Where’s the USD rally?

I know what you might thinking now – the tariff situation is stabilizing, so where’s USD’s rally? Let’s investigate.

First of all, there was no invalidation of the breakout above the declining resistance line – even if we consider the upper of them. This is key – this means that the outlook remains bullish and this week’s decline in the USDX is just a post-breakout pause – preparation before the rally picks up.

Second, my previous comments on the timing of the bottom relative to the pre-tariff-decline tendency remain fully up-to-date:

Tariff deadline extension analysis

“The previous tariff deadline situation centered around June 1st, 2025, when Trump initially threatened to impose 50% tariffs on European Union imports. However, on May 25th, 2025 - just 6 days before the deadline - Trump agreed to postpone this deadline to July 9th following a phone call with EU Commission President Ursula von der Leyen. This represented a clear pattern of last-minute flexibility that markets began to anticipate.

The July deadlines presented a more complex scenario, with July 8th marking the expiration of a 90-day pause on "reciprocal tariffs" and July 9th being the extended EU deadline. Importantly, Trump signaled his flexibility much earlier this time. On June 27th, 2025 - about 11-12 days before the deadlines - he stated "No, we can do whatever we want" when asked if the July deadlines were set in stone, indicating they could be extended or shortened. This earlier communication of flexibility represents a key difference from the June pattern.

What makes this particularly relevant for USD Index analysis is that the dollar bottomed on July 1st, 2025 - precisely 7-8 days before the July deadlines. This timing wasn't coincidental. The market had learned from the June experience that Trump tends to provide flexibility around tariff deadlines, and the July 1st USD bottom occurred right after his June 27th comments about deadline flexibility. Markets essentially front-ran the expected postponement.

Looking at the current August 1st deadline, we can draw several important lessons. If the historical pattern holds, we might expect some form of communication about deadline flexibility approximately 6-12 days before August 1st - which would place it around July 20th-26th, 2025. Given that it’s [July 23], we're likely in the middle of this expected communication window.

However, there's a crucial difference this time. The USD Index has already demonstrated significant strength since its July 1st bottom, breaking above key resistance levels and showing what appears to be a confirmed uptrend reversal. Unlike the previous situations where tariff uncertainty created dollar weakness, the market now seems to be pricing in that tariffs are fundamentally bullish for the USD. This suggests that even if August deadlines are postponed, the USD Index may not revisit the July 1st lows, as the fundamental narrative has shifted from "tariff chaos equals dollar weakness" to "tariff implementation equals dollar strength."

The pattern suggests that while we might see some near-term USD volatility around potential August deadline communications, any weakness would likely be limited and short-lived compared to the previous cycles, as markets have now embraced the longer-term bullish implications of the tariff policy for dollar strength. That’s exactly what the confirmed breakout indicates on the technical front.

Let me write this again – tariff implementation equals dollar strength – and we already see it in the markets.”

Yesterday, we got information about the 15% trade deal with Japan and there’s a good chance that the EU will also face 15% tariffs. This is EXACTLY what the Peak Chaos theory implies at this stage – all this confirms it further. This is where Trump needs some wins to demonstrate that his approach is working. This is also where fundamental and emotional forces are starting to work in tune for higher USD Index values.

Timing-wise, we are in the analogy to the July 1 bottom right now, and here is the key thing that I want to stress today:

The USD Index didn’t soar right on July 1, even though that was the bottom. It didn’t rally on the next day, either. The rally was gradual. If this is the historical template, it’s also the most likely outcome here. Consequently, the current consolidation is in perfect tune with the pattern – it doesn’t invalidate it.

It continues to support higher USD values in the following days and weeks.

And you know what this means for mining stocks – declines. Most likely big declines, just as the rally in the USD is likely to be big, as the latter is starting it from very oversold levels.

Besides, gold is already declining – even without waiting for USD Index’s rally.

Gold breakdown confirmed

Gold price verified the breakdown below its rising support line – it’s now a resistance.

From the more short-term point of view, my yesterday’s comments remain fully up-to-date. Quoting:

“That might have been IT. Fundamentally, the trade deal with Japan. Technically, gold moving to its declining resistance line.

Let’s start with the latter.

Gold just reversed after touching its declining resistance line based on the previous highs, and it’s on its way to invalidate the move above the 78.6% Fibonacci retracement level.

The former is strong resistance, so the fat lady has likely already sung, and the 78.6% Fibonacci retracement and the move back below it will serve as the final confirmation.

That’s what confirmed the major tops in May and June.

Also, seeing a third top here doesn’t invalidate the link to 2011-2013 – it further strengthens it. It does, however, suggest that what we see now is like the late-2012 top and not yet the back-and-forth decline that I had previously thought we were in.

Either way, the implications are the same – bearish.”

Indeed, gold declined shortly after invalidating the move above the 78.6% Fibonacci retracement.

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