Currencies in search of fresh catalysts.

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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 51^st 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)?