Japanese Yen Sinks, US Dollar Surges Ahead of US-China Talks

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The US dollar rallied on Thursday as former President Donald Trump announced a trade agreement had been reached with the UK, while also stoking hopes that upcoming US–China talks could yield meaningful progress. The Japanese yen weakened notably on the news, with broader market sentiment shifting towards risk-on.

Wall Street quickly celebrated the development. Nasdaq 100 futures rallied as much as 2% at the session high before paring gains to settle around +1%. S&P 500 and Dow Jones futures closed up roughly 0.6%. Gold lost its appeal during the rally, with futures (GC) falling -2.5% to log their worst day in five sessions. The decline strongly suggests gold may have entered a 'wave C' phase of an ABC correction from its all-time high. Meanwhile, WTI crude oil rose despite the stronger US dollar, forming a bullish engulfing candle and closing just beneath the $60 upside target outlined earlier this week.

US Dollar Bulls Rejoice ahead of US-China trade talks

Bullish sentiment on the US dollar (USD) has been rare in recent months, with headlines often leaning bearish. That contrarian backdrop, along with technical clues, has supported my view for a dollar rebound over the past couple of weeks.

If upcoming US–China talks unfold even moderately well—as Trump suggests—the dollar could extend its recovery from depressed levels. Such a scenario would reinforce the case for a broader USD bounce, particularly against currencies like the yen and Swiss franc.

US Dollar Futures (USD) Technical Analysis: Weekly Chart

After an 11% decline from its January peak, the US dollar (USD) saw bearish momentum fade as it approached the 2024 low. A false break beneath the 97 handle and December’s trough marked a potential swing low three weeks ago. Notably, the weekly RSI (14) also reached its most oversold level in seven years—often a precursor to bullish reversals.

The USD is now trading back above the 100 level and is on track for a third consecutive weekly gain. A move towards the 102 handle—near the 38.2% Fibonacci retracement of the January–April decline—seems feasible, particularly if progress is made in upcoming US–China trade talks.

US Dollar Futures (USD) Technical Analysis: Daily Chart

Thursday proved to the best day for the USD in over two weeks, with the break above last week’s high invalidating any assumption of a bearish ABC retracement. The daily RSI (14) has confirmed the move by tracking prices higher and is now above 50 for the first time since December.

However, take note of the April low which makes a likely resistance level over the near term. But with my eyes firmly fixed on the resistance cluster around 102, my preference is to seek dips above 100 on the assumption 101 will only a speed bump along the way.

US Dollar Majors Technical Analysis: USD/JPY, USD/CAD, EUR/USD, AUD/USD

Like gold, safe haven currencies were not spared on Thursday with Japanese yen (JPY) and Swiss franc (CHF) falling -1.6% and -1.3% respectively. The Euro (EUR) was also down -1% while the British pound (GBP) looks set to confirm the head and shoulders top mentioned in yesterday’s report.

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

I’ll admit to expressing doubt that USD/JPY would reach my 146.36 target two days ago, yet we now find it within pips of that VPOC (volume point of control) resistance level. In some ways, this is a shame, given that a 61.8% Fibonacci level and a bearish trendline also hover nearby as potential resistance. But again, if a big macro driver—such as a US–China trade deal—materialises, I suspect these apparent resistance levels could be kissed goodbye, and USD/JPY may well retest the 150 level around the 200-day SMA (simple moving average).

USD/CAD Technical Analysis: US Dollar vs Canadian Dollar

I have been calling for a bullish reversal on USD/CAD for a couple of weeks, and yesterday I made the call with conviction. So I am pleased to see USD/CAD enjoyed its best day in five weeks and is now less than 1-2 trading days away from my 1.4 target. But this could likely be revised higher if trade talks go well.

EUR/USD Technical Analysis: Euro vs US Dollar

The supposed head and shoulders pattern that had formed on the daily chart of EUR/USD has been tortured beyond recognition. But to my eyes, it still looks poised to fall further. EUR/USD declined for a second straight day and is now clinging to the monthly pivot point and 2024 high at 1.2313 for support—a break beneath which opens the door for a move towards 1.11, near the 20-day EMA (exponential moving average).

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

The Australian dollar (AUD) looks like it could test my downside VPOC (volume point of control) target today—and potentially the 0.6344 low. As mentioned in yesterday’s report, a break beneath this level implies a much deeper correction. Note the 38.2% Fibonacci retracement level just below the 0.63 handle, and the 50% retracement aligning with a high-volume node (HVN) at 0.6218—both of which present viable downside targets for bears.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge