US Dollar into NFP, CPI: EUR/USD, USD/JPY

US Dollar Talking Points:

• It’s been a comeback week so far for the USD as the USD/JPY sell-off that dominated last week has pared back. The big question now is two-fold, first the NFP report for tomorrow morning but perhaps more potentially impactful is what response we might see should USD/JPY continue to push closer to the 160.00 handle.
• After the Fed last week the focus becomes more intense on US data, as markets are still pricing in an 84.3% probability of at least one rate hike into the end of the year. Given the political drama that would entail it puts perhaps even more pressure on newly-installed FOMC Chair Kevin Warsh.

The big data prints for the US are coming into view starting with tomorrow’s Non-farm Payrolls report. While we’ve had some big data items already this week and a surprising show from the Atlanta GDP Now estimate coming in at 5.9%, NFP and CPI can carry special meaning for market participants as they give a clear view of the Fed’s two mandates. And while NFP can often be messy given its early nature, CPI has been encouraging of late after last month’s below-expected print eased concerns after a hawkish sounding FOMC at the June rate meeting.

For this iteration, however, there’s perhaps another factor of consideration especially for FX markets and traders as the Japanese Yen intervention to close last week casts a shadow over markets. We’re still in the early stage of that saga but most noteworthy is that this time, it wasn’t Japan going at it alone, as the US Treasury Secretary made multiple comments on the matter and given the possible repercussions, it makes sense as to why he might be interested in the results.

So, that can be considered as either a wild card or a Trump card, depending on one’s vantage point. Because if we do see USD/JPY rally back above 160.00 or perhaps even higher, the big question is whether both Scott Bessent and the Japanese Finance Ministry will just continue to take a step back, even if it makes them look weak in front of global macro markets.

As I shared yesterday, this can produce a backdrop similar to 2022, and this is pertinent both for the Dollar basket and USD/JPY, where a theoretically-capped upside leads to a vulnerable trend that could quickly unwind as soon as data going in the other direction appears. In 2022, it was below-expected CPI, even though headline was at 7.1% and core at 6.3%. And now, with markets tightened for Fed rate cuts into the end of the year, evidence going against that in the form of weak employment and weaker-than-expected inflation can lead to USD-weakness as those USD/JPY carry bets unwind.

In DXY, price is testing a familiar area. The 100 spot is what came in as support right around when the Fed started cutting rates in 2024. And then in 2025, it showed multiple iterations of resistance until finally being broken through earlier this year.

Now, it’s back as short-term resistance following the sell-off from last week. And for USD-bears this can be a huge area to look for some element of defense.

US Dollar Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

I’m of the opinion that this is still the eye of the storm. While it’s not bearish on a short-term basis there’s still the very real prospect of a swipe from policymakers, as both economies in the pair have spoken on the matter over the past week. It’s also clear that both Japan and the US would like USD/JPY to not go back up to those 40-year highs that were set a week ago, as there’s ramifications for both economies.

I highlighted this in the weekend video last Friday but the 155.00 area seemed a logical support as an intervention there wouldn’t make much sense. Ultimately, that’s around where the low has come into place. Yesterday there was an ascending triangle as resistance had come back in around 158, followed by higher-lows that’s since led to breakout. So, it seems we have a case of bulls reaching just a little bit further to see how far they might be able to get before getting swatted down by another intervention move.

The 160.00 area seems a logical spot to look for some element of defense. And the ramifications of that are that the pair can be seen as carrying a more limited upside appeal, as a continued rally can evoke another action like we saw last week. Like I said in yesterday’s video, this isn’t quite bearish, but it is something that can leave the pair vulnerable for a shift in data and with some major reports coming out of the US over the next week that’s a very real scenario that should be entertained.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD: Along for the Ride

While the Euro is a much larger component of DXY than the Japanese Yen, the build of the carry trade over the last five years means that there’s probably much more size behind the USD/JPY trend than anything in EUR/USD. Thus, when we get a move like last week, when USD/JPY carry traders rush for the exit, if it it’s a relatively minor move in the grand scheme of that market, we can similarly see USD-weakness play out against the Euro, which broke above the 1.1500 handle and has since built a bit of support at the big figure.

From both the daily and four-hour charts, this is a bullish trend. From the weekly, however, there’s still a bearish argument that can be made and I think that persists until we see 1.1576-1.1613 traded through with a closed-body break on the daily chart.

Perhaps the bigger question is one of venue, as USD-weakness may simply play more attractively elsewhere, such as the British Pound. For now, taking that daily chart, there’s support potential at 1.1500 and then down at 1.1455-1.1469, after which that 1.1402 level stands out as an important spot for the pair.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro