The Japanese Yen maintained its upward momentum on Wednesday, even as the US Dollar attempted a modest rebound, with USD/JPY trading near 152.45 during early European flows. The pair remains capped below the key 153.00 psychological level, hovering not far above a three-week low of 152.16 as traders position cautiously ahead of the US Federal Reserve’s monetary policy announcement later today.

Currency markets are entering the decision with subdued conviction but heightened sensitivity to forward guidance. The Fed is widely expected to keep interest rates unchanged, reinforcing its recent “higher for longer” stance. However, the real market driver may lie beyond the rate decision itself. Investors are increasingly focused on the future leadership of the central bank, with Chair Jerome Powell expected to step down in May. President Donald Trump has already made clear his preference for significantly lower borrowing costs, raising questions about how independent US monetary policy may appear in the months ahead.

That political undertone is quietly eroding confidence in the Dollar’s medium-term outlook. While US yields have stabilized in recent sessions, the Greenback has still shed more than 4% against the Yen since last Friday. The decline accelerated after reports surfaced that both the Federal Reserve and the Bank of Japan had conducted so-called “rate checks” in USD/JPY — a move widely interpreted in FX markets as a precursor to potential coordinated currency intervention.

Such speculation prompted leveraged funds and short-term traders to trim bullish Dollar bets, amplifying the Yen’s recovery. The move gained further traction after President Trump publicly welcomed the recent Dollar depreciation on Tuesday, a rare instance of US leadership openly favoring a weaker currency. That commentary added political weight to an already fragile Dollar narrative and pushed USD/JPY to its lowest levels since late October.

On the Japanese side, the policy backdrop has also shifted in ways that favor Yen strength. Minutes from the Bank of Japan’s December meeting reinforced the central bank’s commitment to gradual monetary normalization. Policymakers highlighted confidence that underlying inflation trends and wage growth are becoming more sustainable — a key prerequisite for further tightening. This message has reassured markets that Japan is moving steadily away from its ultra-loose policy era, even if the pace remains cautious.

Importantly, this tightening bias is helping offset long-standing investor concerns about Japan’s heavy public debt burden. As long as inflation and wages continue to firm, the BoJ has room to edge policy settings higher without destabilizing the domestic economy. That structural shift is quietly reshaping the Yen’s role in global FX markets — from a purely defensive safe haven to a currency with improving yield support.

From a market perspective, the convergence of a politically pressured Fed outlook and a cautiously tightening BoJ creates an environment that naturally limits USD/JPY upside. Even when the Dollar finds short-term support, follow-through buying has become hesitant, suggesting that rallies are increasingly seen as selling opportunities rather than the start of a broader reversal.

In my view, unless the Fed delivers a notably hawkish surprise — which appears unlikely — the balance of risks still favors further Yen resilience. Intervention fears may ebb and flow, but the mere presence of that risk acts as a ceiling on aggressive Dollar positioning. At the same time, Japan’s evolving policy stance gives investors a fundamental reason to take Yen strength more seriously than in past cycles.

From a technical perspective, USD/JPY has shifted from a steady bullish trend into a vulnerable corrective phase. On the daily chart, price action had been respecting a well-defined ascending channel that guided the pair higher from October through January. However, the recent sharp selloff has broken decisively below the lower boundary of that channel, signaling a potential trend exhaustion rather than a routine pullback.

The pair is now hovering near the 152.00 zone, which previously acted as minor structural support and now serves as an immediate battleground between bulls and bears. The aggressive nature of the decline suggests a change in sentiment, with downside momentum accelerating after repeated failures near the 158.00–160.00 resistance area, which capped upside attempts at the top of the channel.

A daily close below 152.00 would confirm a deeper corrective phase and expose the next major support around 148.00, a level that previously acted as both resistance and consolidation support during the prior range phase. A sustained move beneath 148.00 would mark a broader structural breakdown, opening the door toward the 143.00 region, which represents a key horizontal demand zone from earlier in the trend and aligns with the projected path shown on the chart.

