Post-FOMC USD Price Action Setups: EUR/USD, USD/JPY

US Dollar Talking Points:

• Markets were pricing in approximately a one in three chance for a rate hike today, which did not end up happening.
• Despite FOMC Chair Kevin Warsh sounding hawkish by repeatedly saying that inflation must come down, the bank made no move to do so at today’s rate decision and, instead, we’re seeing many of the trades aligned with rate cuts coming off quickly.
• Keep in mind that the larger reaction to a meeting of this nature will often take days to play out, as what we’re seeing now is the initial reaction from rate hike bets and hedges in anticipation of such coming off.

The June rate decision prodded a rally in the Dollar and in response, markets were highly expecting the possibility of a rate hike at today’s July rate decision from the FOMC. As Kevin Warsh has said numerous times, inflation is, and has remained well above the Fed’s 2% target. This was even the case during rate cut campaigns in 2024 and 2025, with Core CPI never dipping below 2% through that time. To be sure, the Fed made other arguments as to why the rate moderation was necessary and we saw a likely reason for that back in March of 2023 as higher rates were starting to cause stress with regional banks in the US.

What the Fed says and what they do, however, aren’t always the same thing, and given how important FOMC messaging has become and how it was a vital tool in the bank’s management of the economy in the post-GFC backdrop, it makes sense as to why they might try to alter matters here.

But – the backdrop that Kevin Warsh is looking for may be a more volatile one, as the forward guidance and preparation for whatever move the Fed was looking to make taught market participants to rest easily on the leanings of the bank. And now they have to fend for themselves based on the incoming data.

As such there was a legitimate build of expectation for a rate hike today, despite the fact that inflation has actually eased of late. If there was an actual hike, I think the repercussions would be massive, as President Trump spent months during the nomination process teasing rate cuts, even going as far as to say a willingness to cut rates was a ‘litmus test’ for whomever he ultimately selected. If Kevin Warsh presided over a rate hike in only his second meeting at the bank, the response from President Trump’s social media accounts would likely be one for the ages, but that’s not a scenario that we need to entertain at this point as markets are even going so far as to price out a possible move in September.

In the US Dollar, I went over this in-depth in yesterday’s webinar. The currency has since broken down on the back of those rate hike bets getting priced out. I have this currently at the bottom of the ‘s2’ support zone and the next big item here is probably something to do with Japan ahead of the BoJ rate meeting, which I’ll touch on in a moment.

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

In the webinar yesterday I looked at a falling wedge formation in EUR/USD that opened the door for a pullback. That move is now in place and price has pushed up to the next resistance level, at 1.1469. The big spot overhead is the 1.1500 handle but at this point, I think a topside break above that would probably need a larger move down in USD/JPY as the big picture carry trade still remains a crowded venue.

If the BoJ can successfully frighten markets into thinking they may be taking a more-hawkish turn, there could be excuse for longs to bail and, in turn, stops can get hit to lead to more downside pressure. I think that would be more likely than an intervention threat at this point just given price trajectory, but with the BoJ coming up that can change quickly but suffice to say, I think that EUR/USD could possibly be taking directional pushes from the carry trade in USD/JPY.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

This is the big one and we’ve seen just how impactful moves in USD/JPY can be across the Dollar spectrum. It was just a little over two years ago when an intervention on the morning of a US CPI print sent both USD/JPY and DXY spiraling lower, and it carried US equities down with it.

At this point, I don’t think that Japanese policymakers necessarily mind the spot rate being above the 160 handle but the primary fear is one of losing control to where the currency slides to such a degree that inflation becomes problematic, which would then force their hand and in turn endanger growth. When you’re looking at a population conundrum like Japan is, that’s dangerous, as stalling that growth could become a generational issue so, I think if given the option the Bank of Japan would prefer for spot rates to stay around where they are now.

In USD/JPY, we now have a pullback after the FOMC meeting and price is currently holding at support, the same looked at in yesterday’s webinar.

As long as the fundamental divergence remains in place, and Warsh did nothing to question that today by retaining that hawkish-sounding outlook, there’s a case for bulls to come in to defend support.

That said, this is a crowded trade so if there was a shock of counter-trend stimuli getting priced-in, such a more-hawkish BoJ, that could run some stops and lead to short-term supply. That could then re-open the door for bulls on a bigger picture basis, but the point is the price always at least somewhat efficient given the known facts so there’s really no free lunch here, there’s always risk in the equation.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

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