Currencies in search of fresh catalysts.

John J. Hardy
Global Head of Macro Strategy
Summary: US dollar volatility continues to drop as we get a dribble of news pointing toward US and China tariff exceptions driven by the desire to avoid self-harm. Perhaps the US earnings season or this Friday’s US April jobs report will produce a new catalyst.
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We have some minor news over the last 24 hours that are in the direction of lower tariffs for both the US and China, but these new measures are entirely in the spirit of avoiding self-harm as the Trump administration wants to avoid “stacking” tariffs on cars and car parts that would spike the cost of vehicles to US consumers, while China made overtures on lowering tariffs on Boeing airplane leases to avoid existential pressure on Chinese airlines. Meanwhile, US Treasury Secretary Bessent says that China needs to make the first move on the overall tariff level and says that he is moving on to focus on trade deals with other countries, with India the supposed front-runner among major economies in nearing a deal. The US dollar has been back and forth – weakening considerably yesterday, particularly against the Japanese yen as US treasury yields fell smartly all along the US yield curve yesterday. But the USD rebounded overnight, if modestly so in USDJPY.
Yesterday’s Canadian election will result in yet another Liberal minority government if the final tallies shape up as expected today. While CAD has largely shrugged off the election result, which would have been more positive for CAD had the Conservatives won, the US-Canada relationship will remain on a rocky road as long as new Liberal leader Carney postures against Trump and pretends that in the new “great power” era, it can maintain policies that don’t align with US anti-China priorities, all the “Canada as the 51st state” noise aside. USDCAD has broken down through the critical 1.4000 level, a bearish structural development, but with poor risk/reward for newly arrived bears to get involved at the current levels in the low 1.3800’s.
Chart: EURJPY weekly Ichimoku
EURJPY has refused to sell-off as the hopes for the vast coming German fiscal expansion and possibly EU-driven fiscal expansion for defense buoying hopes for European growth in coming years. The 10-year Europe-Japan yield spread has stabilized at the lower end of the range since early March, but EURJPY has popped up to the stubborn resistance area above 163.00, unable to find a direction of late. The Bank of Japan meeting tomorrow is seen providing nothing of note as only about 17 basis points of BoJ tightening is priced in for the balance of the 2025 calendar year. In the bigger picture, the JPY is the undervalued currency in the relationship. The most powerful medium-term catalyst to see a broader JPY rally would be a global recession with lower long rates nearly everywhere, but an eventual US-Japan trade deal that makes more obvious the imperative to get the Japanese exchange rate higher is another (likely?) scenario. USDJPY has found a local top that JPY bulls will trade with stops above 144.00, and in EURJPY, the 164-165.00 area looks the likely big risk/reward area for JPY bulls to take a stand in this pair. Will this latest little reversal inspire sellers? Or do we need to wait for the ultimate trending signals for the weekly Ichimoku chart – when the heavy green lagging span line crosses down through both the price and cloud (shaded area)?
The rest of the week ahead
Today:
- US April Consumer Confidence and US March Jolts Job Openings survey. The former is not interesting for this market as we already know that US consumer sentiment is in the gutter, while the latter is both old and poor quality. The key data for the US likely starts with the May and even June data cycles for understanding whether a US recession is incoming.
- In corporate earnings, Visa reports after the US close today. Is the credit card giant seeing any spending patterns or momentum shifts that it is willing to share with the world in the earnings call today?
Tomorrow:
- The Australian Q1- and March CPI data could matter at the margin, with AUDUSD technicals quite interesting and the AUDNZD needing to do a lot of work to dig itself out of a bear trend.
- The US April ADP payroll change data. This is an important one on any significant negative surprises relative to expectations for +115k
- In corporate earnings, Microsoft and Meta Platforms report, two massive companies on the implications for the status of AI spending both for cloud infrastructure in the case of Microsoft and for leveraging the AI to target ads and content in Meta’s case.
Thursday:
- The Bank of Japan. Expectations are nil, but the BoJ could target the currency with indirect language.
- US April ISM Manufacturing. We have seen some spectacularly ugly readings from regional surveys this month, led by the Dallas Fed Manufacturing Outlook slamming to a new post-pandemic outbreak low of -35.8 for April yesterday. The ISM’s don’t tend to be market movers, but this is a market in search of a catalyst.
- In US Corporate earnings, Apple and Amazon report – two key companies on the China-exposure front (supply chain and as end market in the case of Apple), with Amazon also critical in announcing its expectations on AI spending in its cloud business, key for risk sentiment in equities.
Friday
- The US April jobs report (nonfarm payrolls change and unemployment rate). Again, is the April data cycle to early to expect lagging data like employment to show rising risks of a US recession?
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
We are seeing some additional mean reversion as a quieter market means that most trend intensity readings are falling back. Note that USD and CNH remain joined at the hip directionally versus other currencies in aggregate, although we did see some USDCNH volatility overnight.
Table: NEW FX Board Trend Scoreboard for individual pairs.
USDCNH at current levels would tip the trending reading to negative, but the CNH has shown only eyes for following USD direction. The big level lower in USDCNH is near 7.22. Note AUDUSD attempted a new four-month high above 0.6439 yesterday before reversing – underlining the important of this area on the chart.