USD/JPY Rumors Trigger Volatility, Dollar Falls

Key Moments

Dollar Drops After USD/JPY Rumor-Fueled Positioning

The US Dollar fell sharply on Friday after rumors spread that the New York Fed conducted rate checks in USD/JPY. Traders viewed this as a sign of possible action to support the yen. As a result, many long-dollar positions unwound.

This move appeared driven by technical flows rather than fresh economic news. Historically, such moves often reverse in the following days. However, the dollar currently lacks a strong fundamental catalyst to regain momentum.

FOMC Week Takes Center Stage

The key event for dollar traders this week is the FOMC decision on Wednesday. The Fed is expected to keep rates unchanged and repeat its data-dependent stance.

No major surprises are expected. Still, investors will watch for any hints about future rate cuts. February could matter more, as the next round of data arrives.

In particular, the upcoming Nonfarm Payrolls (NFP) report may reshape rate expectations. Recent jobless claims improved, suggesting the labor market could re-accelerate.

Markets currently price in about 48 bps of easing by year-end. If data remains strong, traders may scale back those expectations. In that case, the dollar would likely gain support.

Euro Gains as Growth Risks Ease

On the euro side, one key growth risk has faded. Trump dropped his tariff threat after he said he reached a framework deal on Greenland in Davos. As a result, markets eased fears about a downside shock to the euro area.

Meanwhile, the European Central Bank remains neutral. Officials stress a meeting-by-meeting approach and say current policy settings are appropriate.

Recent data supports this stance. Inflation surprised to the downside, while PMI figures showed moderation. Therefore, the ECB is unlikely to react to minor or short-term deviations from its 2% target.

EUR/USD Technical Picture Across Timeframes

Daily Chart: Testing the Cycle High

EUR/USD rallied strongly last week and now tests the cycle high near 1.1918. This zone is the key battleground.

• If sellers defend the zone, the pair may fall toward the 1.14 handle.
• If buyers break above 1.1918, the next target could be 1.23.

4-Hour Chart: Trendline Supports Bulls

On the 4-hour chart, an upward trendline guides price action. This structure helps define risk for both sides.

• Buyers may use pullbacks toward the trendline as entry points.
• Sellers will watch for a break below the trendline to confirm bearish momentum.

1-Hour Chart: Gap Holds as Near-Term Support

On the 1-hour chart, a gap has formed and now acts as near-term support. Traders use it to guide intraday decisions.

• Buyers aim to defend the gap and push into new highs.
• Sellers need a break below the gap to extend the pullback toward the trendline.

The red line on the chart marks the average daily range for the current session. It provides a reference for intraday volatility.

Key Upcoming US Data and Event Risk

The calendar is packed with US data and policy events that could sway dollar flows. Traders will watch each release closely.

These releases will test current assumptions about US growth, inflation, and monetary policy. As a result, they could influence both the US Dollar and EUR/USD.