q1 and missed market expectations of a 0.5% expansion.

“The details were a mixed bag,” Capital Economics analysts wrote in a research note. “GDP expanded at a decent pace in Q2, and with the government still limiting the pass-through from higher energy prices,” they wrote, while a jump in government consumption “suggests that Takaichi’s expansionary fiscal policies are starting to have an impact.”

Traders await the release of the Australian July employment report on Thursday ahead of Japan’s National Consumer Price Index (CPI) inflation data. Economists expect the Unemployment Rate in Australia to rise to 4.5% in July from 4.4% in June. If the report shows a stronger-than-expected outcome, this could lift the Aussie against the JPY. 

Japan data in focus as Deutsche Bank flags solid Q2 growth and firmer inflation

Economists at Deutsche Bank highlight a busy week for Japan, with “key economic data” due including Q2 GDP on Monday and the national CPI on Friday. For GDP, the bank notes that its Chief Japan Economist expects “real GDP to grow at +1.6% QoQ,” while on prices he “forecasts core CPI ex. fresh food to rise to 1.8% YoY from 1.6% in June and core-core inflation ex. fresh food and energy to increase to 1.8% (1.7%).” The bank directs clients to “see more in his full week-ahead” for additional detail.

Chart Analysis AUD/JPY

Technical Analysis: AUD/JPY keeps a mildly positive momentum tone in the near term

In the daily chart, AUD/JPY holds a constructive bullish bias as it sits above the Bollinger middle band and the 100-day simple moving average. The clustering of these supports just beneath spot suggests dips are being absorbed, while the 14-day Relative Strength Index around 54 keeps a mildly positive momentum tone without yet signalling overbought conditions.

On the downside, initial support is seen at the July 8 low of 112.21, followed by the August 10 low of 111.63. The next contention level is seen at the lower Bollinger band near 110.00, which acting as a deeper bearish target if selling accelerates. 

On the topside, the immediate resistance to watch is the July 16 high of 113.88, en route to the July 27 high of 114.67. A clear break would open the door to the upper Bollinger band at 115.35.

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Euro rallies to two-month high, eyes 1.1600 as USD struggles amid receding Fed hike bets

  • EUR/USD scales higher for the third day as receding Fed hike bets keep the USD depressed.
  • Geopolitical risks and inflation fears stemming from volatile oil prices could limit USD losses.
  • Traders now look forward to FOMC Minutes on Wednesday for some meaningful impetus.

The EUR/USD pair builds on last week’s bounce from the vicinity of the 1.1500 psychological mark and attracts follow-through buyers for the third straight day. The momentum lifts spot prices to a two-month high during the Asian session, with bulls now awaiting a move beyond the 1.1600 round figure before placing fresh bets amid a broadly weaker US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near the lower end of the monthly range as Friday’s weak US data further tempered bets for an immediate rate hike by the Federal Reserve (Fed). In fact, the US Census Bureau reported that Retail Sales fell 0.6% in July, marking the biggest monthly fall since May last year and pointing to a slowdown in consumer spending. This comes on top of signs of moderating price pressures, which gives the US central bank headroom to keep interest rates steady.

Strategists at Scotiabank highlight that the “steepening US 2/30s yield curve, which has reached 108bps, reflects simmering investor concern about the Fed policy outlook alongside weak US fiscal dynamics.” They argue that this “steepening yield curve represents a further headwind for the USD generally,” reinforcing their view that “near-term risks are geared towards the DXY slipping back to the mid-98 area.”

The shared currency, on the other hand, draws support from growing acceptance that the European Central Bank (ECB) will deliver one final 25-basis-point (bps) rate hike at its September meeting as inflation remains above the 2% target. Meanwhile, the US-Iran standoff keeps the geopolitical risk premium in play. Apart from this, inflation fears stemming from volatile oil prices might hold back traders from placing aggressive bearish bets on the USD. This, in turn, might cap any further near-term appreciating move for the EUR/USD pair.

The market focus now shifts to the release of FOMC Minutes, due on Wednesday, which will be looked upon for more cues about the Fed’s future policy path. The outlook will play a key role in influencing the USD price dynamics and producing short-term trading opportunities around the EUR/USD pair. In the meantime, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside. Hence, any corrective pullback is more likely to be bought into and remain limited.

EUR/USD daily chart

Chart Analysis EUR/USD

Technical Analysis

The EUR/USD pair holds just above the 50% Fibonacci retracement of the April-June downfall but the broader tone remains capped beneath the 200-day Simple Moving Average (SMA) at 1.1630. This is followed by the 61.8% Fibo. retracement at 1.1645. A daily close above this cluster should open the way toward 1.1732 and 1.1843. On the downside, initial support is aligned with the 50% retracement at 1.1584 and a break below there would expose the 38.2% level at 1.1522, ahead of deeper support at 1.1447 and 1.1324.

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USD/JPY Price Struggles near 159.00; seems vulnerable below 50% Fibo.

  • USD/JPY trades with a negative bias for the second straight day, though it lacks follow-through.
  • Japan’s weak GDP print complicates BoJ’s rate-hike path, capping the JPY and limiting losses.
  • The technical setup warrants some caution before positioning for any meaningful appreciation.

The USD/JPY pair attracts some sellers at the start of a new week, though it lacks bearish conviction and shows some resilience below the 159.00 mark during the Asian session. Moreover, spot prices remain close to a two-week top, touched last Thursday, warranting some caution amid mixed fundamental cues.

The US Dollar (USD) remains depressed amid receding Federal Reserve (Fed) rate hike expectations, which, in turn, is seen as a key factor acting as a headwind for the USD/JPY pair. However, Japan’s soft Q2 GDP print complicates the Bank of Japan’s (BoJ) policy normalization path and holds back traders from placing aggressive bullish bets on the Japanese Yen (JPY). This should lend support to the currency pair and warrants some caution before positioning for deeper losses.

From a technical perspective, the recent recovery from the 155.25-155.20 area, or the lowest since early May, stalled near the 50% Fibonacci retracement level of the intervention-led slump from a four-decade peak. Moreover, the Relative Strength Index (14) sits near a neutral 48, while the Moving Average Convergence Divergence (MACD) has slipped into negative territory, hinting that upside momentum is fading as the USD/JPY pair consolidates below these clustered resistance levels.

That said, some follow-through selling below the 38.2% Fibo. retracement support at 158.58 is needed to back the case for deeper losses to the Fibonacci floor at 157.30 and the broader structural low around 155.24, where buyers would be expected to show more conviction.

On the topside, immediate resistance is located at the 50% Fibo. retracement at 159.61, followed by the 100-period Exponential Moving Average (EMA) on the 4-hour chart at 159.77. Sustained strength above these would open the way toward the 61.8% retracement at 160.64 and then the recent cycle high near 163.98.

USD/JPY 4-hour chart

Chart Analysis USD/JPY