Where does EURUSD find support? And so many other questions...

The key questions for the major currencies over the next week or two.

JPY comeback? We have noted the very heavy positioning in JPY longs in US futures contracts as a theoretical risk of a squeeze – was that what we just got this week on the USDJPY move up to 149.00 or has that been more linked to exits out of JPY trades due to the EU rates focus, which is more supportive of EUR? EURJPY hit new local highs, as did GBPJPY yesterday, but these have failed as BoJ now sounds more comfortable with tightening and higher yields than just a couple of weeks ago. Critical seasonality approaching at the end of this month with the end of the Japanese financial year. Watching for signs of a reinvigorated JPY rally, but will have to sit things out on JPY upside hopes if USDJPY squeezes back above 149.00.

EUR finds support where? With the current backdrop, EURUSD has the fundamental support for a full pull to the top of the multi-year trading range to 1.1200+, but new bullish arrivals may be reluctant to get involved after the magnitude of the recent rally. Investors may not have the luxury of waiting, but theoretical supports come in around 1.0800 (psychological) and more robustly near 1.0720 (38.2% retracement of recent rally and near the 200-day moving average).

Other “pro-cyclical currencies” to turn higher versus greenback? The US dollar has not yet slipped into a full-throated bear market as the commodity dollars have been held back by uncertainty around the US outlook and generally weak risk sentiment (chiefly US-based of late), together with CAD focus on US tariff impacts and whether the two neighbors can avoid a path of deepening trade policy conflict. CAD has so far traded calmly given the scale of the back-and-forth over the last week. Watching key range levels in all three of USDCAD (1.4250-1.4150), AUDUSD (06409) and NZDUSD (0.5770).

CNH status – will China allow the renminbi to trade more independently of the US dollar? The CNH is another critical currency preventing a USD bear market from operating on all cylinders. We have a look at the USDCNH status in the chart below. It is more a question of what China wants to do and may signal with its fixings rather than any ability to read the technical tea leaves.

Stay on alert for US government shutdown risks. US Democrats in the Senate moved to block a Republican measure that would prevent the Democrats from stopping progress of a spending bill already passed by the House that would avoid a government shutdown this Saturday and keep the US government funded for six months. The Democrats are proposing a different bill that would only stretch funding until April 11. If the Republicans refuse, there is the risk that the Democrats filibuster the bill (preventing a vote on it in the Senate) to protest reductions in social spending. Don’t know the risk, but if the government does shutdown, it adds to the sense of political chaos and the difficulty for Trump in achieving his agenda, including spending cuts (and note the huge US February budget deficit, far larger than the 2024 deficit – no DOGE impact just yet, it seems).

NOK ready to break free of its “range chains” versus EUR? A solid move higher in the NOK this week on the hot February inflation report from Norway this week, and EURNOK slipped below 11.60 yesterday for only the second time this year. No real momentum there until, but EU fiscal and the defense focus could see a focus in Norway on partial repatriation of some funds to drive domestic investments in new Europe-linked security initiatives in coming years. A range break below 11.54-52 needed to get the ball rolling further – so far we are still in the range.

Chart: USDCNH
USDCNH frequently doesn’t trade technically as officialdom either won’t allow weakness beyond 7.375 versus the US dollar or it pursues a policy of low volatility to the US dollar as the center of the currency universe. But now we are on the other side of the two sessions meeting and China has laid out a policy of stimulating consumption, which a stronger CNH will aid. A side benefit of a stronger CNH would be that it could hint to the Trump administration that China is not interested in a policy of devaluation. Let’s keep in mind the EURCNH and JPYCNH have soared over the last few weeks as the CNH remains directionally correlated with US dollar moves. Is China willing to make a firmer point on pursuing more isolated CNH strength to put on a show of stability and strength and to continue to encourage its internationalization while the Trump chaos and volatile US markets play poorly for China’s biggest rival? Hard to know the timing here, but the risks for USDCNH downside would appear asymmetric relative to upside. This view starts to suffer if China allows USDCNH to slip back above 7.30-32 amidst a strong USD bounce-back, and finds encouragement if it can drop back through the resistance area established ahead of the US presidential election around 7.15.