US Dollar Faces Stiff Resistance as Recovery Tested at 156.70

The US Dollar has recovered slightly from its one-month lows against the Japanese Yen (JPY), returning above 156.00 after hitting a trough at 155.30 on Thursday.

The Yen's surge this week was partly due to BoJ policymakers hinting at a steeper monetary tightening cycle, but markets are still unclear about the reasons for the USD/JPY pair's 500-pip plunge between Wednesday and Thursday.

Analysts at MUFG note that it is not entirely clear whether the moves in USD/JPY were driven by FX intervention, but highlight that BoJ Board Member Takata left the door open for an outsized interest rate increase as well as back-to-back hikes, underscoring the risk of a faster pace of tightening.

The technical analysis suggests that the US Dollar's recovery is likely a dead cat bounce, with momentum indicators still in bearish territory and downside pressure remaining in place. Bulls would need to reclaim horizontal resistance at 156.70 (August 7 low) for the focus to shift to the area between the August 18 and 19 lows.