US Dollar, Yields Rally Post-Fed as USD/JPY Tests Resistance

US bond yields surged and the US dollar was the strongest major currency on Wednesday after the Fed held rates and signalled just one 25bp cut ahead. While markets weren’t pricing in any cuts beforehand, the shift in Fed funds projections can still be seen as hawkish relative to the Fed’s prior outlook.

Jerome Powell also pushed back against political pressure, vowing to remain on the FOMC board to preserve its independence and describing Trump’s attacks as “unprecedented”.

The overall tone leans more hawkish than markets—and Trump—would have preferred, reinforcing expectations that the Fed is in no rush to ease policy despite lingering inflation risks.

View related analysis:

Market Reaction: US Dollar, Yields and Equities

Us 2-year yield rose 10.9bp to 3.95%, more than twice its average daily rise of 3.2bp over the past year while the 10-year yield hit 4.1%
The US dollar was the strongest FX major, sending DXY (USD index) up 0.36% to a 12-day high
AUD/USD and NZD/USD were the weakest majors, which were dragged lower alongside metals such as gold, copper
Crude oil easily withstood US dollar strength with it looking increasingly likely the Straight of Hormoz will remain closed indefinitely
Wall Street indices fell in the final hour of trade with Nasdaq futures down -0.7%, Dow Jones -0.5% and S&P 500 -0.4% into the close

US Dollar Index (DXY) Technical Analysis

USD Index Tests 99 Resistance as Momentum Builds

Momentum has turned higher for the US dollar, with the USD index pushing above last week’s high and testing gap resistance near the 99 handle.

Rising volume alongside prices suggests the move could extend in the near term, bringing 99.09 into focus and potentially a move into the gap towards 99.68.

However, EUR/USD is sitting on its 50-day EMA and 200-day SMA near key historical support. If this area holds, it could cap USD upside in the near term, making the euro a useful confirmation signal for dollar direction.

US Dollar Rally Looks Corrective Within Bearish Structure

While near-term momentum points higher, the broader outlook for the US dollar remains bearish in my view. I suspect a significant top formed on March 31, with the current rally from ~97.50 appearing corrective against that decline.

This keeps the focus on identifying a potential swing high on the daily chart, with EUR/USD likely providing confirmation if it forms a corresponding swing low.

Source: ICE, Forex.com, TradingView

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

USD/JPY Breaks Above 160

The Japanese yen may not have been the weakest currency on Wednesday—that honour went to the Australian and New Zealand dollars—but its losses against the US dollar have produced some of the cleanest price action on USD/JPY among the majors.

The 0.5% rise for USD/JPY marked its best day in 19 sessions and saw it close comfortably above 160 at a four-week high. This begs the question of whether we’ll see a breakout in today’s Asian session, although I feel compelled to urge caution.

160 Remains a Key Level

160 is a big enough level in its own right to break, but it has been closely watched for over a month and previously triggered a selloff on March 30 after just a single day above it—one day prior to the top on the US dollar index.

The 4-hour chart shows USD/JPY probed the March high but fell just short of the weekly R2 pivot point before retracing into the US close. With EUR/USD sitting on key support, a case could be made for a pause or minor retracement from current levels—even if USD/JPY seems destined to eventually break higher anyway.

Bullish Bias Holds Above 160

The trend on the daily chart is clearly bullish, and we’ve seen sufficient sideways trade to justify a breakout. We just need to clear the bump in the road around the March high first.

That could mean choppy trade or a pullback before liftoff. The bias remains bullish while USD/JPY holds above 160, as this level could be the difference between a minor dip or a deeper pullback.

Source: ICE, Forex.com, TradingView

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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