USD Continues on Decline, Geopolitical Risks, and Yen Poised for More Gains

Overview:

1. Dollar Downtrend Continues – The USD resumes its bearish continuation after rejecting a daily fair value gap, with a potential drop toward 105.420. A break below 106.126 would confirm further downside.
2. US 10-Year Yield Decline – Bond yields continue to drop, nearing the 4.125% level, making alternative assets more attractive to investors.
3. Consumer Confidence Weakens – Lower-than-expected consumer confidence highlights ongoing economic struggles, with inflation rising while employment declines.
4. U.S.-Ukraine Minerals Deal & USD Impact – Ukraine agrees to transfer a portion of its mineral revenues to the U.S., strengthening USD demand but potentially accelerating global de-dollarization.
5. Yen Strengthens as BOJ Signals Rate Hikes – The Japanese yen remains bullish, benefiting from rising inflation and a more hawkish Bank of Japan. USD/JPY hovers near key support at 148.643, with a potential drop toward 146.493-147.300.
6. Market Outlook – The dollar's weakness supports foreign currency strength, with yen momentum continuing while geopolitical risks influence global trade dynamics.

Dollar Resumes Downside Continuation

After tapping the Daily Fair Value Gap, the gap managed to hold for a bearish bias, USD resumes in going on a downside continuation. Based on what we have outline in our weekly market forecast, 3 scenarios were mapped:

Scenario 1: Bearish Follow-Through – Continued Weakness

Scenario 2: Upside Reversal – Invalidation of Bearish Volume Imbalances

Scenario 3: Range-Bound Movement – Awaiting a Catalyst

The chart clearly favors Scenario 1, with the dollar weakening amid geopolitical risks and Trump’s trade policies. A further decline toward 105.420 is possible.

For confirmation of a bearish continuation, we need to see a break below 106.126.

US 10-year Yield Might Reach 4.125% Level

We've seen a strong breakdown, with yields potentially dropping to 4.125%. A declining yield pushes investors toward more attractive assets.

Consumer Confidence Lower than Previous and Forecasted

Consumer confidence came in lower than expected, adding to U.S. economic uncertainty as inflation rises while employment weakens.

U.S.-Ukraine Minerals Deal Amid Intense Negotiations

Ukraine has agreed to transfer a portion of its mineral resource revenues to the U.S. after facing pressure from President Trump, who sought "payback" for past military aid. The final terms of the deal remain unclear, but previous demands, such as a $500 billion fund contribution and repayment clauses, were dropped. Instead, Ukraine will allocate half of its future resource revenues to a U.S.-backed fund, with some reinvestment into Ukraine’s economy. Negotiations were tense, with President Zelensky pushing for security guarantees, which were not included in the agreement. The deal comes as Russia gains battlefield advantages, and Trump aligns with Vladimir Putin while pressuring Ukraine. Critics argue the agreement ignores Ukraine’s sacrifices in the war, while the U.S. maintains that economic ties will deter future Russian aggression.

The U.S.-Ukraine minerals deal could have several implications for the U.S. dollar (USD) and its global status:

1. Strengthening USD’s Reserve Currency Status

By securing a financial stake in Ukraine’s mineral resources (including critical minerals, oil, and gas), the U.S. expands its economic influence. This reinforces the USD’s role in global trade and commodities markets, ensuring continued demand for the dollar as a medium of exchange.

2. Increased Dollar Demand from Ukraine

Since Ukraine will contribute part of its future mineral revenues to a U.S.-backed fund, these transactions will likely be USD-denominated. This could boost the demand for USD, strengthening its position as the dominant global currency.

3. Potential Geopolitical Risks for USD

• Allies’ Reaction: Some U.S. allies, especially in Europe, might view this deal as an overly transactional approach to foreign policy. If they seek alternatives to U.S. economic dominance, it could accelerate de-dollarization efforts, especially among BRICS+ nations.
• Russia & China’s Countermoves: Given Trump’s alignment with Putin, this deal might push Russia and China to strengthen non-USD trade agreements, such as using the yuan or ruble for commodity purchases.

4. Inflationary or Deflationary Effects?

• If the U.S. reinvests revenue from this deal into Ukraine and its own economy, it could increase government spending, potentially adding inflationary pressure on the USD. However, if structured as an investment fund with mineral-backed assets, it could act as a hedge against inflation by supporting long-term commodity-backed stability.

Overall Impact on USD

• Short-term: Likely bullish for USD as it strengthens U.S. economic influence and boosts dollar demand.
• Long-term: Could contribute to global de-dollarization trends if other nations respond by reducing USD dependence.

As Dollar continues to tumble down, we are looking for an upside on the foreign currencies.

Yen: Continues to Strengthen as Dollar Weakens

Yen still on a bullish momentum. This could decelerate currencies paired with the Japanese Yen.

For bullish upside, we are looking for Yen to hold and stay above 760.0 - 764.6 level.

Inflation and Monetary Policy: Yen continues to go to the upside as the BoJ gears up to raising rates this year. Japan's inflation rate has risen to 4%, surpassing that of the U.S., Eurozone, and U.K. Despite this, the Bank of Japan's (BOJ) real interest rates remain deeply negative at -3.5%, the lowest in two years. This suggests that financial conditions are still accommodative, even as the BOJ adopts a more hawkish stance.

Former currency diplomat Hiroshi Watanabe indicates that the BOJ may implement two additional rate hikes this year if inflation persists around current levels. Such moves could narrow the interest rate differential between Japan and the U.S., potentially stabilizing the yen within the 140-150 range against the dollar.

Market Reactions and Forecasts: The yen has recently strengthened, reaching an 11-week high against the U.S. dollar. This appreciation is partly due to increased bets on further BOJ rate hikes and concerns over U.S. tariff policies under President Donald Trump.

BoJ Governor Kazuo Ueda maintains a hawkish stance amid rising inflation.

USDJPY Testing the 148.643 Level

We are holding above the 148.643 support level. With the dollar weakening and the yen gaining appeal, a further decline in favor of the yen is likely.

A box breakdown could initiate a drop for the Gopher, potentially targeting 146.493 - 147.300 level.

The U.S. dollar (DXY) continues its decline amid geopolitical risks and weak investor confidence, with key support at 106.126. Falling U.S. yields and low consumer confidence add to uncertainty.

Meanwhile, Ukraine's mineral deal with the U.S. boosts dollar demand but raises de-dollarization concerns. The yen strengthens as Japan’s inflation rises and the BOJ turns hawkish, pushing USD/JPY toward 146.493 - 147.300.

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