US Dollar Snaps Back, USD/JPY Descending Triangle Breakdown

US Dollar Talking Points:

• The US Dollar spiked up to a fresh two-year high last week as EUR/USD broke down, but this week has been reversion as USD-weakness has taken over.
• USD/JPY has led the way-lower and the pair traded below a big level earlier today at 151.95. The Bank of Japan is set to issue a policy review on December 19^th, just one day after the FOMC meeting.
• While odds had narrowed to a coin flip for another December cut earlier this week, expectations have begun to build again for another 25 bp move next month following FOMC minutes and this morning’s Core PCE. I did some scenario planning around this in yesterday’s webinar and in the video below I look at updated charts and levels for USD, USD/JPY, and EUR/USD.
• I’ll be looking at all of these markets in the Tuesday webinar next week, and you’re welcome to join: Click here for registration information.

Video

We’re now almost two months into Q4 and it’s been a fast reversion for the US Dollar. Just last month, the greenback was grinding at yearly lows while building a falling wedge formation. There was also a case of RSI divergence and despite numerous bearish drivers, such as the Fed’s 50 bp rate cut in the middle of September, sellers failed to capitalize, allowing prices to pullback despite the seemingly open pathway to fresh short-side trends.

But that’s the type of deduction that can often lead to swings, and that happened in a very big way in DXY for Q4 as the currency broke out of the falling wedge and continued to trend-higher, eventually setting a fresh two-year-high last Friday.

At times in Q4 it seemed like all the winds were blowing in a similar direction, as Euro and Yen weakness both contributed to a stronger Dollar. But it’s over the past week that this has begun to shift and like I looked at on Monday, the fact that USD/JPY did not set a fresh high even with DXY spiking up to a two-year high there could be a deductive item of note. There was also a short-term descending triangle that built and that’s since filled-in quite well.

The next big spot for DXY on my chart is around 105.44, which is a prior swing-high from the election rally and it’s currently confluent with a prior resistance trendline that hasn’t yet been tested for support.

US Dollar Daily Price Chart

EUR/USD Recovery

Driving that USD spike last week was an aggressive sell-off in EUR/USD. That’s since stepped back a bit but it’s been tenuous so far. Like I looked at in the weekend forecasts, EUR/JPY could make for a more compelling case for Euro-weakness than EUR/USD; but focusing on the major pair for a moment the big question is when or where bears re-enter.

The Q4 sell-off in the pair was intense and at this point we’ve seen a little more than 23.6% retraced; and notably that level was a spot of resistance earlier in the week that was turned into support this morning as the bounce continued.

The 38.2% retracement of the sell-off plots at 1.0670 and technically price could rally all the way up to that while remaining in the bearish trend. There’s a couple of longer-term spots along the way, however, such as the 1.0611 longer-term Fibonacci level.

EURUSD AD

EUR/USD Four-Hour Price Chart

USD/JPY

It’s been a big second-half of the year for the Japanese Yen.

While the currency was consistently weak for much of the prior four years it was just after the H2 2024 open when USD/JPY began to spiral lower.

To be sure there were a couple of different culprits behind the push. A below-expected CPI print out of the US on July 11^th was certainly a contributor; but so was the Bank of Japan intervention that morning. At the time there were legitimate worries as the prior intervention effort fell flat. In late April when USD/JPY scaled above 160.00 for the first time in decades, the BoJ was ordered to intervene. That led to a few days of weakness, but support simply showed at the familiar 151.95 level before buyers went back to work. By July the pair was gaining acceptance above the 160.00 handle until that morning of July 11^th.

With quickness markets started to look for Yen carry unwind themes, driven by the past three-plus years of strength. But that theme may have gotten ahead of itself as USD/JPY was down around 140.00 in September, eventually testing, and failing a 140.00 breakdown on the week of the FOMC rate cut announcement.

At the time there was a build of a falling wedge, and RSI was diverging on the daily; and as strength returned to USD at the Q4 open USD/JPY showed that well, retracing 76.4% of that prior sell-off while setting a fresh high two weeks ago.

But it’s what happened last week that’s of interest. Even as DXY spiked up to a fresh two-year high and EUR/USD broke down, USD/JPY simply set a lower-high. There was also the start of a bearish formation building as a descending triangle had set up, as I looked at on Monday.

I looked at an updated chart in yesterday’s webinar and since then bears have went to work.

USDJPY AD

USD/JPY Four-Hour Price Chart

USD/JPY Daily

With USD/JPY putting in a forceful break below the 151.95 level, which was confluent with the 200-day moving average, sellers are making a statement here. And this remains a pair of interest for USD-weakness as we move into month-end, and then December and of course 2025 trade.

The next support level on my chart is the 150.00 psychological level. And shorter-term, that 151.95 level represents a spot of possible lower-high resistance. If a bounce does stretch, even 153.41 could be of interest for lower-highs as this is the 61.8% retracement from the same major move that set the high two weeks ago and is currently helping to set lows at the 50% mark.

USD/JPY Daily Chart

--- written by James Stanley, Senior Strategist