Because spot FX is traded in pairs it can often be difficult to isolate individual themes in currencies, especially amongst major pairs as some have the USD as the base currency in the quote and others as the counter currency.
Of late, the long-term carry trade in USD/JPY has had incredible impact in USD dynamics and that's had impact elsewhere, even in pairs like EUR/USD. This is similar to Q3 of 2024, when USD/JPY unwound quickly and the USD weakness emanating from that helped to drive a rally in EUR/USD up to the 1.1200 handle.
This image, however, I think does a good job of illustrating how impactful Yen-weakness has been to DXY since late-April of last year. In blue, we have USD/JPY with an 8.4% gain over that period of time. But in green we have EUR/USD, where the USD has lost value and in orange, the same illustration of lost value against the British Pound.
In black we have the DXY basket and visually, you can see where both EUR/USD and GBP/USD have been helping to drive the Dollar weaker even as USD/JPY has driven relative strength.
President Trump has been clear that he wants a weaker Dollar and the Yen-weakness that's been in-place over the past year has been a large factor as to why the USD has held up as well as it has, even with EUR/USD and GBP/USD both rallying up to fresh multi-year highs.
Can this break? Well there's the matter of fundamentals to consider as the rollover on the USD/JPY pair remains tilted to the long side. This doesn't mean that trends can only go up but it does mean that there's a higher bar for shorts to hold positions open as they have to pay rollover by being long the low yielder. And there's also the matter of possible collateral damage, a lesson that was learned well back in 2024 when the carry unwind episode drove a sell-off in US equities as the leverage built in to the system from that trade quickly came out.
But if we start to breach supports in USD/JPY that carry unwind theme can take over quickly, and this places significant importance at the 150.00 level on the pair. - js
Of late, the long-term carry trade in USD/JPY has had incredible impact in USD dynamics and that's had impact elsewhere, even in pairs like EUR/USD. This is similar to Q3 of 2024, when USD/JPY unwound quickly and the USD weakness emanating from that helped to drive a rally in EUR/USD up to the 1.1200 handle.
This image, however, I think does a good job of illustrating how impactful Yen-weakness has been to DXY since late-April of last year. In blue, we have USD/JPY with an 8.4% gain over that period of time. But in green we have EUR/USD, where the USD has lost value and in orange, the same illustration of lost value against the British Pound.
In black we have the DXY basket and visually, you can see where both EUR/USD and GBP/USD have been helping to drive the Dollar weaker even as USD/JPY has driven relative strength.
President Trump has been clear that he wants a weaker Dollar and the Yen-weakness that's been in-place over the past year has been a large factor as to why the USD has held up as well as it has, even with EUR/USD and GBP/USD both rallying up to fresh multi-year highs.
Can this break? Well there's the matter of fundamentals to consider as the rollover on the USD/JPY pair remains tilted to the long side. This doesn't mean that trends can only go up but it does mean that there's a higher bar for shorts to hold positions open as they have to pay rollover by being long the low yielder. And there's also the matter of possible collateral damage, a lesson that was learned well back in 2024 when the carry unwind episode drove a sell-off in US equities as the leverage built in to the system from that trade quickly came out.
But if we start to breach supports in USD/JPY that carry unwind theme can take over quickly, and this places significant importance at the 150.00 level on the pair. - js
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Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.