USD Stabilizes on CPI Doubts: USD/JPY Ahead of BoJ Decision and FX Overview

Today's highly anticipated CPI report has sent conflicting signals across the board, leaving economists, traders, and analysts scratching their heads.

As debates heat up and early morning moves reverse across all asset classes, we take a closer look at the Major FX pairs—including USD/JPY—ahead of tonight's key flows.

The US Dollar had been falling consistently since Tuesday's Non-Farm Payrolls report, allowing most majors (with the notable exception of a struggling AUD) to outperform the Greenback.

However, as traders cast doubts on the integrity of a clouded CPI report, the Dollar has halted its descent quite suddenly.

If the report is indeed incomplete and inflation proves to be stickier than the initial weak print suggests, the path to 2026 rate cuts becomes far less certain.

This would trigger a sharp reversal in FX and Market sentiment, supporting the Dollar somewhat.

Market participants will now have to wait until January 13th when the next CPI report is expected, to get a definitive read on price pressures.

Let's dive into our Dollar Index (DXY) and Major Pair technical levels (USD/JPY, USD/CAD, and EUR/USD) to spot how the things are shaping up amidst the noise.

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After marking bi-monthly lows just yesterday, the Dollar Index has reverted its descent quite suddenly.

Keep a close eye on the 200-H Moving Average that served as selling point throughout its entire correction.

• A close above the MA would confirm a reversal higher
• Rejecting it would imply further downside – The price action doesn't look as bearish anymore (at least for now)

Levels to place on your DXY charts:

Resistance Levels

• 98.50 to 98.80 Pivot Zone
• 98.65 Channel Highs
• 98.58 (200-Hour Moving Average)
• Pivot turned Resistance 99.25 to 99.50
• 100.00 to 100.50 Main resistance zone
• 100.376 November highs

Support Levels

• 98.00 Key support (+/- 100 pips) – Current test
• 97.87 Daily lows
• 97.40 to 97.80 August Range Support
• Mini-support 98.50
• 2025 Lows 96.40 to 96.80 Support

USD/JPY had been moving in quite a volatile range between 155.00 and 157.00 since the past few weeks but volatility has contained suddenly.

Reactions at the Bank of Japan will be fast, but traders should look at these levels:

• A break and close above the Short-Timeframe Resistance 156.80 to 157.00 hints at a test of the Yearly Highs, implying further upside (157.895)
• The inverse, a break and close below the Short timeframe support 154.50 to 155.00 should see major continuation.

Don't forget to check out our preview for the Bank of Japan event right here:

BoJ preview: Interest rate hike baked in, what’s next for the JPY (further appreciation)?

Levels to place on your USD/JPY charts:

Support Levels:

• Session Lows 154.50 and Short-timeframe support
• 153.00 to 154.00 Key Resistance now Pivot
• 50-Day MA 153.00
• 150.00 Psychological Support and 50-Week MA
• 146.00 August Range Main Support

Resistance Levels:

• Weekly highs 156.00
• Short-Timeframe Resistance 156.80 to 157.00
• 2025 Highs and April 2024 peaks 158.80 to 160.00
• 1990 and July 2024 Peak 161.00 to 162.00

USD/CAD Sellers have came to a stalling point after quite a strong correction.

The key to the upcoming action is whether bulls manage to retake the hand today (implying a test of the FOMC Highs at 1.38730) or if the action gets rangebound.

Levels to place on your USD/CAD charts:

Resistance Levels

• 1.38 Handle Major Pivot +/- 150 pips and 4H MA 50
• 1.38730 FOMC Highs
• 1.39 to 1.3925 Support turned resistance
• 1.40 Resistance

Support Levels

• 50-Hour MA (immediate support) – 1.3710
• August support 1.3750
• Past week lows 1.3730
• 1.3660 July Breakout support
• 1.3550 Main 2025 Support

After breaking above its prior range 1,000 pips below, the actions remains sideways overall. Expect a range between 1.17 to 1.18 until further momentum leads to a breakout.

Levels to place on your EUR/USD charts:

Resistance Levels

• 1.1630 to 1.1670 Pivot zone (range Highs)
• 1.1750 mini-resistance
• Resistance Zone around 1.18 (+/- 150 pips)
• Sep 2021 Highs – Resistance 1.19 to 1.1950 Zone
• Weekly highs 1.1656

Support Levels

• 1.1470 to 1.15 range support
• 4H MA 200 Mini-support 1.16190
• 1.1475 to 1.15 Support Zone
• 1.1350 to 1.14 Support
• Session lows 1.14966