A review of the forex market this week: At Friday's close, the US dollar index settled at 99.788, recording a weekly loss of 1.69%. This is not a mild pullback, but the most violent single-week selloff since the end of January. Extending the view to the monthly chart, the dollar's weakness is evident even without technical indicators—the visible upper wick and bearish real body are telling a story of bulls in retreat.
This week's narrative had only two main threads: The Federal Reserve's rate decision removed the last pillar of support for dollar bulls, and Japanese authorities' currency intervention after a months-long gap dealt a heavy blow to the USD/JPY pair. Under the confluence of these two drivers, G10 currencies mounted a collective counterattack, with the euro and pound both gaining over 1.4% for the week, while USD/JPY plunged 3.6% in a single week, becoming the most volatile among G10 currencies.
US Dollar Index: Breaks mid-Bollinger band, bears in full control
This week's review: The US dollar index fell from a high of 100.450 to a low of 99.693, eventually closing at 99.788. On the daily chart, the price has clearly broken below the support of the Bollinger Band mid-line at 100.9856 and is now trading between the mid-line and the lower band at 100.1545. On the MACD indicator, both DIFF and DEA are below the zero line, with the green histogram still expanding, showing no signs of bullish divergence or convergence. The large weekly bearish candle has engulfed the recovery gains of previous weeks, with bearish signals reaching a four-star level.
Economic data and event summary: The Fed kept rates unchanged on Wednesday, which was within market expectations. What truly weighed on the dollar was traders beginning to question the new Fed Chair's genuine commitment to fighting inflation. Market interpretation leans towards the view that policymakers chose political pressure over inflation, meaning the peak interest rate could be much lower than previously extreme expectations. The downward revision of rate expectations directly undermined the dollar's pricing foundation. At the same time, US Treasury yields fell this week, further weakening the dollar's interest rate differential appeal.
Institutional views summary: Based on market feedback after the rate decision, multiple major overseas institutions have begun to reassess the dollar's outlook. Some analysts believe the Fed has entered a phase of "hawkish rhetoric, dovish action," and this inconsistency is difficult to sustain for supporting the dollar. Other views point out that the US Treasury's cooperative stance on the yen issue suggests officials do not oppose a moderate dollar weakening. Overall, the previously crowded dollar long positions are undergoing a painful unwinding.
USD/JPY: Caught between intervention and a hawkish central bank
This week's review: USD/JPY closed the week at 157.858, with a massive weekly decline of 3.6%—an extremely rare single-week volatility amplitude. On the daily chart structure, the price has plummeted from a high of 163.983, breaking through the Bollinger Band mid-line at 162.238, and is now approaching the lower band at 159.555. The MACD has formed a bearish crossover at a high level and is accelerating its downward divergence, with the green histogram continuing to extend. Bearish signals are also at a four-star level. The weekly candlestick pattern shows consecutive large bearish candles, with bulls hardly mounting any effective resistance.
Economic data and event summary: The two major catalysts for the yen this week were triggered almost simultaneously. First, the Bank of Japan kept interest rates unchanged at 1% on Friday, but Governor Kazuo Ueda released a clear hawkish signal after the meeting—many board members had higher-than-expected inflation forecasts, with risks tilted to the upside. The market characterized this meeting as a "hawkish hold," with expectations for a September rate hike heating up. The more powerful driver came from direct intervention. On Thursday, Japanese authorities stepped in to buy yen and sell dollars. According to reports from a major foreign wire service, spot yen trading volume on the EBS platform hit a 10-year high on that day, while yen futures trading volume set a new historical record. Even more unusual was that South Korea also took rare coordinated action, selling dollars to support the won. On Friday, a person familiar with the matter told a major overseas media outlet that the US Treasury had notified multiple banks of a potential second round of intervention and asked them to "be prepared." Japan's top currency official confirmed on the same day that the US had provided assistance "beyond psychological support." This suggests that the policy understanding between Japan and the US may be deeper than the market assumed.
Institutional views summary: Eric Theoret, a forex strategist at Scotiabank, stated that in a low-liquidity environment, intervention can have a far greater impact than normal, and even the mere expectation of it can make the market highly sensitive. A team of strategists at Goldman Sachs pointed out in a report that if the yen begins to give back Thursday's gains, authorities are likely to intervene again in the coming days, following the pattern from their operations in May this year. Regarding the Bank of Japan, Scotiabank characterized its stance as a "hawkish hold," believing the intention to tighten policy in September is quite clear. Most analysts predict the BoJ will raise interest rates to 1.25% by the end of the year. While this rate hike path is slow, its direction is now beyond doubt.
EUR/USD: Stabilizes above mid-Bollinger band, a glimmer of bullish hope
This week's review: EUR/USD posted a slight weekly gain of 0.1%, closing at 1.1535. While intraday volatility appeared moderate, the weekly gain was 1.46%, and the monthly chart also recorded a positive return of 0.16%. The daily chart shows signs of marginal improvement: the price has rebounded from the previous low of 1.1324, currently standing above the Bollinger Band mid-line at 1.1421, and is testing the upper band area of 1.1507. The MACD shows a faint red histogram near the zero line, with DIFF and DEA close to forming a bullish crossover. This is a weak bullish budding state, with a signal strength of three stars.
