Pre-FOMC US Dollar Price Action Setups: EUR/USD, USD/JPY, GBP/USD

US Dollar Talking Points:

• The US Dollar retains a bullish look but the big question here is whether the rate hike odds that have priced in remain after tomorrow’s Fed meeting.
• While newly installed Fed Chair Kevin Warsh taking a hawkish approach makes sense up to this point the bigger question is whether he’ll push the envelope with stocks showing relative weakness, which would also possibly expose President Trump’s choice in the nomination process.

It’s one of those weeks where the range of possible outcomes is far and wide. As we go into tomorrow’s Fed meeting there’s a peculiar degree of indecision, as there’s an approximate 30% probability of rates being hiked tomorrow.

To this point, the Fed has often used messaging and media interviews to telegraph their actions to avoid unsettling market participants and, in turn, inviting volatility. But that’s not the case for tomorrow and this gives some potential for price movements.

CME Fedwatch Rate Probabilities for July FOMC

Data taken from CME Fedwatch

Going out to the end of the year shows a near 90% chance of at least one rate hike, with a 50% chance of at least two rate hikes.

If this were to happen, it would make President Trump’s choice to lead the Fed appear as through he’s directly refuting the President’s desire for rate cuts, especially considering this is into the lead-in to the US election in November.

This also helps to give some context to the US Dollar move of strength, as it was the last Fed meeting, on June 17^th, where the USD broke out and ran to its current high. This also sets a very high bar for continued USD strength as not only will Warsh need to sound very hawkish tomorrow, but he’ll have to sound concerned that inflation isn’t going in the right direction which would lead to expectation for even more hawkishness down the road.

CME Fedwatch Rate Probabilities into End of 2026

Data taken from CME Fedwatch

US Dollar – Is That All?

The last Fed meeting in June was important as it was a quarterly rate decision, so we got updated guidance and projections, unlike tomorrow’s, which is just an announcement and a press conference. This puts even more emphasis on Kevin Warsh, but when we heard from the bank and the Summary of Economic Projections last month, DXY put in a massive breakout that pushed the USD up to a fresh yearly high, until resistance showed at the Fibonacci level of 101.80.

From there – profit taking showed in an orderly fashion in the form of a bull flag, and that led to the reaction from two weeks ago when below-expected CPI and PPI prints provided a dip with which buyers could react. I looked into those in the webinar at the time and bulls reacted in a big way, sparking a bullish trend that lasted for the next week and change.

More recently, however, the move has stalled ahead of that 101.80 level and given how aggressively rate hikes have priced-in as seen from the above two tables, it would seem the Fed would really have to shock the market to continue this rally in the Dollar.

Also notable – and addressed below – is the US Dollar from the perspective of counterparts and what could lead to a reliably stable trend in the DXY basket.

US Dollar Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD Structure

At this point a simple move of less-hawkishness can help to inspire a pullback and I think from Warsh’s perspective that would probably be the optimal outcome, especially considering the matter in USD/JPY and what could possibly happen to Treasury rates on the long-end of the curve if markets become unsettled.

As looked at coming into this week, there’s short-term bullish structure to match the long-term backdrop. So far, the ‘s1’ level has held support, but into tomorrow, the ‘s2’ zone is also viable, running from 100.86-100.99, with 100.65 and 100.36-100.44 below that.

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

There’s another ascending triangle in USD/JPY and with rate decisions from both economies this week that can present a dangerous scenario.

As I said in the video I’d be surprised if a visit to 165.00 doesn’t bring some kind of reaction from policymakers, either in the form of an actual intervention or perhaps just a threat of one. The bigger question is whether that’ll work as anything more than a pullback and until the Bank of Japan sounds more concerned about inflation I have a hard time getting too aggressive on reversal scenarios in the pair, particularly with markets so amped up for US rate hikes into the end of this year.

I think this could have an outsized impact on the USD because that carry trade can be truly difficult to gauge in size. JPY is a mere 13.6% allocation of the USD basket but like we saw back in July of 2024, if that massive carry trade begins to unwind the Dollar selling could show in pairs even without the Japanese Yen, such as EUR/USD.

At this point there’s another ascending triangle setting up in USD/JPY and so far bulls haven’t been able to push beyond 164, which I think echoes that expectation of something happening around 165. But if we see Warsh show calm and perhaps Ueda sound a bit more hawkish, we could get a pullback that could allow for trend continuation.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

The Euro is 57.6% of the DXY basket and despite those high odds for rate hikes in the US later this year, the pair has been rather unmoved of late – even with a wide open door for bears to make a push.

Last week saw a dovish ECB produce a bearish engulf on the daily to break a bear flag. A day later, the pullback saw sellers show up at prior support of 1.1402.

But now, not only is there no fresh low there’s a build of a falling wedge pattern. If we do hear Warsh as less-hawkish tomorrow this could give shorts excuse to pare positions and that could lead to a counter-trend move. Whether that becomes anything more than a pullback could, paradoxically, dial back to the argument around the Japanese Yen. But until there’s a closed body break on the daily above the 1.1500 level this market has a bearish big picture bias.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/USD

When it comes to the Dollar I always try to retain some degree of balance, because, after all, it is a basket of underlying currencies rather than a market traded completely in a vacuum. GBP/USD still retains a bearish look and there’s a BoE rate decision on Thursday morning, less than 24 hours after the Fed.

The 1.3300 level remains a problematic spot but there’s a similar falling wedge that’s developed here, and if Warsh and perhaps even the BoJ can successfully tilt a pullback in the US Dollar and USD/JPY, there may be something to work with in Cable. First – bulls would need to take out 1.3325-1.3343, and then the 1.3390 area would be the next spot for them to encounter. But – at that point we can look for a higher-low and that’s something that could possibly lead-in to reversal scenarios in the pair.

GBP/USD Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro