This week, the US dollar was boosted as the Federal Reserve's interest rate decision was tougher than expected. Overall, apart from some minor adjustments, the Federal Reserve is in line with market pricing. Nevertheless, the strong market reaction pushed up the yield of US treasury bond bonds and gave the US dollar a tailwind.

Investors once again turned their attention to inflation, so it is likely that only a weak CPI report in January will be needed to see the market react in a moderate way, pushing down the yield of US treasury bond bonds and the US dollar.

After the slightly hawkish decision by the Federal Reserve and the less hawkish statement by the Bank of Japan, the US dollar/Japanese yen rose by over 400 points. The EUR/USD exchange rate is trading near the 2024 low as prices consolidate after a significant drop following FOMC decisions.

The following is an analysis of three currency pairs: GBP/USD, EUR/USD, and USD/JPY.

GBP/USD Technical Analysis: Will the November Low Keep Going?

In terms of GBP, the Bank of England kept bank interest rates unchanged as expected yesterday, but we received a milder vote divergence than expected, as three members of the vote wanted a rate cut while only one was expected.

The market believes that there is a 55% chance of keeping interest rates unchanged at the upcoming Bank of England meeting in February, and by the end of 2025, there will be a total of 56 basis points of loose policy, slightly higher than the level before the Bank of England's decision.

On the daily chart, we can see that the GBP/USD eventually fell all the way to the November low of around 1.2485. This is where we can expect buyers to intervene, with a risk level below 1.28. On the other hand, the seller hopes to see further price declines and increase their bearish bets on 1.23 support.

EUR/USD Technical Analysis: Challenging the 2024 Low

In terms of the euro, the European Central Bank recently cut interest rates by 25 basis points as expected. The line removed the statement 'will maintain policy rates at a sufficiently restrictive level for the necessary period of time'. The market expects a 95% probability that the European Central Bank will cut interest rates by another 25 basis points in January next year, and the cumulative rate cut by the end of 2025 will reach 113 basis points.

On the daily chart, we can see that after the decision of the Federal Open Market Committee (FOMC), the EUR/USD fell below the range between the support level of 1.0450 and the resistance level of 1.0610. The current price is consolidating around the 2024 low of 1.0335. At this price point, buyers begin to intervene and set their stop loss below this level to control risk, preparing to enter when the price retraces to the main trend line. Sellers, on the other hand, hope to see prices break further in order to increase their bearish bets and push prices to a new low.

On the 4-hour chart, we can see more clearly the sharp drop in prices after the Federal Reserve's decision and the consolidation near the 2024 low. From a risk management perspective, for sellers, operating around 1.0450, which has now become a resistance level, has a better risk return ratio. Buyers, on the other hand, hope to see a price breakthrough and increase their bullish bets, pushing the price to the trend line position.

USD/JPY Technical Analysis - Deadly Combination Boosts the Currency Pair

In terms of the yen, the Bank of Japan kept interest rates unchanged as expected, but Governor Kazuo Ueda's press conference was not as hawkish as expected. In fact, he emphasized that the timing of the next interest rate hike will be determined based on salary data, and added that the trend will become clearer by March or April. This has lowered the market's expectation of a rate hike in January and pushed the focus back to the next meeting scheduled for March.

On the daily chart, we can see that after the Federal Reserve made a slightly hawkish decision and the Bank of Japan issued a more dovish statement, the rise of the US dollar/Japanese yen continued around the 158.00 mark. For this currency pair, this is a fatal combination as its bullish momentum is strongly enhanced.

From a risk management perspective, although we need some weak US inflation data to drive the currency pair significantly lower, buyers currently have a more favorable risk return layout near the trend line.

On the 4-hour chart, we can see that the price is currently testing the previous high point. At this position, we expect more aggressive buyers to intervene, setting their stop loss below this level to control risk and prepare to push the exchange rate to near the 160.00 level in the next step. Sellers, on the other hand, hope to see a price drop and start targeting the short-term upward trend line near the 155.00 level.