Dollar rebounds on confidence data, but EUR/USD’s anchor holds

The EUR/USD is right back where it’s been orbiting for weeks—1.130, the pair’s magnetic north in this choppy regime of risk-on head fakes and tariff déjà vu. This isn’t just a chart level—it’s the tug-of-war midpoint where trader conviction gets tested. A counterpunch has yanked back every breakout attempt—U.S. data rebounds vs EU optimism on tariffs. Then factor in Trump’s mood swings, and a dollar that’s still not sure whether it’s a safe haven or a fiscal basket case. It’s become the market’s stress-testing zone, where every catalyst gets weighed and discarded just as quickly. For now, the 1.13's handle isn’t a ceiling or a floor—it’s purgatory with price action.

The euro's resilience isn’t so much about strength as it is about the dollar tripping over its own shoes. Confidence in U.S. policymaking is wearing thin, and while Trump’s latest conciliatory turn on EU tariffs is sparking a relief bounce in equities and the US dollar, it feels more like the dollar is riding a sugar high than the start of a sustained rally. The greenback’s muscle flex from yesterday’s consumer confidence beat and the Dallas Fed print was enough to squeeze a few overstretched EUR longs, but not enough to punch through key support, the Foggy Bottoms policy malaise.

Meanwhile, the euro is like a boat caught in the undertow—dragged back toward the 1.130 reef every time it tries to sail off. French CPI dipped, hinting that tariffs may be exporting deflation instead of inflation into the EU. That could set up the ECB for deeper cuts ahead, but for now, swap markets are holding back. Traders still believe that if the U.S. loses confidence first, EUR/USD doesn’t need to sprint—it just needs to stand still.

Zooming out to USD/JPY, the market is grappling with a different beast altogether. After last week’s JGB long-end fireworks—where 30Y yields rocketed nearly 100bps before plunging 34bps on whispers of MoF issuance tweaks—the yen got walloped. But the reaction reeks more of bond market panic than sustainable FX repricing. The MoF is throwing questionnaires like confetti, trying to placate the super-long end after a 20Y auction flop, but traders know this won’t end with a simple issuance reshuffle.

Call it a relative win in a bruised market. Japan’s 40-year bond auction came in with the weakest bid-to-cover ratio since July 2024—hardly a confidence booster, but not the full-on buyer boycott we saw at last week’s 20-year disaster. Demand was soft, yes, but at least this one didn’t set off sirens.

The sleeper risk in Asia FX isn’t another hot CPI print or a Fed speaker slip-up—it’s a trade clause buried in Tokyo. If Japan folds to U.S. pressure and agrees to cap yen depreciation in any future pact, that’s not just a yen story—it’s a wrecking ball aimed straight at the USD/Asia complex.

Why? Because a currency clause in Japan sets precedent. Once it’s in Tokyo, it’s on the table for Seoul, Taipei, and maybe even Bangkok and Kuala Lumpur. That’s how policy spillovers happen. Suddenly, the entire Asia FX universe is forced to recalibrate around a new constraint: Washington’s view of what’s “fair.”

In that scenario, today’s USD bounce—sparked by better consumer confidence and a friendlier Trump tone—becomes less of a trend and more of a tactical gift. A re-entry point, not a breakout. But we’re not there yet.

I’m still eyeing a bit more JPY weakness before reloading, and I missed this morning's bounce to 144.75. I hope the bond market’s panic at the long end has thrown enough dust in the air to keep USDJPY elevated for a few more sessions and maybe push it to 145. But if trade talk chatter firms up around FX terms, don’t be surprised if the USDJPY bounce fades quickly with the USD Asia FX board closely in tow.

So here we are: the dollar's trying to dance on data, EUR/USD is moored at its 1.130 comfort zone, and JPY is having a bond market-induced identity crisis. Add in Trump’s trade theatrics and a market scarred by policy pivots, and you’ve got the FX market behaving like a yacht crew sailing into a storm—sails up, compass spinning, and everyone watching the clouds.

The Fed minutes today might offer some kindling, but they’re already stale—priced off a world where tariffs were at 23%, not the now-revised 13%. That means the real catalyst hunt continues. Rate cuts are still priced in. The deficit drum keeps beating. And global de-dollarisation chatter is morphing from a slow simmer into a strategic whisper. It’s a dollar that rallies on data but fades in the face of White House policy confusion.