FOREX.com

With Fed cut bets firming and political headlines unsettling investors, USD/JPY may hinge less on near-term data and more on whether long-end yields hold the line.

Traders have a host of key economic data to digest over the next 24 hours, including Australia’s crucial CPI print, US GDP, and interest rate decisions from both the Fed and Bank of Canada (BOC).

This week is shaping up to be a wild ride for USD/JPY traders with major U.S. economic data, rate decisions from the Fed and Bank of Japan, trade talks, tech earnings, and an update on U.S. borrowing needs fuelling volatility. Ahead of this convergence of event risk, price and momentum signals favour further USD/JPY upside. Whether that plays out is another story, especially given how quickly the macro landscape can shift in 2025.

It’s so far been another bearish week for the USD as the reversal from last week that started around the threat to fire Jerome Powell has continued.USD/JPY started the week with a sell-off but notably remains well above prior April lows, even as DXY has pushed very close to the three-year lows established just a few weeks ago.EUR/USD has tested a spot of resistance after the ECB meeting and that pair remains vital to directional USD strategies. The FOMC rate decision is on the schedule for next Wednesday and the big question is whether Powell and the Fed will relent enough to signal rate cuts on the way. The market is currently looking for two 25 bp cuts and there’s only three meetings remaining in 2025 after next week’s announcement

A changing of the guard may be underway when it comes to what’s driving the G10 FX universe, with focus on the U.S. interest rate outlook diminishing over the past week, replaced by greater attention on broader risk appetite. While the jury is still out on the U.S. dollar’s once-concrete safe haven status, notably, it’s struggled in an environment of declining volatility and surging risk assets over the past fortnight. Should that trend persist, the path of least resistance for the dollar may continue to be lower.

Wall Street indices reached record highs by Wednesday’s close on trade deal optimism. Trump’s announcement of a trade deal with Japan via Truth Social during Asian trade had sent the Nikkei 225 futures above 41k and within striking distance of its 2024 high. This then sparked expectations of a trade deal with the EU, with some reports suggesting 15% tariffs on most exports from the bloc.

Consumer prices in New Zealand rose less than forecast in the June quarter, delivering a modest decline in the New Zealand dollar. While marginally above what the Reserve Bank of New Zealand (RBNZ) forecast in May, the underlying detail of the report points to the likelihood of at least one additional rate cut from policymakers over the remainder of the year.

As WTI trades back inside the 3-year downtrend channel established since the 2022 highs, the outlook has shifted to a neutral-to-bearish tone, with markets awaiting a decisive breakout.

As global markets return from the New Year holiday, trading remains subdued with light activity expected until next week when full operations resume. Today’s focus will be on Eurozone and UK PMI manufacturing finals alongside US jobless claims, while tomorrow’s US ISM Manufacturing Index could provide an early glimpse of potential volatility ahead. However, the broader tone for January—and likely much of 2025—will be set by a series of pivotal events and data releases in the coming weeks.