USD Short-Squeeze

USDJPY is on watch currently with the pair testing a key multi-year support level at the 140.40 mark. Following a strong rally yesterday which saw the pair jumping around 1.5%, the move has since reversed with USD heavily sold again so far today. The volatility is being caused by fresh uncertainty around Trump and his policy U-Turns.

US U-Turn

Earlier in the week USD had surged, along with risk assets, as Trump signalled that tariffs on China could soon come down from high levels. This was seen as a sign of a forthcoming shift in US/China trade sentiment, weakening the safe-haven Yen and benefiting the greenback. USD sentiment was also bolstered by Trump saying that he was not looking to fire Fed chairman Powell, soothing concerns which had arisen from Trump’s prior hostility towards the Fed chief.

Fresh Uncertainty

On Wednesday evening however, this positivity was seen fading as the US walked back these positive sentiments. Trump was heard criticising Powell again saying that rates had been too high for too long, suggesting that he ‘might give him a call’. Alongside that, Bessent clarified that there was no formal proposition in place to walk back China tariffs with nothing yet being discussed.

Near-Term Risks

While uncertainty around US trade tariffs persist, USDJPY looks vulnerable to a fresh downside break. The reaction higher in USD this week shows that a heavily sold Dollar is clearly vulnerable to short squeezes on any positive news. However, further downside is still the core view until we see something solid, such as a tariff reduction from the US.

Technical Views

USDJPY

For now, the sell of fin USDJPY has stalled into the bear channel lows and the 140.42 level. While this region holds, a rotation higher towards the bear channel highs and the 147.15 level can be seen. However, a break below current support will put 137.80 in view next.