EUR/USD, USD/JPY, U.S. Dollar Price Action Setups
U.S. Dollar Talking Points
- Macro markets have shown exceptional volatility of late, even with VIX receding back-below the 20-handle.
- The U.S. Dollar saw a massive spike to start the week on trade war potential, with both EUR/USD and USD/CAD showing stark moves of USD-strength. USD/JPY has been more subdued of late.
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Trump volatility is back in a big way and markets are now swinging on social media comments in a way that they haven’t in a little more than four years. It was even before his inauguration that the tariff topic came back into the headlines, with Trump threatening a 25% tariff on Canada and Mexico if the northern and southern borders of the United States weren’t shored up.
This has helped to create a swell in USD that’s brought the longer-term range into question. There was a case of support at prior resistance a couple weeks ago, but since then bulls have held price above that longer-term mean-reversion.
U.S. Dollar Weekly Chart
The impact of those threats were priced-in quickly in USD/CAD as the pair broke above 1.4000 and set a fresh four-year-high, continuing to run into December with another lurch higher around the FOMC rate decision.
Trump had previously said that he anticipated tariffs coming into effect on ‘day one’ of his administration, and sure enough, the USD/CAD pair hit 1.4500 for the first time since 2020 just hours after his inauguration. But he pushed the date back to February 1st and in response, USD/CAD pulled back to support at the 1.4300 handle, which largely held until a pattern of higher-lows showed last week which led to pandemonium in USD/CAD on Friday.
But perhaps the bigger driver for the U.S. Dollar is the elephant that’s currently in the room, and that’s the threat of tariffs on Europe. The Euro makes up 57.6% of the DXY quote and we got a glimpse of what that could look like on this week’s open, when EUR/USD ran down towards 1.0200. And at this point we’ve just had allusion to tariffs from President Trump, with comments over the weekend saying that European tariffs were coming ‘pretty soon.’
This could make for a fragile scenario on the long side of the pair where any surprise comments from Trump on the matter could lead to a fast sell-off, such as we saw earlier this week. And like we’re seeing in USD/CAD right now, Trump backing off of tariff threats or even just avoiding the topic could lead to mean-reversion, which in this case would equate to EUR/USD strength.
At this point EUR/USD is working along the confines of the levels I had laid out yesterday, with a resistance pause at 1.0333-1.0343, and the pullback from that has pushed into a higher-high. This sets up resistance potential at 1.0406 and then 1.0457, after which the wider zone of 1.0500-1.0611 comes back into the picture.
EUR/USD Four-Hour Chart
USD/JPY
While USD volatility has been on display against many major currencies, DXY has appeared as a bit more subdued against the Japanese Yen. There’s been higher-lows over the past couple days and that follows a support hold at a really big spot on the chart, plotted from 153.41-153.75. If that breaks, next support is at 152.50 and then the top of a really big zone at 151.95.
If we do see another spark of USD-strength, this could be a market that could avoid some of the rampant volatility that’s shown in pairs like EUR/USD or USD/CAD.
USD/JPY Daily Price Chart
USD/CAD: Tariffs Are Delayed, Not Eliminated
We’ve already seen a micro version of this scenario as the quick test above 1.4500 the day after the inauguration saw a pullback as tariffs were pushed back to February 1st.
At this point USD/CAD has made a fast run back to the same support that came into play after that, around the 1.4300 level. If we do see a larger deal of some sort that takes tariffs off the table, then we could expect some larger mean reversion in the USD/CAD setup but for that, I want to see price push below 1.4200 and then the 1.4000 handle.
Until then, this is a support test in a massively strong up-trend and the driver that’s produced it all is still very much in-play, if delayed for a bit.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
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