It’s the last full trading week of the year before the Christmas break but that doesn’t necessarily mean that FX markets will be quiet. The calendar is still packed full of important risk events, and when combined with the possibility for decreasing levels of liquidity into Friday’s close it could be a recipe for volatility.
Take USDJPY for example. It has already been the biggest mover in the G7 currency space with its fall from opening levels at 155.80 on Monday down to a low of 154.68 so far this morning and the key risk events are still to come. These events take the form of US Non-farm Payrolls later today (1330 GMT), US CPI on Thursday (1330 GMT) and then the Bank of Japan interest rate decision (0300 GMT) and press conference (0630 GMT) on Friday.
Traders have been eagerly awaiting today’s latest US payrolls release which could impact the direction of the US Dollar in the short term. A weaker US labour market reading may increase the chances for a Federal Reserve interest rate cut in the first quarter of 2026, which could weigh on USDJPY prices, while a stronger number could see USDJPY strengthen.
Similarly, the direction of US inflation on Thursday could be important as some Fed policymakers have signalled they are uncomfortable with prices rising consistently above the US central bank’s 2% target. A higher-than-expected CPI reading could see US bond yields rise, taking USDJPY higher, while a weaker number could see USDJPY come under pressure as the focus shifts to the Bank of Japan rate decision on Friday morning.
At this meeting, the Japanese central bank is expected to raise interest rates by 25bps (around 90% probability), so anything else would be a shock that may lead to a nasty spike in USDJPY volatility. The comments of Governor Ueda in the press conference could also be important depending on what hints he gives about the potential for further rate hikes through 2026.
That’s it, and yes, I know, a lot to take in and prepare for! Looking at the charts, USDJPY has been in a 270-point trading range between 154.30-157.00 for the last month and there could be potential for that to change.
With that in mind, lets assess the technical outlook.
Technical Update: Are Further Corrective Themes Emerging?
The USDJPY rally from the 154.34 December 5th low to the 156.96 December 9th high was impressive, yet subsequent price action may be suggesting a slowing in upside momentum, even further price weakness.
A key concern for traders may be that the December 9th high remained well below the November 20th extreme at 157.89, reinforcing caution regarding near‑term price activity.
The risk is that this activity represents a ‘weak test’ of the 157.89 price high. In other words, while previous moves higher were accompanied by buying support strong enough to break and close above prior highs and resistance levels, this time the market has been unable to do so, raising concerns over the sustainability of upside momentum.
Traders may now question whether recent price activity signals a slowing of upside momentum and the potential for a phase of weakness. Much may depend on future sentiment once the outcome of the key risk events is known, making it prudent to remain aware of the key support and resistance levels as key reference points in the days ahead.
If Price Weakness is to Materialise:
It may still be argued that activity since the November 20th high reflects a phase of price consolidation within the longer‑term uptrend. Therefore, the focus may initially turn to the December 5th low at 154.34 as the first key support level.
Closing breaks below 154.34 could suggest a developing pattern of lower highs and lower lows, which is the basic definition of a downtrend. Should this occur, risks may then shift toward further price weakness with scope to test lower supports.
As the chart shows, closing breaks below support at 154.34 could see a deeper retracement of the October 1st to November 20th advance. If this is the case, the 38.2% level at 153.16 may be tested, with scope for extension towards the 50% retracement at 151.70.
If Support Holds and Price Strength Develops:
Of course, the 154.34 December 5th low support may yet hold and allow fresh price strength to develop. In that case, the focus may then turn to 156.01, the current level of the Bollinger mid‑average, as the first resistance. Closing breaks above 156.01 might now be required to open scope for higher levels
A confirmed break above 156.01 in USDJPY could trigger further upside pressure, with 156.96, the December 9th high, emerging as the next resistance. Should this level also give way, upside potential may extend toward 157.89, the November 20th high
The material provided here has not been prepared accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Take USDJPY for example. It has already been the biggest mover in the G7 currency space with its fall from opening levels at 155.80 on Monday down to a low of 154.68 so far this morning and the key risk events are still to come. These events take the form of US Non-farm Payrolls later today (1330 GMT), US CPI on Thursday (1330 GMT) and then the Bank of Japan interest rate decision (0300 GMT) and press conference (0630 GMT) on Friday.
Traders have been eagerly awaiting today’s latest US payrolls release which could impact the direction of the US Dollar in the short term. A weaker US labour market reading may increase the chances for a Federal Reserve interest rate cut in the first quarter of 2026, which could weigh on USDJPY prices, while a stronger number could see USDJPY strengthen.
Similarly, the direction of US inflation on Thursday could be important as some Fed policymakers have signalled they are uncomfortable with prices rising consistently above the US central bank’s 2% target. A higher-than-expected CPI reading could see US bond yields rise, taking USDJPY higher, while a weaker number could see USDJPY come under pressure as the focus shifts to the Bank of Japan rate decision on Friday morning.
At this meeting, the Japanese central bank is expected to raise interest rates by 25bps (around 90% probability), so anything else would be a shock that may lead to a nasty spike in USDJPY volatility. The comments of Governor Ueda in the press conference could also be important depending on what hints he gives about the potential for further rate hikes through 2026.
That’s it, and yes, I know, a lot to take in and prepare for! Looking at the charts, USDJPY has been in a 270-point trading range between 154.30-157.00 for the last month and there could be potential for that to change.
With that in mind, lets assess the technical outlook.
Technical Update: Are Further Corrective Themes Emerging?
The USDJPY rally from the 154.34 December 5th low to the 156.96 December 9th high was impressive, yet subsequent price action may be suggesting a slowing in upside momentum, even further price weakness.
A key concern for traders may be that the December 9th high remained well below the November 20th extreme at 157.89, reinforcing caution regarding near‑term price activity.
The risk is that this activity represents a ‘weak test’ of the 157.89 price high. In other words, while previous moves higher were accompanied by buying support strong enough to break and close above prior highs and resistance levels, this time the market has been unable to do so, raising concerns over the sustainability of upside momentum.
Traders may now question whether recent price activity signals a slowing of upside momentum and the potential for a phase of weakness. Much may depend on future sentiment once the outcome of the key risk events is known, making it prudent to remain aware of the key support and resistance levels as key reference points in the days ahead.
If Price Weakness is to Materialise:
It may still be argued that activity since the November 20th high reflects a phase of price consolidation within the longer‑term uptrend. Therefore, the focus may initially turn to the December 5th low at 154.34 as the first key support level.
Closing breaks below 154.34 could suggest a developing pattern of lower highs and lower lows, which is the basic definition of a downtrend. Should this occur, risks may then shift toward further price weakness with scope to test lower supports.
As the chart shows, closing breaks below support at 154.34 could see a deeper retracement of the October 1st to November 20th advance. If this is the case, the 38.2% level at 153.16 may be tested, with scope for extension towards the 50% retracement at 151.70.
If Support Holds and Price Strength Develops:
Of course, the 154.34 December 5th low support may yet hold and allow fresh price strength to develop. In that case, the focus may then turn to 156.01, the current level of the Bollinger mid‑average, as the first resistance. Closing breaks above 156.01 might now be required to open scope for higher levels
A confirmed break above 156.01 in USDJPY could trigger further upside pressure, with 156.96, the December 9th high, emerging as the next resistance. Should this level also give way, upside potential may extend toward 157.89, the November 20th high
The material provided here has not been prepared accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.