Written by Shier Lee Lim, Lead FX and Macro Strategist
Intervention whispers, commodities ignite
The Japanese yen remains front and centre as USDJPY tumbled toward 154.45 at the time of writing. While no official confirmation of intervention has emerged, all eyes are on the Ministry of Finance for clues. The pair has shown tentative signs of stabilization, but the market remains on edge.
Heightened tensions in Iran and colder US weather forecasts have propelled oil prices over 3% higher, with supply risks back in focus. Gold remains buoyant, hovering just below the $5,000 psychological mark as safe-haven demand persists.
The yen’s surge has led the USD lower, with GBP also outperforming after robust services PMI data.
US Treasuries were little changed after in-line PMI data, while UK gilts remained under pressure on political uncertainty and strong services data. NZ bonds weakened after a CPI beat, shifting expectations to no RBNZ cuts this year. Australian Q4 CPI this week could keep a February RBA hike in play.
The S&P 500 traded flat. With 31% of the S&P’s market cap reporting this week, including major tech names, the setup is fragile despite solid fundamentals.
A heavy week of central bank decisions and US megacap earnings looms, with geopolitical risks and de-dollarization themes remaining in focus. Monitor AUD for CPI-driven rate expectations, and watch for further JPY volatility as intervention speculation lingers.
BoJ stays put as one member pushes for a hike
The Bank of Japan last Friday kept rates at 0.75%, as expected, while Takata broke ranks and voted for a move to 1%. The bank now expects growth in fiscal 2026 and 2027 to reach 1% and 0.8%, up from 0.7% and 1%. It struck a cautious tone, noting that the economic recovery has slowed. It also raised its core-core inflation outlook above 2% through fiscal 2027 and highlighted the risks coming from currency moves and import costs.
USDJPY tumbled to near key support level of 100-day EMA of 154.25, at the time of writing.
The next key resistance lies at 50-day EMA of 156.18, followed by 21-day EMA of 157.13.
Central banks and policy in focus
The week ahead is dominated by major central bank decisions, setting the tone for FX markets. The Bank of Canada meets on Thursday, with rates expected to remain steady at 2.25%. However, the spotlight will be on the US Federal Reserve’s FOMC decision later that day, where no change is anticipated. Markets will scrutinize the Fed’s statement for any hints on the timing of future rate cuts, which could drive volatility in the US dollar and broader risk sentiment.
Inflation readings are front and center, especially in Australia and Europe. Australia’s December CPI (Tuesday) will be closely watched for signs of easing price pressures, with YoY inflation last at 3.4%. In Europe, preliminary German and Eurozone GDP figures (Friday) and German CPI (Saturday) will provide key insights into the region’s growth and inflation outlook. These releases could influence EUR crosses, especially if data surprises to the upside or downside.
Beyond the Fed, the US calendar features durable goods orders, productivity, and labor market data. While no major surprises are expected, any deviation could impact USD direction. Meanwhile, confidence surveys from Germany and the Eurozone, as well as Japan’s consumer confidence, will offer a broader view of global economic sentiment.
With central bank policy and inflation in focus, FX volatility may pick up midweek. The absence of major holidays means liquidity should remain robust, but traders should remain alert to data surprises and central bank rhetoric. Overall, the interplay between inflation trends and monetary policy expectations will be the key driver for FX markets this week
Aussie gains on dollar weakness
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 26 – 31 January
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
