Image source: Pixabay
 

US Treasury yields continued to ease on Wednesday, yet the dollar delivered a mixed performance in early trade—slipping against the yen and yuan while rebounding against most other currencies. The Dollar Index held steady above Tuesday’s trough, clinging just above its July low of 96.37. Still, the underlying bias remains bearish in the run-up to the Federal Reserve’s policy announcement later today. The dollar’s uneven showing suggests traders are adjusting positions and locking in profits on extended moves, wary of a less dovish outcome than markets currently expect. Even so, the broader outlook points to further dollar weakness, with USD/JPY particularly vulnerable to a slide towards 145.00.
 

Spotlight on Powell and the Fed’s Dot Plot

Markets have fully priced in a 25bp cut at today’s FOMC meeting, leaving the US dollar index already on the defensive. The real focus, however, lies in the Fed’s projections and Powell’s tone. Should the dot plot imply only 50bp of easing this year—short of the 70bp anticipated—investors could see a sharp but possibly short-lived dollar rebound. The rate cut itself is no longer in question; what matters is the guidance on future policy. Traders are keen for signals of a genuine easing cycle. A cautious, data-dependent stance could lift short-end yields and trigger a temporary dollar bounce. Powell’s press conference adds further uncertainty: emphasis on labour market risks would keep the dovish narrative intact, while any hawkish lean could unleash a swift dollar rally.
 

Technical View: USD/JPY at a Breaking Point

The dollar slipped against the yen on Tuesday despite stronger-than-expected US retail sales, as investors largely shrugged off the data with the FOMC looming. The USD/JPY exchange rate fell around 0.6% after breaking below the key 147.00 support level, exposing the pair to deeper losses. That level had been repeatedly tested in recent weeks, producing only limited rebounds. Resistance has consistently formed around the 200-day moving average near 149, and more recently at 148. With upward momentum fading, the risk of a broader breakdown has grown—particularly if the Fed delivers a dovish surprise.

If USD/JPY remains below 147.00 post-FOMC, the next key level to watch is 146.00, which aligns with an important trendline. A break there would open the path toward the psychologically significant 145.00 level, with potential for further weakness into the low 140s. On the upside, any rebound faces initial resistance at 147.00, then 148.00. A more durable shift back toward bullish territory would require a decisive move above the 200-day moving average—a hurdle that currently looks out of reach.
 

In a nutshell

With the Fed’s easing cycle back in motion, dollar sentiment remains fragile. Even if market expectations for aggressive cuts prove optimistic, further weakness could unfold if Powell emphasizes employment concerns over inflation risks. USD/JPY, already flashing bearish technical signals, is one of the key pairs to watch. A breakdown below 146.00 support would likely confirm a deeper bearish turn, bringing 145.00 and potentially lower levels into play.

More By This Author: