• The Dollar's rebound from 145.15 remains limited below 146.00.
• The market has turned cautious ahead of the results of US elections and CPI data.
• USDJPY is risking further decline to 142.00 – SocGen.

The US Dollar’s recovery from two-week lows at the 145.15 area lost momentum at 146.55 earlier on Wednesday, before pulling back to levels right above 146.00. The pair remains moderately bid on daily charts, trimming losses after a 1.85% decline over the previous three days.

Cautious markets on the back of US elections’ uncertainty

Investors have turned cautious on Wednesday, which has favored the safe-haven US Dollar amid the uncertainty about the results of the US mid-term elections. The Republican “red wave” has not been seen, and both parties are in a tight race to decide the control of Congress and the fate of Joe Biden’s agenda for 2023.

In the absence of key macroeconomic events, the highlights of the week will be the release of US consumer inflation data. These figures might offer some insight into the Federal Reserve’s next monetary policy decision which could generate significant Dollar volatility.

Earlier today, Richmond Fed President, Richard Barkin, warned that the inflation fight “might lead to a downturn” as the central bank’s rate hikes are challenged by artificial elements such as “high consumer savings and lack of labor supply”. These comments might have put a lid on USD bulls.

USD/JPY: Risk of a pullback to 142 – SocGen

FX analysts at Société Générale warn about the risk of a pullback to 142 or lower: “Projections near 142 and the lower band of the daily channel at 140.30/139.40 are important support levels near term. Defending this channel could highlight continuation in uptrend (...) Once the pair reclaims the peak of 152, one more leg of up move is not ruled out. In this scenario, 153.50 and 1990 levels near 160 could be the next potential resistances.”

Technical levels to watch