On the upside, any recovery attempts are likely to face stiff resistance. The first hurdle comes in near 155.00, followed by the more critical 158.00 area, which coincides with the former channel support turned resistance. Only a sustained move back above this region would negate the immediate bearish outlook and suggest that the breakdown was a false move rather than the start of a broader reversal.

Overall, the technical structure now favors selling into rebounds rather than buying dips, as long as price remains below the broken channel and under the 158.00 resistance zone. The shift from an orderly uptrend to impulsive downside movement suggests that momentum has rotated in favor of the yen, at least in the near term.

SELL USD/JPY

ENTRY PRICE: 152.60

STOP LOSS: 158.20

TAKE PROFIT: 148.00

Investors remain worried about Japan's fiscal situation due to Prime Minister Sanae Takaichi's aggressive spending and tax cut proposals. Additionally, domestic political uncertainty ahead of the early general election on Feb 8, coupled with elevated risk appetite, has eroded the yen's safe-haven status. However, the Bank of Japan's (BOJ) hawkish policy outlook and market fears of central bank intervention are helping to limit further yen depreciation. In fact, the BOJ's December meeting minutes, released earlier today, showed policymakers are more confident in sustaining a moderate wage-price cycle, citing this as a basis for further tightening monetary policy. This, in turn, underscores the BOJ's willingness to continue pushing up currently low borrowing costs. Long-term Japanese government bond yields have hit fresh highs, Japanese equities have seen their worst sell-off in months, and the yen has dropped to all-time lows against the euro and Swiss franc. Markets widely expect the Japanese Ministry of Finance to intervene again if USDJPY breaks above the 160 level, with the possibility of coordinated yen purchases with the United States not ruled out. Nevertheless, historical experience shows that foreign exchange intervention can mostly only smooth short-term volatility rather than reverse fundamentals-driven trends. In 2024, Japan deployed approximately 15.3 trillion yen in interventions—an unprecedented scale—with only temporary effects, unless the timing aligns with a shift in global monetary policy expectations.

Against the backdrop of resilient U.S. economic performance and potential new fiscal stimulus to boost consumer spending, bond investors are gradually increasing risk exposure and positioning for a potential prolonged pause in the Fed's rate-cut cycle. Markets broadly anticipate the Fed will keep the federal funds rate unchanged within the 3.50%-3.75% target range following the two-day FOMC policy meeting. Previously, the Fed had cut rates by a total of 25 bps in September, October, and December, ending a nine-month rate pause. While markets are focused on Fed Chair Jerome Powell's remarks at the post-meeting press conference, investor attention has partially shifted to the succession plan after his expected departure in May. Rick Rieder, head of BlackRock's bond business, is regarded as a top contender, with prediction markets putting his odds at around 49%. Ahead of the policy decision, bond investors are seeking higher potential returns mainly by extending portfolio duration, increasing holdings of long-term U.S. Treasuries, and U.S. corporate bonds. This strategy is generally considered relatively high-risk, as longer-duration bonds are more sensitive to changes in interest rates and economic outlooks. With a stable labor market, signs of peaking inflation, and the federal funds rate near neutral levels, markets widely expect the Fed to implement a moderate easing cycle. Interest rate futures currently price in approximately 44 bps of cumulative Fed rate cuts by 2026, down from the previous expectation of around 53 bps. Meanwhile, spreads on U.S. investment-grade corporate bonds have narrowed to about 73 bps, near the lowest level since the late 1990s, reflecting strong demand for high-quality credit assets and limiting room for further increases in risk exposure.

On the daily chart, USDJPY shows Bollinger Bands opening downward with MAs diverging lower, as prices stage a sharp decline along the lower Bollinger Band. After the MACD death cross, upward momentum has weakened significantly, with the fast and slow lines moving below the zero axis—indicating a bearish trend. Overall, prices are likely to fall to 152 or 151.8. The RSI reading stands at 29, placing the market in the oversold zone with investors predominantly selling.