Economic data and event summary: The euro's rebound is more of a "passive luck"—the dollar's sharp decline provided a tailwind, rather than a significant improvement in the euro's own fundamentals. The eurozone lacked major data guidance this week, with market focus completely dominated by US and Japan events. Despite this, the fact that the euro can hold firmly above 1.15 suggests that bearish pressure is weakening, and a short-term bottom is being consolidated.
Institutional views summary: Most analysts believe the euro's current trend is highly dependent on changes on the dollar side. If the dollar index continues to slide below the 100 mark, the euro has a chance to challenge higher resistance areas. However, some cautious voices warn that the euro lacks its own driving force for an active rally. If the dollar experiences a technical rebound, the euro's gains could quickly reverse.
GBP/USD: Consolidating near the mid-Bollinger band, direction pending confirmation
This week's review: GBP/USD rose 0.2% for the week, closing near 1.3485, with a weekly gain of 1.45%. On the daily chart structure, the price has rebounded from the lower Bollinger Band area of 1.3204 and is now trading near the mid-line at 1.3366, where bullish and bearish forces are temporarily in equilibrium. The MACD red histogram is faint, with DIFF and DEA almost overlapping, indicating that a trending force has not yet formed. The signal strength is only two stars, placing it in a typical wait-and-see zone.
Economic data and event summary: The Bank of England also kept rates unchanged on Thursday, as widely expected. Unlike the BoJ's hawkish stance, the BoE's forward guidance was more ambiguous, failing to provide additional momentum for the pound. This makes the pound more of a mirror trade for the dollar rather than an independent macro narrative.
Institutional views summary: The market's attitude towards the pound is leaning neutral. Some believe the pound has already priced in previous adverse factors, and if the dollar continues to weaken, the pound could follow the euro higher. However, other analysts point out that the UK's domestic economic data is not impressive, and the pound lacks a foundation for independent strengthening. It is currently more suitable for observation than for quickly placing bets.
Weekly wrap-up
The core contradiction in the forex market this week was singular: The dollar's credit is being repriced. The Fed's hesitation contrasted sharply with the Japanese authorities' decisiveness, and the market voted with its feet. The dollar index is just a hair's breadth away from its weekly low of 99.693. Meanwhile, the yen, bolstered by the US-Japan policy linkage, may be transitioning from deep oversold territory to a potential starting point for a phase reversal. The euro and pound are temporarily playing a following role, but as long as the dollar's weakness persists, their upward channel will not close. Next week's focus will return to the data front, but the main theme of the US-Japan policy game will not easily fade away.
Frequently Asked Questions
Question: The Fed keeping rates unchanged was within expectations, so why did the dollar fall so sharply?
The key lies in the market reassessing the Fed's sincerity in fighting inflation. The rate hold itself was not surprising, but the signals released after the meeting led traders to believe that policymakers, under political pressure, might choose to tolerate higher inflation rather than decisively raise rates. Once the expectation for the peak rate is revised down, the logic of the dollar's interest rate advantage weakens, forcing earlier crowded long positions to unwind, creating a stampede.
Question: How is this intervention by Japan different from previous ones?
The biggest difference is the US attitude. In the past, the US Treasury was often ambiguous or even implicitly critical of Japan's unilateral intervention. This time, insiders revealed that the US side has notified banks to prepare for a second round of action, and Japanese officials have explicitly stated they received support "beyond the psychological level." This coordinated stance means the intervention is no longer a one-sided battle by Japan but has the backing of policy linkage, giving it a completely different level of impact.
Question: USD/JPY has fallen this much—has the trend reversed?
A 3.6% weekly decline indeed carries reversal implications, but it is still too early to conclude. The bearish MACD crossover and the price breaking below the mid-Bollinger band confirm that short-term bears are in control. However, what truly determines the trend's significance is whether the BoJ can deliver on its rate hike promise in September and whether the Fed will continue to hold steady. If the US-Japan interest rate differential continues to narrow, the foundation for a reversal will become more solid. For now, this looks more like a powerful correction than a confirmed reversal.
Question: Both the euro and the pound gained over 1.4% this week—can this be sustained?
The rise in these two currencies is more about passively benefiting from the dollar's weakness than being driven by their own fundamentals. The euro standing above the mid-Bollinger band is a positive signal, but the MACD is still near the zero line, and bullish momentum is not abundant. The pound is even more stuck near the mid-line, with its direction unclear. Their sustainability depends on whether the dollar index will continue to decline. The dollar will face the test of non-farm payroll data next week, introducing significant uncertainty.
Question: Why is the Bank of Japan being called a "hawkish hold"?
Keeping rates unchanged is a neutral or dovish act in itself, but Governor Ueda's comments revealed key information: many board members have higher-than-expected inflation forecasts, with risks tilted to the upside. This indicates that, within the central bank, the call for rate hikes is growing stronger, but the timing is not yet right. The market infers from this that the probability of a rate hike at the September meeting has risen significantly. This stance of "harboring a killer intent within inaction" is the meaning of a "hawkish hold."
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