U.S. Dollar Snaps Back, EUR/USD Rallies After Trump Inauguration

U.S. Dollar, EUR/USD Talking Points:

• The U.S. Dollar sold off on Monday and then tried to bounce on Tuesday, with sellers coming in to hold DXY back down.
• EUR/USD is showing a push towards a turn and the volatility in USD/CAD has been notable, as Trump threatened 25% tariffs to begin on February 1^st.
• In the webinar, I looked at a wide range of markets from USD-pairs to gold and bitcoin to SPX at the end. The SPX setup has been particularly interesting of late, as the first zone of support from the 2025 forecast came into play and led to a vigorous bounce last week. This was also the setup in my top trade idea for 2025.

 

 

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The U.S. Dollar started the session with an attempt to bounce. But at this point almost the entirety of the gain has been wiped away and sellers are threatening to make a larger move in the currency. On a bigger picture basis, this brings to light mean reversion scenarios and I looked at that in this webinar through the lens of a few different FX pairs.

 

U.S. Dollar Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

 

U.S. Dollar Weekly

 

The weekly chart is of note here as the range that was active for most of the past two years sits a little-lower on the chart. And the prior bullish trend in the DXY before that came along with an underperforming equity market.

As I shared in the webinar, my expectation and opinion is that the U.S. Dollar will be prone to mean reversion this year as equities continue to spark gains, such as we’ve seen over the past week. To gauge that in the USD, we can look to the prior range resistance from around 106.52-107.35 to look for a move back into that prior range.

 

U.S. Dollar Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

 

EURUSD AD

 

EUR/USD

 

The Euro makes up a whopping 57.6% of the DXY quote, so if we are going to see DXY mean-revert, it will probably need some help from the Euro.

EUR/USD hit a major support level to start last week at 1.0200, and while last week wasn’t exactly bulls burning the bid, there were higher-lows for every day of last week, and that’s so far led into a breakout extension in early-week trade this week.

I looked at EUR/USD as part of our weekend forecasts and highlighted this backdrop there.

As highlighted in the webinar, the prior swing at 1.0344 has so far held the daily lows for the pair, and this would be the level that bulls would need to retain to push bullish continuation scenarios.

 

EUR/USD Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

USD/CAD

 

I’ve been writing quite a bit about USD/CAD of late as I think it’s a fantastic manifestation of the USD-strength theme around President Trump. The pair broke-out above 1.4000 in late 2024 trade as driven by the fear of tariffs, but that may be a negotiation tactic from Trump as actual tariffs on Canadian imports could bring along an upper push on inflation, which could then endanger the equity markets as inflation would lead to both a more difficult backdrop for corporates and less likelihood of rate cuts from the Fed; two factors that could hinder stock performance in Trump’s opening months.

I’ve been highlighting the 1.4500 level in the pair which traded briefly earlier today. But that was followed by an aggressive reversal in the pair and at this point, the daily bar has almost given up the entirety of the days gains.

Nonetheless, the focus is on the same support zone I looked at this weekend, from 1.4280 to 1.4300, which has so far held the daily lows. If or when bears can push below that, a test at 1.4200 would bring some important information.

For longer-term mean reversion it’s the 1.4000 level that bears would need to take-over before the door can open into a big picture range continuation scenarios.

 

USD/CAD Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

--- written by James Stanley, Senior Strategist