US Dollar Talking Points:
- The US Dollar hit a fresh yearly high last week as stronger CPI drove higher expectations for US rate hikes.
- EUR/USD looked to be in meltdown mode and USD/JPY is bristling for another breakout around the 160.00 level. Perhaps one of the more bearish factors for the USD is the prospect of pullback in USD/JPY produced by intervention threats, but actual interventions at this stage don’t seem to make as much sense so those drives would probably be more pullback-related than reversal.
- I looked into each of these markets in the Tuesday webinar and below I look at updated charts after another few days of price action.
I covered this in-depth in the Tuesday webinar and I even started off the chart analysis with the weekly chart of the USD, as it’s from this view that you can get great perspective on big picture themes. And while sellers had an open door to make a push in the Greenback over the past few weeks, starting with a bearish engulf formation five weeks ago and then four consecutive weeks of testing at the 101.80 support level, bulls simply would not let go. And as pullbacks were bid, that bearish drive around the Dollar simply lost its momentum until this week brought a strong slingshot move into the mix.
US Dollar Weekly Chart – Bearish Failure, Bullish Run
Chart prepared by James Stanley; data derived from Tradingview
USD Daily
With four consecutive days of strong gains the currency now rests just above a longer-term resistance level as looked at above. Prior resistance now sets the stage for higher-low support potential, taken from around the 102.95 level, with the 102.50 level below that. And if both levels are taken out, then likely something has shifted in the backdrop and from this point, my guess would be a bearish move in USD/JPY driving larger capital flows through the FX market.
US Dollar Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD
Again drawing back to the weekly chart we can get a great view of the bigger picture motive in the world’s largest currency pair. Bulls had an open door to make a push for the past five weeks and seemingly failed to do so. This was a centerpiece of the Tuesday webinar, as I highlighted the 1.1000 level as the next major level lower, with the 1.0943 level below that.
The move has materialized quite quickly since then.
EUR/USD Weekly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD Daily
With the 1.1000 now already nearby, it’s the prior support at 1.1113 that stands out for lower-high potential on pullbacks in EUR/USD. Above that, it’s rather messy, but the Fibonacci level at 1.1275 level that stands out as this was prior resistance and, thus, can serve as a form of invalidation for bearish trends.
EUR/USD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/JPY
The fundamental bias remains decisively tilted to the long side of USD/JPY and this week only furthered that, as stronger US inflation has brought upon expectation for even more rate hikes from the Fed. Meanwhile, in Japan, the BoJ has hiked rates even though inflation is below their 2% target and markets have seemed to see through that as the pair remains above the levels it was at around that September rate hike.
At this point, the one bearish item that could send this lower seems to be intervention, or perhaps more to the point, the threat of intervention. This is what sent the pair spiraling lower back in July and then again in early-September, well before the rate hike. But it was right around when US Treasury Secretary Scott Bessent warned against betting against him that the pair carved out its low around the 153.00 level on its way back to the 160.00 handle.
That 160.00 level traded over the past week and, notably, bulls have continued to bid pullbacks. With more testing, a breakout seems imminent unless a policymaker steps in to try to coerce prices back-down. And if they do, there’s the possibility of collateral damage if the run lasts for long, similar to what showed back in July of 2024. An actual intervention would be non-ideal as both Japan and the US are in positions where capital reserves should not be wasted, given rising yields in both economies. So this does present a true quandary and, from a fundamental perspective, it would seem the path of least resistance – is through resistance at 160.00.
The one option that we may see play soon is an intervention threat, designed to scare traders out of long positions and very similar to what happened back at the 160.00 level. But, like most other verbal threats, if it’s not backed by action the market may simply continue to test the boundary until action is forced.
USD/JPY Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
