USD/JPY Grinds Higher ahead of FOMC, AUD/JPY Clings to Support

Fed hike expectations have firmed sharply ahead of Wednesday’s FOMC decision, helping the US dollar retain a bid and USD/JPY recover from last week’s selloff. Meanwhile, AUD/JPY is testing a major support cluster after falling more than 4.6% in two weeks, raising the prospect of a near-term bounce before bears look to re-engage.

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USD/JPY Firms Into FOMC as AUD/JPY Tests Major Support

A September hike is now effectively the base case, with futures pricing close to a 90% chance of a 25bp move on Wednesday, up from around 70% before Friday’s CPI report. Goldman Sachs, JPMorgan, HSBC and Deutsche Bank have all shifted to a September hike, while markets are also leaning towards another increase in December.

A Reuters poll found 86 of 101 economists expect the Fed to hike this week, while futures imply roughly four hikes by July 2027. Firm CPI and PPI data, resilient activity and the renewed oil shock have all helped drive the repricing. While that could keep the US dollar supported for now, the main question is whether policymakers validate the second hike currently priced for December.

Source: LSEG

US dollar strength dominated FX, with AUD/USD, EUR/USD, GBP/USD, USD/JPY and NZD/USD all moving in the dollar’s favour. NZD/USD led the majors lower at -0.65%.
Metals were hit hard, led by copper (-2.16%) and platinum (-2.03%), while gold fell 1.14%.
WTI crude oil bucked the broader risk-off tone, rising 1.34% and closing near the top of its 52-week range. Though price action is hinting at a near-term top.
Equities were mostly lower, with the Nikkei 225 sinking 2.18% and the Nasdaq 100 down 0.80%. The FTSE 100 (+0.43%) and Hang Seng (+0.30%) were notable exceptions.

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

Last week I argued that the downside move for USD/JPY appeared stretched over the near term, so it is encouraging to see it try to grind its way higher. The 750-pip decline in just five days found support around 153, while diminishing daily ranges and bullish hammer candles could at least have served as a warning to bears.

With traders firmly convinced the Fed will hike tomorrow, USD/JPY could retain a bid heading into the event. Though it is, of course, susceptible to another selloff should the Fed or the FOMC forecasts fail to hint at the second hike currently priced in for December.

But for now, price action appears constructive for another attempt higher.

USD/JPY Bulls Eye 155.60 Ahead of the Fed

Note on the four-hour chart that support was found around the monthly S1 pivot and a small bullish trend is forming. The RSI (14) is confirming the move higher and is not yet overbought, while the RSI (2) is moving towards oversold as a bullish hammer forms around the weekly pivot point. Bulls could seek dips above the monthly S1 (153.40) in anticipation of a move to the weekly R1 (155.60) or 156 handle. Whether USD/JPY can reach or break above these levels will likely come down to the Fed.

Source: ICE, TradingView

AUD/JPY Technical Analysis: Australian Dollar vs Japanese Yen

Nobody can deny it was a great run for AUD/JPY between April 2025 and April 2026. But the correction is now well underway, having fallen more than 4.6% in just two weeks. Yet support levels are nearby that are likely too significant to ignore for now, bringing the potential for a shakeout or bounce over the near term. With momentum on their side, however, I suspect bears are seeking opportunities to initiate fresh shorts should such a bounce arrive.

AUD/JPY Correction Tests Major Support

Prices are holding above the 1991 high (109.70), trend support from the March low and the 2024 high (109.37) for now. Note that prices gapped down to the 1991 high at the Monday open and are on track to close above Friday’s close, and a bullish divergence has formed on the daily RSI (2) in its oversold zone.

Note a potential resistance cluster around 111 including the monthly R1, weekly pivot point and the current monthly VPOC. This seems like a feasible upside target over the near term, and area for bears to seek shorts. Next resistance is around 112 near the weekly R12 pivot.

Next major support for bears is just above 106, near the December VPOC (106.53) and monthly S1 pivot (107.12).

Source: ICE, TradingView

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