EUR/USD, USD/JPY, USD/CAD Outlook: US Dollar Slammed Ahead of PCE Inflation

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It was a reversal of fortunes for risk-appetite on Thursday, which saw Wall Street erase earlier gains and the US dollar (USD) plunge amid the latest trade headlines. An appeals court has allowed Trump’s tariffs to stay in effect, despite a federal court deeming them illegal on Wednesday.

With Trump’s trade war remaining well and truly at the helm of market sentiment, it keeps the Federal Reserve’s (Fed) hands tied regarding policy. Not that it prevented President Trump from trying to strong-arm Jerome Powell into cutting interest rates at their meeting two days ago, as confirmed by a White House spokesman on Thursday.

The USD index hand back all of its earlier gains on the day, with the US dollar index forming an enlarged bearish engulfing candle at trend resistance.
The Euro (EUR/USD) was the strongest FX major thanks to the weaker US dollar index
The Swiss franc (CHF) and Japanese (yen) also saw bullish reversals with USD/JPY forming a volatile bearish hammer and USD/CHF hinting at a head and shoulders top
S&P 500 futures were flat relative to the open after a false break of last week’s high, closing the day with a bearish pinbar to warn to near-term weakness
An inverted hammer candle also formed on the Nasdaq 100, closing beneath the open despite the 0.1% rise from the prior close and also forming a bearish hammer candle
Gold futures formed a bullish outside day found support at the key 3270 support level I flagged yesterday

US Dollar Index (DXY) Technical Analysis

The 1.3% high-to-low range on Thursday was its most aggressive bearish daily range in 28 trading days. The fact that the bearish outside day formed on higher volume at a resistance cluster spells trouble for the US dollar. Yesterday’s high stalled almost perfectly at trend resistance and the monthly pivot point.

A potential head and shoulders top is also forming on the USD index daily chart. While such patterns are deemed reversal patterns and seen at market tops, they can also be continuation patterns during a downtrend, which the USD is clearly within. If successful, the H&S top projects a downside target of around 95.73 for the USD index (let’s call it 96).

Still, support is nearby. A break of yesterday’s low sees prices beneath the September low (99.23) and brings the December low into focus (98.56). A break of which brings the April low (97.68) into view for bears.

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

A bearish hammer formed, with the top of the wick stalling between the May high and March low. USD/JPY also closed the day beneath its 20- and 50-day SMA, following a false intraday break of them. A move down to 142.50 could be on the cards, especially if Tokyo CPI comes in hot. Though note the support around the August low that could take some steam out of any initial selloff.

USD/CAD Technical Analysis: US Dollar vs Canadian Dollar

We have seen the bullish bounce to my 1.38 upside target outlined earlier this week. USD/CAD has also provided the bearish clue to hint at the swing high. The bias remains bearish while prices remain beneath the 20-day SMA, and for a breakdown of that longer-term bullish trendline. Read my article above for a larger-picture view of why I think the Canadian dollar is poised to rally and weigh on USD/CAD.

EUR/USD Technical Analysis: Euro vs US Dollar

A prominent bullish outside day with a lower wick formed on the EUR/USD daily chart. That its wick found support at the monthly pivot point and 2024 high around 1.1228 adds to the bullish case, at least over the near term. The bias for EUR/USD is now for a run up to 1.16.

USD/CHF Technical Analysis: US Dollar vs Swiss Franc

A head and shoulders top has also formed on the USD/CHF daily chart. Though this is purely a risk-off play given the Swiss National Bank (SNB) are warning of negative inflation and also negative interest rates. Still, Trump’s trade war is the bigger driver for now at least, with a break of this week’s lows brining the April low into focus, just above the 0.80 handle.

Economic Events in Focus (AEST / GMT+10)

The US PCE price index is the main economic event today, though traders should keep an eye on the ‘super core’ PCE and, of course, core PCE prints. Super core spiked to 0.5% m/m in April, so if it remains elevated in today’s figures, fears of stagflation will be fanned once more. This is especially pertinent given that Trump’s tariffs are still in effect, despite the US Federal Court deeming them illegal this week.

Tokyo CPI warrants attention, as it provides a useful lead for nationwide inflation in Japan. This is particularly relevant given Japan’s core inflation rose to 3%, and broad CPI increased to 3.5%. The Bank of Japan (BoJ) governor made hawkish remarks last week, stating that they must be vigilant regarding rising food prices. Therefore, a hot print from Tokyo today could further strengthen the Japanese yen (JPY), which endured a volatile (but ultimately bullish) day on Thursday amid the on-off headlines about President Trump’s tariffs.

Australian retail sales have generally been flat to borderline sluggish, so unless consumers unexpectedly splurged in May, the potential for a July (or August) RBA cut is likely to remain on the table.

09:30 (23:30 GMT): JPY Tokyo CPI (May) (USD/JPY, EUR/JPY, Nikkei 225)
10:25 (00:25 GMT): USD Fed Logan Speaks (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)
11:30 (01:30 GMT): AUD Retail Sales (Apr) (AUD/USD, ASX 200, AUD/JPY, AUD/NZD)
22:30 (12:30 GMT): USD Core PCE Price Index (Apr), Personal Income and Spending (Apr) (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)
22:30 (12:30 GMT): CAD GDP (Q1) (USD/CAD, CAD/JPY, TSX)
23:45 (13:45 GMT): USD Chicago PMI (May) (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)
00:00 (14:00 GMT): USD Michigan Consumer Sentiment (May) (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)
01:30 (15:30 GMT): USD Atlanta Fed GDPNow (Q2) (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)
02:20 (16:20 GMT): USD FOMC Member Bostic Speaks (USD, Gold, WTI Crude Oil, S&P 500, Nasdaq 100, Dow Jones)

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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