The US dollar remains strong, while the euro and Japanese yen currencies collectively come under pressure — Weekly review of the foreign exchange market

Non-U.S. currencies generally weaken, and the US dollar index strengthens again

Last week, the US dollar was dominant. The dollar index rose by 0.93%, while non-U.S. currencies collectively weakened—Euro down 0.89%, Yen fell the most by 1.22%, AUD declined 1.23%, and GBP had a relatively mild drop of 0.56%. Behind this market movement are different driving logics.

Fed rate cut game—has the resolve truly wavered?

The key turning point occurred with expectations of a rate cut.

As soon as the October Federal Reserve meeting minutes were released, the market exploded. There was a clear disagreement within the Fed on how to decide in December, with most members shifting from “possibly continue to cut” to “wait and see.” More direct impact came from the announcement by the U.S. Bureau of Labor Statistics—cancelling the October non-farm payroll report, which caused market panic. Confidence in a December rate cut once fell below 30%.

Subsequently, Morgan Stanley and JPMorgan Chase both reversed their forecasts, retracting their predictions of a rate cut in December. This caught many traders betting on rate cuts off guard.

However, a turnaround came quickly. September non-farm payroll data showed an increase of 119,000 jobs, exceeding expectations, but the unemployment rate unexpectedly rose to 4.4%. This contradictory signal instead gave the market some imagination space. At a critical moment, Federal Reserve Bank of New York President Williams spoke on the 21st, hinting that the Fed still sees the need for a rate cut in the near future. This statement directly increased market expectations for a December rate cut, which has now risen to 71.5%.

The EUR/USD movement is under pressure amid these fluctuating expectations. Last week, the currency pair fell 0.89%, breaking below the 21-day moving average, with a strong bearish sentiment. Short-term support levels are at 1.1468 and 1.1391. If a rebound occurs and breaks through the 21-day moving average, resistance is expected around the 100-day moving average near 1.165.

This week’s key data include US October PCE, September PPI, and Q3 GDP revisions. These data will directly influence market judgment on the Fed’s policy direction and subsequently affect the euro’s performance.

Yen depreciation dilemma—will government intervention really happen?

Compared to the euro’s slow decline, the yen’s situation is more worrying. USD/JPY surged to 157.89 last week, hitting a ten-month high, with a weekly increase of 1.22%.

Why is the yen falling so sharply? The core reasons are twofold: first, market expectations of large-scale fiscal stimulus from Japan’s new government, and second, this implies that the Bank of Japan’s rate hike timetable will continue to be delayed.

On November 21, Japan officially approved a ¥21.3 trillion economic stimulus plan. This massive fiscal expenditure should have further weakened the yen, but strangely, the yen rebounded that day. The reason is—Japanese Finance Minister Shunichi Suzuki started to issue tough words, warning more forcefully that they will not sit idly by.

This indicates government intervention is not far off. Based on market analysis and options pricing trends, institutions generally expect that after a few rounds of verbal warnings, Japanese authorities will actually intervene to buy yen and stabilize the exchange rate. Some analysts believe actual intervention might occur within the range of 1 USD to 158-162 JPY.

On the technical side, the RSI indicator for USD/JPY has entered overbought territory and started to decline, but the bullish momentum remains strong. In the short term, USD/JPY may test the previous high of 157.89 again, with resistance at 158.87. If the trend shifts downward, the 21-day moving average at 154.50 will be a key support level.

This week, close attention should be paid to whether Japanese authorities escalate their rhetoric again, while US data will also be critical. Any escalation in tough language could trigger a short-term plunge in USD/JPY.

Next week’s focus in the forex market

In the short term, the wavering expectations of Fed rate cuts will continue to influence the direction of EUR/USD. Meanwhile, the yen remains in a delicate position of “government intervention imminent,” with every official statement potentially becoming a turning point. Investors need to find a balance between data and policy rhetoric.