DXY and EURUSD have both reached our targets from April.

USDJPY reached its in April.

There is plenty of discussion re DXY’s collapse, but the administration’s expressed desire for a cheaper dollar has probably run its course for now.

continued for members…

As we’ve discussed, a cheaper dollar makes imports even more expensive than they’ll already be with tariffs. Higher inflation, of course, will make rate cuts even less likely, meaning additional headwinds for stocks.

First, a quick roundup on our charts:

I continue to expect a backtest of SPX’s SMA10 once it reaches 6147, with a slightly more bearish target of 5900 when the SMA50 emerges from the falling white channel.

Now back to currencies…

EURUSD has reached our 1.1746 target easily enough and is threatening to tag 1.2028, though ideally the target would wait until October.

Longer term, if the 1.2348 previous high is topped, then 1.3114 comes into view. In addition to being the white 1.272 extension, it’s the .382 retracement from the 2008 highs. Note that anything over 1.15 is technically a breakout of the falling purple channel……and raises the possibility of an expanded channel (in white) that includes all of the past 20 years.

Again, this could take a while according to the charts – potentially 2027.  Buy that little cottage in Provence now.

 

USDJPY reached our 1.39 target back in Apri and has since begun a slow climb higher.

In so doing, it ran into the purple channel midline as well as a TL from the January highs, so there’s plenty of overhead resistance.  Inflation in Japan has remained stubbornly high since spiking higher in mid-2022.

Thus, interest rates have continued to climb, making it difficult for the BoJ to pull the old yen carry trade trick to fully support stocks. The high interest rates have, instead, supported the yen, meaning overhead resistance for USDJPY.

The Nikkei has thus failed to keep up with SPX in making new highs. It’s failed to top July 2024’s levels since USDJPY has failed to make new highs.

It nearly reached the white .786 channel line at 165, and has much higher potential if that doesn’t hold. Given that the BoJ is a one trick pony, I suspect we’ll see it head higher from here.

Taking all of the above into account, it’s challenging to forecast the path of the DXY. Sure, inflation is coming down. But, it might go back up with tariffs. If it does, interest rates could remain higher and the dollar would be supported with a nice bounce here – especially if the yen and the euro both fall (USDJPY rises and EURUSD falls.)

A breakdown in the DXY means a rise in the EURUSD and fall in USDJPY – ideal conditions  for equities.  Stay tuned.