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.
The rest of the week ahead Today: Tomorrow: Thursday: Friday FX Board of G10 and CNH trend evolution and strength. 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.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
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.
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