Better, if still not great, risk-reward for US dollar bears.

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The brutal USD sell-off finally encountered strong resistance as US President Trump and US Treasury Secretary Bessent are clearly sending out feelers for détente in the US-China trade war. After Trump’s comments late Tuesday on lowering the tariffs, Treasury Secretary Bessent touted the potential for a big deal yesterday and a US readiness to rebalance its economy if China also wants to rebalance its economy.

Still, the only thing that is certain is that confusion reigns: after both Bessent and White House press secretary Leavitt said that the US would not move unilaterally to lower the tariffs against China, Trump’s own final word yesterday was that if no deal is reached with China, he will set a tariff level for China over the next two, three weeks. This after a WSJ exclusive article earlier in the day claimed sources suggested the tariff level would be lowered to 50-65% or could follow a tiered system that is lower for non-essential goods, perhaps 35% and 100% or higher for goods deemed critical for national security.

Those WSJ sources were probably as good as they can get, but how good are any sources when no one knows what the boss will decide day-to-day and multiple sources may have different opinions or been promised different things by Trump, the only person with the final say.

It’s all impossible and keeps the crystal ball very cloudy. Will China engage? On what time frame – would a US-China trade deal take 2-3 years to hammer out as Bessent said yesterday? At present, markets are operating on a 12-24 hour cycle, not a 2-3 year one. The rosiest scenario would supposedly be a US-China bilateral agreement to lower tariff levels significantly to non-embargo levels (is that the 50-65% that WSJ sources suggest? That’s still extremely high!) Additionally, we would need to see significant trade deals emerge between the US and other trading partners emerging in coming weeks with quite low tariffs relative to those threatened on “Liberation Day” by Trump. All the above coming up roses could spell another couple of percent upside in the US dollar, but the risk-reward for USD bears has already improved, as we take a stab at where USDJPY resistance lies below.

Safe to say that no short-term position is safe in this market with the constant threat of headline risks. This could go away within weeks if we get some tariff clarity in either direction, but we can’t count on that either. In short, we keep a nimble attitude about what can develop in the short term amidst a longer term conviction that the age of US exceptionalism is over and that the USD is in a secular bear market for years to come.

Chart: USDJPY
The Ichimoku brand of technical analysis is quite popular in Japan and USDJPY has achieved an important technical breakthrough on the weekly Ichimoku chart as the “lagging span”, which is the current closing price plotted with a lag of 26 periods (the thick green line in the chart below), has broken through both the price and the “cloud” (shaded area), which is formed by plotting other key Ichimoku indicators 26- and 52-periods ahead. A more conventional chart technician would point out that the 140.00 level looks like a massive head and shoulders formation neckline (dotted red line), that classically would suggest a target of 120.00 if that level is taken out (the height of the head and shoulders formation defines the target). The problem is the risk-reward here for USDJPY bears, as we can continue this recent back-up to at least 144.21 and even above 145.00 without materially challenging even the local downtrend from the 151.21 high in early April. The short-term trend would only face an existential challenge around 147.00. And then there is the major downtrend from the “right shoulder” high all the way up at 158.89. That trend is not challenged significantly until above 151.50, although I would suggest that 150.00 is the massive psychological resistance level in the big picture. Bears will find it easiest to stay on track here if 145.00 continues to provide resistance. For Ichimoku technicians, the setup isn’t particularly helpful despite the strong trend break indicator from the “lagging span”. The daily “cloud” resistance doesn’t fall to even the 145.00 level until late May, while the weekly cloud shown in the chart below and is a key resistance, is way up at 150+ until October!