On the weekly chart, prices have dropped with two consecutive large bearish candles and are currently consolidating near the middle Bollinger Band and EMA50. The MACD has formed a death cross, and the fast and slow lines are pulling back toward the zero axis—still a considerable distance away, suggesting the correction is not yet complete. The RSI reading is 46, reflecting market pessimism. If prices can sustainably hold above EMA50, a rally to around 160 is highly likely; failure to hold this level would trigger a further decline to 150.

Thus, the trading strategy recommends buying on dips as the primary approach.

Trade Direction: Buy

Entry Price: 151.8

Target Price: 160

Stop Loss: 149.5

Support: 152/150/149.5

Resistance: 160/161/162

The USDJPY pair experienced a sharp short-term correction, with prices sharply declining from recent highs and fluctuating within the 153.00–152.00 range. The prevailing market narrative is driven not solely by interest rate differentials or macroeconomic data but predominantly by market expectations of increased Japanese authorities' proactive responses to yen volatility. The Japanese Finance Minister's public commitment to take "appropriate action when necessary" and emphasis on close coordination with U.S. authorities have visibly shifted risk premiums, prompting swift short covering in the yen.

Simultaneously, the dollar has come under pressure, with escalating political and policy uncertainties fueling dollar sell-offs. Market interpretations of statements by U.S. political figures suggest tolerance for dollar depreciation, further boosting yen buying interest. Overall, the combination of dollar weakness and Japanese official communication signals has shifted the short-term exchange rate dynamic from interest rate differential-driven fundamentals to a political/intervention risk narrative. This shift has led to extraordinary intraday declines in USDJPY over the past few trading sessions, with the price temporarily breaking above the 153 level.

It is important to emphasize that there is informational asymmetry and uncertainty regarding the actual extent of Japan's market intervention. Some official and market reports indicate that Tokyo authorities engaged in intensive communication and conducted "interest rate/market condition assessments," yet publicly available central bank disclosures do not provide conclusive evidence of substantial yen purchases on specific trading days. In other words, the market's "intervention expectation effects" may have a more significant impact on prices than the actual intervention itself. Traders should differentiate between the risks associated with "policy signals/coordination announcements" and "confirmed official interventions."

In the 4H timeframe, the USDJPY currency pair has transitioned from an upward channel to a rapid downtrend accompanied by increased volatility. The price has swiftly broken below several short-term moving averages, forming a bearish gap. Key support levels are identified at 152.00–151.50, followed by around 151.00. Resistance levels are concentrated near recent retracement points and the confluence zone of short-term moving averages, approximately 154.60–156.00.

Technical indicators, such as RSI and other momentum oscillators, have entered oversold territory in the short term, suggesting the potential for a technical rebound or consolidation phase.

Currently, the 4H candlestick pattern shows a bullish engulfing formation, indicating that the price may stabilize after holding the 152.00 support level, with prospects for a gradual upward correction increasing.

Trading Direction: Buy

Entry Price: 152.40

Target Price: 155.60

Stop Loss: 151.40

Valid Until: February 11, 2026 23:00:00

Support: 152.00, 151.50

Resistance: 154.60, 156.00

Market participants have almost entirely priced in a "hold" decision from the Federal Reserve, with interest rates expected to remain within the 3.50%–3.75% range at the conclusion of Wednesday's policy meeting. This pause follows three consecutive rate cuts implemented throughout 2025. Investor focus is shifting toward the subsequent press conference, as any forward-looking guidance could prove pivotal for currency valuations. A more hawkish tone from Fed officials possesses the potential to provide short-term support for the U.S. Dollar.

On the macroeconomic front, recent U.S. data indicated a deterioration in consumer confidence, according to the Conference Board index. This was compounded by the latest ADP Employment Change 4-week average, which showed a loss of momentum, descending from 8,000 to 7,750. Simultaneously, escalating trade tensions—now focused on South Korea—are injecting volatility into the markets. President Donald Trump’s warning regarding a potential 25% tariff on South Korean goods initially pressured the Greenback while reinforcing demand for safe-haven assets. Consequently, Gold has surged 17.72% year-to-date, challenging the historic 60% gains recorded in 2025.

