USD corrects lower amid uncertainty

US President Trump signed a plan to impose reciprocal tariffs, widening the US trade war against other countries. Under the plan the US is to impose tariffs on products entering the US from any country which has in place tariffs on US products.  The new tariffs are to come into effect reportedly in April. Overall, the US intentions to impose tariffs on products imported in the US tend to enhance the uncertainty of the markets about the US but also the world economy’s outlook. Yet we tend to sense some fatigue in market reaction regarding the issue. In any case, should the uncertainty in the markets caused by Trump’s tariffs intensify we may see the USD getting some safe-haven inflows. It should be noted that the USD edged lower against its counterparts yesterday, despite an acceleration of the PPI rates for January supporting the notion of intensifying inflationary pressures in the US economy after the release of relative CPI rates on Wednesday. Economists tended to highlight that the release of January’s PPI rates revealed some early signs of easing inflationary pressures that are in the pipeline and are expected to become more obvious in the release of the PCE rates for January later this month. It’s characteristic that the US yields were driven lower which may have weighed on the USD. Today we turn our attention towards the demand side of the US economy and the retail sales growth rate for January. The rate is expected to slow down and edge into negative territory which could weigh on the USD as it would imply that the average US consumer was not able or willing to actually spend more in the US economy. On the monetary front, we note that Dallas Fed President Logan is scheduled to speak and a possibly more hawkish tone could provide some support for the USD. 

Other highlights for the day:

Today we get Euro Zone’s revised GDP rate for Q4 and later on the US retail sales for January, Canada’s manufacturing sales and wholesale trade, both for December and the US industrial production for January. In Monday’s Asian session, we note the release of Japan’s preliminary GDP rate for Q4 24. The rate is expected to slow down on an annualised level, which in turn may weaken the yen as it would imply that the Japanese economy grew at a slower pace in the last quarter of the past year. Nevertheless, we continue to highlight BOJ’s intentions as a key factor for JPY’s direction.

On a technical level we note that USD/JPY hit a ceiling at the 154.65 (R1) resistance line and corrected lower. We tend to maintain a bias for a sideways motion between the 154.65 (R1) resistance line and the 151.35 (S1) support level. We note though the drop of the RSI indicator which implied an enhancing of the bearish sentiment among market participants for the pair. Yet for an adoption of a bearish outlook for USD/JPY we would require the pair to break the 151.35 (S1) support line allowing the pair to form a lower trough than the one formed on the 7^th of February and start aiming for the 148.65 (S2) support level. On the flip side a bullish outlook we would require the pair to break the 154.65 (R1) resistance line and start aiming for the 158.45 (R2) resistance level.

North of the US border, USD/CAD dropped decisively lower breaking the 1.4100 (R1) 1.4280 support line now turned to resistance. Given the intensity of the pair’s downward motion and the fact that the lower boundary of the pair’s sideways motion has been broken we switch our sideways motion in favour of a bearish outlook for the pair. Please note also that the RSI indicator has dropped aiming for the reading of 30 and implying an intensification of the bearish sentiment among market participants that could allow the bearish outlook emerge. Should the bears maintain control over the pair, we may see USD/CAD breaking the 1.4100 (S1) support line and start aiming for the 1.3945 (S2) support level. A bullish outlook seems remote currently, and for its adoption we would require a reversal of direction, the pair to break the 1.4280 (R1) resistance line and continue to break also the 1.4465 (R2) resistance level.

USD/CAD Daily Chart

• Support: 1.4100 (S1), 1.3945 (S2), 1.3815 (S3)
• Resistance: 1.4280 (R1), 1.4465 (R2), 1.4665 (R3)

USD/JPY Cash Daily Chart

• Support: 151.35 (S1), 148.65 (S2), 145.95 (S3)
• Resistance: 154.65 (R1), 158.45 (R2), 161.90 (R3)

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