The US Dollar exhibited notable strength against major currencies, driven by hawkish signals from the Federal Reserve and persistent inflation concerns. In the USD/JPY market, the pair advanced for the third consecutive day, trading around 157.70 during European hours on Tuesday. Technical analysis indicates the pair is consolidating above the nine-period EMA but remains below the 50-period EMA at 158.08, suggesting a neutral to slightly bearish near-term tone. The 14-day RSI at 53.48 points to modestly positive momentum, while the broader trend remains bullish within an ascending channel. A break above the 50-day EMA could see the pair target the upper boundary of the channel at 158.60, with further upside potential toward the nearly 40-year high of 163.99 reached on July 23. Downside support is seen at the nine-day EMA of 156.41 and the lower channel boundary at 154.60, with a sustained break exposing the 11-month low of 152.10 [1].
The bullish sentiment in USD/JPY is underpinned by comments from Fed official Musalem, who delivered a distinctly hawkish speech. Musalem warned that without further policy restraint, inflation is likely to remain substantially above the 2% target over the next 18 months, citing broad-based price pressures and core inflation measures around 3%. He advocated for 'earlier and incremental' rate hikes, reinforcing expectations for additional increases in the Dollar policy rate. The FXS Fed Sentiment Index rose by 0.42 points to 149.96, well above the neutral 100 mark, confirming the hawkish shift in the Fed's narrative [1].
In the USD/CAD market, the pair extended its consolidation near the highest levels since August 6, trading just below 1.4050 during early European trading on Tuesday. The US Dollar's bullish undertone is supported by the Fed's hawkish outlook and ongoing geopolitical uncertainties, particularly in the Middle East. However, a modest recovery in crude oil prices and a hawkish shift from Bank of Canada Governor Tiff Macklem, who warned of potential consecutive rate hikes if inflation risks persist, provided support for the Canadian Dollar and acted as a headwind for further USD/CAD gains [2].
Technical indicators for USD/CAD remain bullish, with the pair closing above the 50% Fibonacci retracement of the June-August decline and breaking through the 100-day SMA. The MACD is positive, and the RSI (14) is near 65, indicating buyers retain control but suggesting the market is approaching overbought territory. Immediate resistance is at the 61.8% Fibonacci retracement at 1.4052, with further resistance at 1.4138 and 1.4248. On the downside, support is seen at the 100-day SMA at 1.3953, with additional demand at 1.3992 and 1.3932 [2].
CONCLUSION
Hawkish commentary from the Federal Reserve and persistent inflation concerns have reinforced US Dollar strength, driving gains in both USD/JPY and USD/CAD. While technical indicators suggest further upside potential, resistance levels and overbought signals may temper immediate advances. Market participants are closely watching central bank signals and inflation data for further direction.