Dollar Pullback Shifts Focus To Trump Speech
The US Dollar Index (DXY) was near 99.34, close to a one-week low, after reaching 100.64 on Tuesday, its highest in ten months. Attention turned to Trump’s speech at 01:00 GMT on Thursday, where he is expected to give an update on Iran. Technically, the bias turned mildly bearish after USD/JPY failed to hold above 160.00, a level linked to past intervention by Japanese authorities. Price sat just below the 21-day simple moving average near 158.80, while the RSI hovered near 50 and MACD slipped slightly below its signal around the zero line. A close above the 21-day average could allow a retest of 160.00. A firm close below it could bring the 50-day SMA near 156.96 into view. We see a familiar pattern emerging when we look back at the hesitation around the 160.00 level in 2025. Today, with the pair pushing 164.50, the same dynamic of a strong underlying trend meeting intervention risk is at play. The fundamental drivers, however, are now even more pronounced than they were last year.Widening Policy Gap Raises Intervention Risk
The policy divergence that fueled the climb in 2025 has widened further. Recent US CPI data for March 2026 came in hotter than expected at 3.1%, cementing the case for a hawkish Federal Reserve, while the Bank of Japan has signaled it will be extremely slow to normalize policy. This interest rate gap continues to make long USD/JPY positions the path of least resistance. Japanese officials are clearly uncomfortable, and we have noted increased verbal warnings this week as the pair breached 164.00. The market is now pricing in a high probability of direct intervention to support the yen, similar to the actions seen in late 2024. This creates significant short-term downside risk, even if the uptrend remains intact. For those expecting the upward trend to continue but wanting to guard against a sudden drop, buying call spreads is a prudent strategy. A trader could buy a 165.00 strike call and sell a 167.00 strike call, for example. This limits the initial cost and caps the maximum loss if authorities were to intervene forcefully. Given the binary risk of either a sharp move higher or a sudden plunge from intervention, volatility is the main theme. Implied volatility for one-month USD/JPY options has recently surged to 13.8%, reflecting this tension. Buying a straddle, which involves purchasing both a call and a put option at the same strike price, could be effective for trading this expected explosion in movement. For those holding direct long positions, it is critical to manage risk tightly in the coming weeks. We believe using trailing stops just below key technical levels, like the 10-day moving average, is essential. This allows for participation in further gains while protecting capital from the severe drawdowns that intervention would cause. Create your live VT Markets account and start trading now.
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