updated: Aug 10, 2020

In our last update on currencies on Jul 22 [see: Currencies, a Turning Point] we noted that DXY and USDJPY were in danger of breaking down as EURUSD was approaching strong overhead resistance. Since then, DXY and USDJPY did, in fact, break down.

USDJPY had no trouble reaching our 105.20 interim downside target and, in fact, logged a 104 handle before bouncing sharply to help equity algos engineer a breakout.  As it approaches its July 22 levels at 107, however, it will run into heavy overhead resistance.

If the falling white channel holds as expected, it should set up an even sharper downturn in the weeks ahead. Can the euro rally sharply enough to offset the impact on stocks?

continued for members…As expected, DXY’s rising purple channel has broken down – primarily on euro strength. So, at this point, USDJPY is largely on the relative sidelines.

If the EURUSD is able to push above overhead resistance, DXY should have no trouble reaching or even dropping through the midline of the rising white channel above.The EURUSD has reached our 1.19 upside target and has been loitering the past couple of days. It’s a watershed moment for the US dollar as this channel dates back to 2006.

If EURUSD breaks out, DXY is in trouble no matter what the USDJPY does. If the EURUSD reverses and heads lower, USDJPY heading marginally lower to our 103.43 and, ultimately, 102.37 targets should have minimal impact.

It’s only when USDJPY breaks down below its March lows and the bottom of its rising white channel that stocks would get clobbered. While it’s not enough to get excited about, we should soon see a very playable opportunity to short from 107 to 101-102.40.

Stay tuned.