In Europe, Germany's economic pulse remains subdued, as evidenced by the latest IFO Business Climate Index. The indicator held steady at 87.6 in January, missing market expectations of an improvement to 88.1. While the current assessment sub-index saw a marginal gain, the expectations component retreated, reinforcing the narrative of a fragile recovery hampered by persistent structural issues. This was reflected in the preliminary PMI figures, where the manufacturing sector remains in contraction while services expansion moderated. Against this backdrop, European Central Bank policymakers have maintained a prudent, data-dependent stance, avoiding discussions on imminent rate shifts.

Finally, geopolitical tensions continue to inject risk premiums into European assets. Despite diplomatic efforts, the conflict between Russia and Ukraine remains highly active, with recent large-scale drone offensives and strikes on energy infrastructure in Krasnodar ensuring that global market volatility remains elevated.

The EUR/USD pair reached an intraday peak of 1.2083 during the previous session, a move largely driven by broad Dollar depreciation following President Trump's remarks that the currency was "doing fine." However, this overextended rally has pushed the pair into extreme territory, suggesting that a technical correction is likely on the horizon.

A potential corrective phase would target a high-value support cluster between 1.1895 and 1.1844. These levels are strategically significant as they align with the 0.50 and 0.618 Fibonacci retracement levels of the recent impulse. A successful defense of this area could serve as a catalyst to reactivate the broader bullish trend.

Supporting the case for a pullback, the Relative Strength Index (RSI) hit a high of 85, entering deep overbought territory. This exhaustion signal suggests that the current move is reaching a climax and requires a period of consolidation. Meanwhile, the 100 and 200-period Moving Averages are situated at 1.1821 and 1.1740, respectively. As these averages continue to track the primary trend, they are expected to converge toward our zone of interest in the coming sessions.

If the price exhibits a bullish reaction from this support confluence, the uptrend is expected to resume. However, traders should monitor these levels closely, as a failure to hold the 0.618 Fibonacci level could signal a deeper structural shift.

Trading direction: Buy

Entry price: 1.1895

Target price: 1.2050

Stop loss: 1.1815

Validity: Feb 06, 2026 15:00:00

The Japanese Yen's strength at the close of last week was largely fueled by speculation regarding potential coordinated intervention between the Federal Reserve and the Bank of Japan. However, in the absence of definitive signals or immediate action from either central bank, market participants have begun unwinding hedge positions in the Yen, effectively capping its recent support.

On the political front, rhetoric from Prime Minister Sanae Takaichi has reintroduced a layer of uncertainty. Her proposals for increased public spending and aggressive tax cuts ahead of the February 8th Lower House elections have reignited concerns over Japan's long-term fiscal sustainability. This backdrop has led to increased volatility in Japanese government bond yields and remains a significant structural headwind for the Yen. From a macroeconomic perspective, while producer price inflation is moderating, the relief is not yet sufficient to derail the Bank of Japan’s progressive normalization path. In fact, the BoJ recently upwardly revised its economic forecasts while maintaining its readiness to adjust policy should the environment warrant further tightening.

In Europe, Germany's economic pulse remains subdued, as evidenced by the latest IFO Business Climate Index. The indicator held steady at 87.6 in January, missing market expectations of an improvement to 88.1. While the current assessment sub-index saw a marginal gain, the expectations component retreated, reinforcing the narrative of a fragile recovery hampered by persistent structural issues.

Complementing this, Friday’s preliminary PMI figures offered a mixed outlook. The manufacturing sector showed signs of stabilization but remains firmly in contractionary territory. Conversely, while the services sector continues to expand, it is doing so at a more moderate pace than anticipated. At the Eurozone level, the Services PMI retreated to 51.9 in January, undershooting forecasts and highlighting weak domestic demand. Against this backdrop, European Central Bank policymakers adopted a prudent tone in their December deliberations, avoiding discussions on rate shifts while reiterating a data-dependent, meeting-by-meeting approach.

Finally, geopolitical tensions continue to inject risk premiums into European assets. Despite U.S.-led diplomatic efforts to mediate between Russia and Ukraine, the conflict remains highly active. Recent reports of large-scale drone offensives and strikes on Russian energy infrastructure in Krasnodar have ensured that volatility remains elevated across global markets.

