U.S. Dollar Talking Points:

• Macro markets have swung aggressively on the tariff news but at this point the U.S. Dollar is almost back to where it was before the announcement.
• USD/JPY has put in a strong rally after defense of a key spot of support last Friday, and EUR/USD is now testing a big spot of support at the 1.0943 Fibonacci level.
• I’ll be covering these markets in tomorrow’s webinar. Click here for registration information.

I started the video with this comment, but currencies seem somewhat stable at this point when compared to other markets, especially stocks. While tariff news is the primary driver and will likely remain as such for the foreseeable future, there’s a really big data print out of the United States this week with the release of CPI on Thursday. But – before we get there there’s a lot of tape to run through and we’re probably going to see some continued pressure on the insinuations around tariffs.

In the U.S. Dollar, the currency took a massive hit on Thursday after the tariff announcement; but since then, it’s been clawing back with a higher-low on NFP Friday and another higher-low so far this morning. There was an ascending triangle formation in DXY earlier on the day that’s been broken-through, and the gap from last Wednesday/Thursday that was produced by the tariff announcement is now in the process of being filled. This runs up to 103.70; and above that, 104.35 shows before the 200-day moving average, which currently projects to just inside of the 105.00 handle.

As usual, I don’t want to take a one-sided approach with the USD, instead looking for preferable venues for both USD-weakness and USD-strength scenarios, which I’ll look at below.

U.S. Dollar Two-Hour Price Chart

 Chart prepared by James Stanley; data derived from Tradingview

USD Longer-Term

Given the Friday rally in DXY the weekly bar didn’t end up looking as bearish as it did on Thursday, and at this point, the currency is clinging to the 103.00 handle as sellers dried up on tests below 102 last week. It’s still too early to say that a low is in-place, but given the upbeat start to this week there remains potential for a larger pullback, which exposes areas of prior support as upcoming resistance potential.

U.S. Dollar Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

For USD-strength, I still think that USD/JPY could be an attractive venue. If we do see further breakdown in the pair there could be consequences in other markets, such as we saw when carry unwind took over last summer.

The carry trade can be considered as a form of global leverage, as banks or hedge funds can borrow funds in Japan for very low rates, which can then be invested elsewhere. The challenge then is that the loans in Yen would be risking Yen-weakness, so one way to offset that risk is by swapping into US Dollars which can then be invested in US markets. As that rate divergence remains or even widens, there’s little fear in the backdrop; but as soon as that begins to shift, as it did last year, things can go sideways very fast.

After Trump’s tariff announcement last Wednesday it seemed that USD/JPY could be at risk. A previously strong backdrop was suddenly seeing prices fall faster and faster to go along with that widespread USD-weakness.

But then the 145.00 level came into play and bulls made a strong stand from there, as that price held the lows on Friday and then again after this week’s open.

USD/JPY Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY bulls aren’t out of the woods yet as there’s now a resistance test taking place at a confluent spot on the chart. The 23.6% Fibonacci retracement of the 2021-2024 major move is at 147.94 and that’s confluent with the 38.2% retracement of last summer’s sell-off at 148.13.

If we do see the U.S. Dollar continue its recovery, the next area of interest on my chart for USD/JPY is the 150.00 handle.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term Strategy

Given the test of resistance combined with a very strong bounce over the past couple days, chasing this higher could be a challenge, so I wanted to include a shorter-term chart with some additional reference. There’s shorter-term higher-low support potential from 146.85-146.98 as taken from the recent recovery following defense of the 145.00 handle.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

EUR/USD is of interest for USD-weakness scenarios and I’m largely taking this from technical performance on the yet-to-be-completed daily chart.

Last week’s sell-off in the USD drove a massive breakout in EUR/USD with the pair finally taking out the 1.0943 Fibonacci level and even testing above the 1.1000 handle. But that’s where the music started to slow and prices have since pulled back from the big figure.

At this point, the 1.0943 level is helping to hold the lows on the daily and if we do see buyers push the daily close above that price, it can be seen as a form of defense on the pullback, which could keep the door open for another test of 1.1000. As shown in the video, this isn’t something I want to get wildly excited about on a longer-term basis as that 1.1200 level that was in-play for Q3 of last year was a hard line in the sand of resistance; but, for now, that support is of interest and it could keep EUR/USD as attractive for scenarios of USD-weakness.

EUR/USD Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

— written by James Stanley, Senior Strategist