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The FX Trader: Showtime for the USD bears again
John J. Hardy
Global Head of Macro Strategy
Summary: The US dollar has consolidated the recent violent sell-off, posting a comeback to pivotal levels where bears will need to take a strong stand to maintain the USD bearish trend. Elsewhere, AUD surges anew as the RBA hikes, thought the guidance was cautious on further prospects for policy tightening.
What to know
The precious metals markets found stability and orderly trading conditions after the trauma of the action on Friday and early Monday. This helped risk sentiment to rebound strongly and US treasury yields to rebound back toward recent range highs. The US dollar continued its comeback late yesterday to levels that are beginning to get uncomfortable for the bearish USD case in key pairs – especially EURUSD. The recent breakout level was the range high from December at 1.1808, so a hold near the 1.1800 level is technically critical here, and yesterday’s 1.1776 low is testing bearish mettle (See chart below). USDJPY has an enormous range to work with before suggesting that the recent slide will be reversed, and yesterday’s high of 155.80 was an almost exact 50% retracement of the 159.45 to 152.10 sell-off wave. JPY will continue to trade nervously until we get to the other side of the lower house election this Sunday.
Some of the additional USD upside late yesterday was in the wake of a strong US ISM Manufacturing survey for January, which unexpectedly showed expansion for the first time since early 2025 and stunningly so with a 52.6 reading relative to expectations of 48.5. It was the strongest reading since August of 2022.
Elsewhere, the USD rebound looks less threatening as the EUR is weak in the crosses. EURGBP, for example, dumped through critical local support in the 0.8650 area, possibly setting up a further capitulation lower.
RBA hikes, but cautious on guidance. The RBA hiked its policy rate 25 basis points to 3.85%, a move that was about 75% in the price, but provided very little guidance for market participants to hang their hat on. Short Australian rates jumped higher on the announcement, but then cut much of the move as RBA governor didn’t want to position the move as the beginning of a cycle: “I don’t know if it’s in a cycle, certainly it’s an adjustment” and “We are in a position here we think we might be around neutral”. The market is not pricing a quick further tightening schedule here – with less than 25 basis points of further tightening priced through the next three RBA meetings (through mid-June). The AUD enjoyed the news, however, with AUDUSD surging back well above 0.7000 and AUD showing broad strength – now setting up 0.6900 as the key support area for that pair.
Chart focus: EURUSD
It was already a disappointment for EURUSD bulls that the pair retraced back through the 1.1900 area that was near the prior highest close for the cycle (September of last year), but the more important area is perhaps the local line of resistance established by the December highs around 1.1800. USD bears and EURUSD bulls will want a strong rally from this 1.1800 area or the USD bear trend will risk a reversal.
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.
Important to note that the USD remains in a weak trend with the recent action merely reversing most of the recent aggressive extension lower – reflected in the overall -6.5 reading, up from a wildly aggressive -11.7 nadir last week. Elsewhere, the AUD stumble was brief indeed, but there isn’t much durable support from the RBA there unless economic data pushes the case. AUD will need more thematic support from metals/commodities and investment flows. EUR and JPY relative weakness show that we are currently in a weak G3 regime.
Table: NEW FX Board Trend Scoreboard for individual pairs. EURCAD is the latest EUR pair threatening a new downtrend – set to flip negative today, although the pair still trades within price range since December. We continue to watch EURJPY with interest, as the pair is one weak day away from finally ending that remarkable 235+ day upward trend from…the low 160’s.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..
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