The FX Trader: USD kicks off bear move as USDJPY intervention weighs.

The latest

FOMC: dovish or clueless? Many observers, including this one, were scratching their heads in the wake of the FOMC meeting, in which Warsh continues to flex confidence on the determination of the Fed to fight inflation, but is not willing to pull the lever on a hike or indicate the Fed’s future plans to do so. At the same time, Warsh claimed that higher Treasury yields were contributing to further policy tightening. At the end of the day, since the FOMC failed to hike, the market was forced into a dovish read and into marking down forward policy-path expectations, even as some noted that the language mix in the press conference was quite hawkish. This sent the US dollar lower, with the trouble now in sorting through how “clean” the move is when heavy USDJPY intervention is afoot. There was little price action around the release of the June PCE inflation data yesterday, where the core measure came in at 0.1% MoM versus 0.2% expected, though the YoY gauge was 3.3% as expected, down from May’s 3.4%.

Bottom line: We’ll follow the price action as the US dollar has now rolled over and could trend as long as US Treasury yields remain orderly. Some key levels supporting an extension of the US dollar move lower are the 1.1500 area in EURUSD and 0.7000 in AUDUSD, and perhaps the overnight highs in USDJPY ahead of 161.00.

Bank of Japan “hawkish hold” in the new policy statement. The new Bank of Japan policy statement is a hawkish upgrade of the prior one, as upside risks to CPI were noted—even as near-term CPI forecasts were lowered slightly—and the language on growth sounded more confident. There was one hawkish dissenter. Still, Japan’s rates were quiet on this release, only marginally higher than before the meeting, with the next hike not fully priced even through the October BoJ meeting.

Bottom line: Some are dubbing this BoJ meeting a hawkish hold, but there was no significant upgrade to policy-path expectations in the wake of the statement, with Governor Ueda speaking at the press conference as these words are being written. So, there may be some room to expand JPY upside within the trading range of the last couple of months, but a more determined rally might require more dramatic policy steps—for example, soft capital controls via more explicit GPIF mandates on allocations for investment in Japanese assets—a far more hawkish BoJ than what we are seeing today, coordinated intervention, or a dramatic reversal lower in US Treasury yields.

Chart focus: USDJPY.
The massive apparent intervention punched USDJPY lower in its biggest intraday move since December 2023, when a hawkish BoJ surprise drove the move. The pair crossed into the critical 158.00–160.00 zone without tarrying long, as the typical post-intervention backfilling quickly took the price action back above 160.00 around the Bank of Japan meeting, which did little to alter forward expectations for BoJ policy. Still, shorts might be emboldened here for an expansion of the downside range towards 155.00 now that Japanese officialdom is mobilising more forcefully against the weaker JPY, as noted above. A move towards the 152.00 area—the range lows of this year—or lower would likely require signs of coordinated intervention with the US or a significant reversal of the recent rise in long US Treasury yields. Resistance above the overnight high of 160.88 arguably extends towards 162.00. Note that this is the third major attempt to punch through the Ichimoku cloud level this year - the January attempt "succeeded" but did kick off a sustained trend, while the April-May episode failed to see a daily close below the cloud.