The Dollar risks being left without capital

EUR/JPY

Key zone: 183.00 - 184.00

Buy: 184.50 (on a confident breakout of the 184.00 level) ; target 186.00; StopLoss 183.80

Sell: 182.50 (on strong negative fundamentals) ; target 181.00; StopLoss 183.20

The U.S. currency continues to lose investor support. Trump has fulfilled his promise — the DXY index has fallen to a 4-month low. The market fully rules out an FOMC rate cut at the current meeting, while the probability of policy easing in March is estimated at no more than 13%.

• The key source of pressure has been the rotation of global portfolios out of U.S. assets. As of January 21, capital outflows from ETFs focused on the U.S. market reached $17 bn. Capital freed from the dollar is being reallocated to Europe and Japan.
• The negative backdrop is reinforced by rumors of a new government shutdown: Polymarket estimates the probability of such a scenario at 78%. The risk of a budget crisis increased after public reaction and criticism from Democrats following events in Minneapolis, which once again escalated the debate around Trump’s immigration policy. A potential shutdown could slow U.S. GDP growth and bring the Fed closer to a return to a more accommodative monetary policy.
• Theoretically, a weaker dollar increases the competitiveness of U.S. exports and may support industrial activity. In practice, however, currency depreciation reduces household purchasing power by increasing import costs. Additional pressure comes from falling prices of U.S. Treasuries and rising yields: demand for U.S. government debt remains sluggish.
• Another factor has been the sharp market reaction to the strengthening of the Japanese yen. Signals of possible U.S. currency manipulation in favor of buying yen have intensified concerns that the current administration is ignoring the risks of sustained dollar weakening.
• Rising gold prices reflect growing distrust toward the chaotic and spontaneous economic policy of the White House, including recent threats toward Canada and South Korea. Precious metals are increasingly perceived not as protection against inflation, but as insurance against U.S. political decisions.

Trump’s rhetoric only amplifies negative expectations.

Panic around the independence of the Fed has not subsided, and investors are pricing into the dollar exchange rate the risks of radical changes in the country’s economic policy. The current Fed meeting is not viewed by the market as a significant event: dollar stability is not among the regulator’s direct priorities, and Powell is likely to maintain the pause promised in December.

The focus is shifting to political pressure surrounding the Fed. Trump may soon announce the name of a new head of the regulator, which would increase psychological pressure on the FOMC both internally and externally.

At the same time, uncertainty persists around legal proceedings involving Lisa Cook and Jerome Powell, which may be used as an additional lever of pressure.

The current meeting of the regulator is unable to change market sentiment and will not provide support to the USD. The further trajectory of the dollar will be determined not by monetary decisions, but by the risks of a budget crisis in the United States. Political and economic blackmail continues.

So we act wisely and avoid unnecessary risks.

Profits to y’all!