What July Means for the USD, JPY, and Global FX Traders

As we step into July, FX markets remain sensitive to every political headline, economic data release, and central bank comment. 

This week, market attention has turned toward a developing tug-of-war between resilient U.S. data, a politically motivated tax bill, and escalating trade tensions particularly with Japan. 

With these forces pulling in different directions, the big question for traders is: where does the dollar go next?

The Dollar's Bounce — But For How Long?

After several sessions of weakness, the U.S. dollar found support earlier this week. 

A mix of Senate-driven fiscal stimulus in the form of the latest tax bill and stronger-than-expected job openings data helped lift Treasury yields and halt the dollar’s slide.

Job openings (JOLTs) rose for the second consecutive month, hitting 7.77 million the highest since November. 

Meanwhile, Fed Chair Powell reiterated that although inflation may tick up in coming months, the Fed remains firmly in a “meeting-by-meeting” mode, open to rate cuts if data justifies it.

But here’s the catch: this fiscal stimulus bill is mostly an extension of the 2017 tax cuts. 

While it may provide temporary optimism in bond markets, it's unlikely to meaningfully boost growth. 

More interesting, however, are reports that the U.S. is shifting from full-scale trade negotiations to phased mini-deals, particularly with India and the EU. 

If successful, this would dampen inflationary risk from tariffs giving the Fed more room to ease later this year.

Short USD/CHF or USD/CAD on signs of risk appetite improving and trade deals progressing. If bond yields start falling again, expect the USD to turn lower with them and therefore shorts against the DXY would work the best!

The Yen’s Dilemma: Trade Pressure vs. Global Risk

The Japanese yen has underperformed slightly, despite typical risk-off pressures brewing in geopolitics.

The reason? President Trump’s latest criticism of Japan in trade negotiations. 

He’s floated aggressive tariff figures (30–35%), up from the already damaging 24% rate, and publicly called Japan “spoiled,” casting serious doubt on any quick deal.

Japan’s Nikkei and Topix indices both slipped, and if these talks break down while the U.S. secures phased deals with other partners, Japan could become an isolated loser in global trade hitting both its equity markets and growth expectations hard.

Still, Japan’s fiscal position is stronger than it looks. 

The Ministry of Finance just reported record tax revenues for the fiscal year ended March, beating forecasts and creating a JPY 2.3 trillion budget surplus. 

Half of that will go to debt repayment, the other half to defense a move that may please foreign allies but won't soften the blow if the yen comes under speculative pressure.

Short JPY (long USD/JPY) only if a U.S.–Japan trade deal fails and equities rally elsewhere.

However, prepare to flip long JPY (short USD/JPY or short AUD/JPY) if trade tensions escalate broadly and global equity markets sour, this is my favourtite trade, exposure on longs JPY.

U.S. Macro: No Clear Landing Yet

Despite high-frequency data giving the dollar a boost this week, the broader trend is one of softness. Manufacturing employment continues to contract (ISM employment index slipped to 45.0), and Challenger job cuts data out soon may reinforce signs of weakening. 

But without a clear deterioration in consumer spending or NFP data, the Fed is stuck in limbo.

Market pricing suggests a 60–70% chance of a rate cut by September, though that’s far from guaranteed. Powell’s recent tone emphasized the need to see more before making a move. The longer the data stays ambiguous, the more range-bound the dollar becomes until a catalyst like Friday’s NFP clears the air.

While U.S. politics dominate headlines, global players are reacting to signals of easing central banks and hopes for calmer trade waters. 

The ECB is lining up potential rate support amid stagnant growth, while Canadian data this week could decide whether USD/CAD breaks further lower especially if oil prices stabilize.

At the same time, geopolitical risk in the Middle East remains on traders' radars. The Israeli central bank is holding fire for now but expected to start easing as inflation dips and military tension stabilizes. 

That could create divergence in the region’s currency basket something to watch for more sophisticated cross trades.

The dollar has found short-term relief, but that’s all it looks like relief. Under the surface, the forces of trade diplomacy, fiscal ambiguity, and global data fragility all argue for cautious positioning. 

With a weaker U.S. jobs report or a clearer path to rate cuts, the dollar’s bounce could quickly unwind.

Meanwhile, Japan finds itself cornered caught between domestic resilience and external threats. In this landscape, flexibility is key. Rather than anchoring to one narrative, traders should focus on relative strength in fundamentals, in data, and in sentiment to guide their positioning.

As always, prepare to adapt.

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