Dollar Struggles on Trade Policy Ambiguity, Yen on Watch as USD/JPY Approaches 160 – Action Forex
Dollar remains under some pressure as markets digest conflicting signals about the trade policy direction of the incoming Trump administration. President-elect Donald Trump dismissed media reports suggesting a sector-specific tariff plan as “fake news” but provided no further clarification. The lack of concrete details leaves markets grappling with uncertainty, unable to assess the economic impact of the administration’s trade strategies.
Despite the unease, the greenback’s pullback has been contained, with market participants turning their attention back to critical economic data and events. Key releases this week include the ISM Services PMI later today, FOMC minutes on Wednesday, and Friday’s non-farm payroll report. These events are expected to offer clarity on the Fed’s policy direction and provide a counterbalance to the prevailing trade-related uncertainties.
Meanwhile, Dollar’s earlier gains against Yen in Asian session prompted a swift reaction from Japan. Finance Minister Katsunobu Kato issued a stern warning against “one-sided, sharp moves” in the foreign exchange market. Kato emphasized that the Japanese government is closely monitoring developments and is prepared to take “appropriate action” to address excessive currency fluctuations. As the comments triggered a modest recovery in Yen, speculation is mounting that Japan could intensify its vigilance if USD/JPY approaches the psychologically significant 160 level.
In the broader currency market, New Zealand Dollar has emerged as the top performer so far this week. Sterling and Euro are also posting gains. Yen lags behind as the weakest currency, followed by Dollar and Swiss Franc. Canadian Dollar and Australian Dollar are trading in a middle range, with the Loonie showing limited reaction to Canadian Prime Minister Justin Trudeau’s resignation.
Technically, EUR/JPY’s retreat from 164.89 appeared to be completed at 160.89 with current extended rebound. Rise from 156.16, as another leg of the corrective pattern from 154.40, could be ready to resume to 166.67 and possibly above. But strong resistance might be seen from 61.8% retracement of 175.41 to 154.40 at 167.38 to limit upside.
Swiss CPI falls back to 0.6% yoy in Dec
Swiss CPI fell -0.1% mom in December, matched expectations. Core CPI (excluding fresh and seasonal products, energy and fuel) was unchanged for the month. Domestic products prices rose 0.1% mom while imported products prices fell -0.5% mom.
Comparing with the same month a year ago, headline CPI slowed from 0.7% yoy to 0.6% yoy, matched expectations. Core CPI slowed from 0.9% yoy to 0.7% yoy. Domestic products prices slowed from 1.7% yoy to 1.5% yoy. Imported products prices ticked up from -2.3% yoy to -2.2% yoy.
Looking ahead
Eurozone CPI flash is the main focus in European session, while unemployment rate will also be released. Later in the day, both Canada and US will release trade balance. But attention will mainly be on US ISM services PMI.
USD/JPY Daily Outlook
Daily Pivots: (S1) 156.61; (P) 157.28; (R1) 158.33; More…
Intraday bias in USD/JPY is back on the upside with breach of 158.06. Current rally from 139.57 is resuming to 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25. Firm break there will target 161.94 high. However, break of 156.01 support will indicate short term topping, likely with bearish divergence condition. Intraday bias will then be back on the downside for 55 D EMA (now at 153.64) instead.
In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.
