Should You Trust the Strengthening Dollar?

EUR/JPY

Key zone: 175.00 - 177.00

Buy: 177.00 (after retest of 176.50) ; target 178.50-180.000; StopLoss 176.30

Sell: 175.00 (on strong negative fundamentals) ; target 173.50; StopLoss 175.70

The American market continues to move in a stable flat: S&P 500 index futures are consolidating in the premarket, while currency market dynamics remain driven by political frictions between the U.S. and China. The dollar is strengthening despite overly optimistic expectations regarding further Fed actions. At the same time, sharp price spikes on both sides of the market have been observed for two consecutive weeks.

Yesterday, the Dow Jones index rose by 0.47%, renewing its all-time high thanks to strong reports from Coca-Cola and 3M. The S&P 500 ended the day unchanged, while the Nasdaq Composite lost 0.16% — momentum in the technology sector is weakening.

Investors have little doubt that the Federal Reserve will cut rates twice before the end of the year — in October and December — by a total of 50 basis points. The probability of this scenario exceeds 90%. According to CME FedWatch data, the chance of another rate cut at the January meeting has risen to 54%.

P.S. Trump will like it. But does the market need it?

The market reacts sharply to every statement from Fed officials — Powell, Waller, Miran, Bowman. This is understandable: due to the ongoing shutdown, there are no official NFP data for September, and participants rely only on the ADP report, which recorded a 30,000 drop in private-sector employment.

Inflation reports are also limited — only the CPI for September is expected to be published on Friday. Wall Street forecasts an increase in the indicator from 2.9% y/y to 3.1% y/y. If the release appears in the “red zone,” market confidence will rise that within the next four months, the Fed will cut the rate by 75 basis points.

Nevertheless, the sustained strengthening of the dollar raises doubts — because of Trump and China. The U.S. president once again threatened a 100% tariff on Chinese imports in response to Beijing’s export restrictions. Both countries decided to impose additional port fees and exchanged fresh threats, which put pressure on the dollar. However, after Trump’s partial softening of rhetoric (against the backdrop of a deal with Australia on rare earth materials), the dollar sharply regained positions — though, admittedly, it was an unstable argument for growth.

For now, the market sees only Trump’s solo performances, but whether China will accept the cancellation of not-yet-imposed tariffs as a compromise remains an open question.

Meanwhile, large funds continue to bet on the dollar: last week, purchases of shares in the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) totaled $4 million, and over four weeks — $24.6 million. This is a serious figure confirming strong interest in the dollar’s strengthening.

Nevertheless, traders should exercise caution when speculating with the U.S. currency until clearer signals emerge from the Fed and the ECB. The further dynamics of European currencies will depend on how regulators manage to balance inflation risks with slowing growth, while U.S.–China trade negotiations will add another layer of uncertainty to the market.

So we act wisely and avoid unnecessary risks.

Profits to y’all!