US Dollar Price Action Setups: USD/JPY Breakdown, EUR/USD Breakout

US Dollar Talking Points:

Coming into this week there was a one-in-three chance for a rate hike at the Fed, which sounded peculiar to me as many were calling for bullish breakouts in the USD.
As looked at in the webinar on Tuesday, it was the USD/JPY backdrop that mattered most and the pair reversed aggressively as allegations of US and Japanese coordination drove prices lower.

Market hopes for a rate hike from the Fed were dashed but it’s the response to that which is defining the week, at this point.

The initial pullback in USD/JPY was bid as buyers jumped in at the support I looked at in the post-Fed article. But then on Thursday night, right around the European open, selling began to show in USD/JPY. That move looks like it was intervention from Japan and reports circulating on Thursday appeared to echo that. But perhaps the larger move was in the pair around the cash equity open as USD/JPY slid aggressively around 9:30 AM and that led to circulating rumors that the New York Fed performed another ‘rate check,’ calling member banks like what happened back in January.

While the NY Fed has access to rates the act of actual calling banks can be seen as a possible precursor to an intervention. And that (allegedly) was ramped up on Friday morning as the circulating rumor was that the New York Fed was calling banks to warn that there might be action later in the day. This brought another wave of weakness as the bounce in USD/JPY was eviscerated, and the pair returned back-below the 160.00 level.

For next week this is the big theme, whether we see more profit taking and risk aversion from longs as it seems as though both sides of the pair have interested parties trying to talk the price lower.

In USD/JPY, it’s the 155 area that’s of interest for a deeper pullback or sell-off, as this was the resistance that showed after the breakout from the Takaichi election last year.

USD/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD

Despite the chaotic second half of the week the DXY basket held well with the levels looked at on Tuesday. With a couple hours until the weekly close price is testing below the 100-level in DXY but the 100.36-100.44 zone came in as lower-high resistance, and for next week, that combined with 100.65 and 100.86-101 serve as resistance for bearish continuation scenarios.

US Dollar Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

The Euro is a whopping 57.6% of the DXY basket, but when we consider how long and built-in that carry trade is in USD/JPY, it makes sense as to why flows there could impact the larger major market of the Euro.

That was on display this week as EUR/USD broke out of a falling wedge around the Fed, and then ran up to above the 1.1500 level as USD broke down with the USD/JPY move.

For next week, 1.1500 is now a level for bulls to defend, with 1.1469 below that and then 1.1436.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.