FX Tactical Ideas: Broad USD Still Supported Despite Tariff-Related Blip
USD-positive setup not at risk
Global Financial Markets, Terence Wu7 Feb 2025
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DXY Index: The flip-flopping tariff decisions have led to increased volatility on the  broad USD. Nevertheless, it is noteworthy that the DXY Index held above the 106.97 low seen after the Inauguration Day. Tariff headlines may take a temporary backseat after the 30-day postponement of the 25% tariffs on Canada and Mexico. However, watch out for tariff-related announcements on the EU. Early in the week, sentiment on the USD will be determined by the nonfarm payrolls (NFP) outcome. Expect the DXY Index to hold the 107.00 support if the NFP outcome enters resilient. Remain broadly positive on the USD – selective and tactical USD weakness may be seen against the JPY, but it is still difficult to construct a sustained short-USD thesis.

EUR-USD:
The EUR-USD initially failed to recover 31 Jan closing levels as the broad USD turned on the tariff postponement. This suggests lingering concerns towards tariffs on the EU. Overall, the tariff-driven impetus on the EUR is choppy, but still a net negative. ECB-Fed divergence is the more enduring driver for EUR-USD downside. The ECB may have cut as much as another 75 bps to 2.00% on the deposit rate by Jul, when the market expects the next Fed rate cut. With the EUR-USD bounce failing to sustain above 1.0400, the technical bias remains negative for now. Continue to expect tests of the 1.0200 support. The risk to the negative EUR-USD view is a permanent ceasefire between Russia and Ukraine.
 
USD-JPY:
Dec labour earnings (5 Feb) grew 4.8% y/y, its fastest since 1997. Coupled with the firm Tokyo CPI print (31 Jan), recent data releases have strengthened market expectations for more BOJ rate hikes this year. This sentiment was further fanned by BOJ’s Tamura (hawk), who opined that the policy rate should be around 1.0% by 2H 2025. This would imply another two hikes. Thus, there may be a hawkish re-pricing of BOJ expectations in progress. The JPY may stay supported until this dynamic plays out. With the key support zone near 152.80 (100-, 200-DMA, Nov 61.8% Fibo) breached, momentum drivers may push the pair towards the major 150.00 support. However, the risk-reward does not favour chasing downside, especially since the hawkish Tamura may not be representative of the broader view within the BOJ committee. Prefer to pick levels near 150.00 to go long.

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