Dollar Rally Continues, USD/JPY Carry Trade Under Pressure

The US Dollar's price action has been influenced by a recent hawkish rate hike, leading to an increase in USD-strength. However, the real focus for FX markets remains on USD/JPY, where a crowded carry trade is still in place.

James Stanley, Senior Market Analyst at Global Macro, notes that while dual intervention can force pullbacks in the pair, a larger reversal may require a shift in fundamental dynamics. This could potentially lead to a de-leveraging event, as seen in July 2024.

The DXY is currently testing above the 100.00 level, with resistance at 100.64. USD/JPY remains a key driver of USD pairs, but the prospect of reversal seems distant, given the fundamental bias still tilted to the long side of the pair.

Cross pairs like EUR/USD and GBP/USD are also experiencing pressure, testing fresh lower-lows and nearing oversold territory on the daily RSI. In contrast, USD/CAD has been a standout performer, breaking through the 1.4000 level with support now at 1.3967.

Gold prices have found support in the 4300-4320 range, setting up for a potential higher-low formation. This comes as Bitcoin's recent strength has drawn attention away from gold as an anti-fiat vehicle.