EUR/JPY underwent a sharp bearish rejection after testing the local peak of 186.87 on January 23rd, a move largely driven by intervention speculation. The pair is currently in a corrective consolidation phase, drifting toward a major technical "Value Area" where the 100 and 200-period Moving Averages converge at 184.29 and 184.08, respectively.

Notably, the 184.12 level represents last week’s closing price. A retracement to this zone would effectively fill the weekend gap, often a precursor to a trend resumption. Given that this area aligns with both the moving average confluence and horizontal resistance, it serves as a high-probability pivot point for the bears to reclaim control.

Our momentum analysis via the MACD confirms that the current upward move is a corrective retracement within a broader bearish structure. Although the histogram is currently printing bullish bars, the signal lines remain entrenched below the neutral zone, indicating that the primary trend is still down.

As the price approaches this key confluence, we are looking for a bearish pivot in the histogram. Such a turn would open the path for a target at 180.98, which represents the 0.618 Fibonacci expansion of the initial downward impulse. While the correction is currently in play, the technical structure favors a bearish continuation as long as the price remains below the moving average cluster.

Trading direction: Sell

Entry price: 184.16

Target price: 181.00

Stop loss: 184.90

Validity: Feb 06, 2026 15:00:00

The USDCAD extended its overnight rebound from the 1.3670 level on Tuesday, gaining upward momentum for a second consecutive trading session. Spot prices maintained modest intraday gains during European trading hours, currently trading around the 1.3700 range with a daily increase exceeding 0.18%.

Data released last week showed Canada's retail sales rebounded strongly in November, rising 1.3% month-over-month to CAD 70.4 billion, slightly exceeding the prior forecast of 1.2%. Growth was widespread across sectors, with sales increasing in eight out of nine sub-sectors. Spending at food and beverage retailers saw the most significant rise, indicating robust consumer demand persisted through the year-end period.

Underlying growth momentum remains robust. Core retail sales excluding gasoline and automobiles rose 1.6% month-over-month, indicating that strong household spending extends beyond volatile categories and reflects steady demand for discretionary goods.

However, the outlook is not optimistic. Preliminary estimates from Statistics Canada indicate that retail sales in December may have declined by 0.5% month-over-month, suggesting that the strong growth momentum seen in November may not have been sustained.

Market Watch: Canada's economy staged a welcome rebound in November, though it delivered little in the way of exciting growth. Part of the increase reflected market volatility tied to labor disputes rather than a substantive improvement in underlying demand. This rebound followed a weak and downwardly revised October, and growth momentum has already begun to slow in December. Setting aside monthly fluctuations, the underlying trend in actual sales remains negative. Weak consumer confidence may be a key factor. The Bank of Canada's latest consumer survey indicates growing household pessimism about their financial situation, which is influencing spending decisions.

Our outlook for actual consumption growth in the fourth quarter remains subdued, with quarter-on-quarter growth projected to approach 0.9% (annualized). There exists some upside risk in the services sector, as its growth momentum is expected to gradually strengthen toward year-end. However, we believe the pace of services sector growth will be insufficient to lift overall consumption growth significantly above its trend level.

The USDCAD has shifted from its earlier sharp decline to a neutral intraday trend, with prices currently rebounding. Some consolidation is expected above the temporary low at 1.3670. An upward momentum will persist as long as the pair breaks above the 4H 55 SMA (currently at 1.3788).

On the other hand, this level also warrants attention. Currently, the exchange rate remains below this level, with upward resistance still intact. A break below 1.3670 would trigger a retest of the 1.3641 support level. Should this support level be decisively breached, the downtrend originating from 1.4139 would resume, potentially leading to another test of the 1.3538 low.

Trading Direction: Buy

Entry Price: 1.3600

Target Price: 1.4000

Stop Loss: 1.3410

Valid Until: February 22, 2026 23:55:00

Support: 1.3670, 1.3642, 1.3575

Resistance: 1.3739, 1.3801, 1.3929