Dollar Corrects After Sharp Decline Ahead of Key Data

Major dollar pairs have shifted into a corrective rebound following the sharp sell-off seen last week. The current move is largely technical in nature, driven by profit-taking as markets await a heavy run of macroeconomic data due to be released over the coming trading sessions. Trading activity remains moderate, as participants prefer to scale back directional positions ahead of key data from the US and Canada that could provide a fresh impulse for the dollar.

Overall, the present dollar correction can be viewed as a short-term pullback after a strong move rather than a reversal of the broader trend. The next direction for USD/JPY and USD/CAD will largely depend on how the market responds to upcoming macroeconomic releases, which may either confirm the resilience of the recent dollar weakness or fuel a further recovery.

USD/JPY

USD/JPY has corrected higher after last week’s sharp decline, reflecting a technical rebound from local lows. On the daily timeframe, a bullish harami pattern has formed, with its follow-through supporting a rise towards the 156.00 level. If the current upward momentum remains intact, a test of key resistance in the 156.60–156.80 area is possible. However, unfavourable news for the dollar could see the pair retreat back towards 154.80–155.30.

The following events may influence USD/JPY price action in the near term:

• today at 15:15 (GMT+2): US ADP non-farm employment change;
• today at 16:30 (GMT+2): US services PMI;
• tomorrow at 05:35 (GMT+2): Japan’s 30-year JGB auction.

USD/CAD

USD/CAD is also showing a corrective recovery after its recent sharp decline. Technical analysis points to the potential for a retest of the 1.3700–1.3750 area, as a bullish engulfing pattern has formed on the daily chart. At the same time, a sustained move below 1.3600 could signal a resumption of the downtrend, with scope for a revisit of recent lows.

The following events may affect USD/CAD in the coming sessions:

• today at 16:30 (GMT+2): Canada services PMI;
• today at 17:30 (GMT+2): US crude oil inventories;
• tomorrow at 19:25 (GMT+2): speech by Bank of Canada Governor Tiff Macklem.

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