The US dollar showed signs of recovery in late trading ahead of the weekend and has continued this upward trend today in a market characterized by low trading volume due to the holiday. The markets in Japan, China, and the UK are currently closed. The ceasefire in the US-Iran conflict appears tenuous, with Washington announcing plans to escort vessels out of the Strait of Hormuz, while Tehran issues threats to target these ships. June WTI is currently positioned above the pre-weekend high, while 10-year benchmark yields are experiencing a notable increase. At the conclusion of last week, Washington unveiled two significant measures. The initial announcement indicated an increase in tariffs on European vehicles from 15% to 25%, along with the removal of at least 5,000 troops from Germany. The increase in tariffs was reported as a reaction to Europe’s inability to fulfill the trade agreement mandating the purchase of $750 billion worth of US energy. The presence of US troops in Germany was inadequate for its defense against a potential Russian invasion; however, they functioned as a tripwire, poised to activate the full force of US military power. The reduction of 5,000 troops reverses the escalation that followed Russia’s invasion of Ukraine in 2022. However, the circumstances surrounding the action suggest it may serve as a reprimand for Chancellor Merz’s critique of the US military involvement in Iran.

The euro demonstrated a seemingly bullish outside up day last Thursday, and subsequent buying activity leading into the weekend propelled it to $1.1785, marking an eight-day high. However, the upward momentum came to a halt as the resistance in the $1.1790-$1.1800 range was reached, coinciding with the announcement from the US regarding an increase in tariffs on EU vehicles to 25% from 15%, attributed to the failure to fully implement the trade deal, as stated by President Trump. The United States has declared plans to remove a minimum of 5,000 military personnel from Germany. The euro retraced to fresh session lows around $1.1715 during late thin trading ahead of the weekend. In light holiday trading, it edged down a bit past $1.1690. If maintained, a decline back below $1.1700 would dishearten the bullish sentiment. Options valued at approximately 925 million euros at a price of $1700 are set to expire today.

The yen has reached its highest level since the onset of the Middle East conflict, seemingly bolstered by significant intervention efforts. The dollar reached a low of JPY155.50 prior to the weekend. The region aligns with a technical retracement of the dollar’s ascent from the January low. The markets in Tokyo will remain closed until Thursday. The dollar is currently in a phase of consolidation. It has remained within the bounds of JPY155.70 and JPY157.25, staying within the pre-weekend range. Japanese officials successfully halted the yen’s decline and underscored the significance of the JPY160 level, all without indicating a shift in policy or relying on US backing. Previous support in the range of JPY157.50-JPY158.25 could potentially act as resistance moving forward. Sterling approached $1.3660 prior to the weekend, marking its highest point since February 16. However, it reversed lower and settled below the $1.3600 threshold. In the final moments of last week’s trading, it declined to nearly $1.3570. This diminished the technical tone, resulting in follow-through selling that brought it slightly below $1.3525 today. A convincing break at $1.3530 could indicate a return to the $1.3450 area.

The Canadian dollar achieved its highest point since March 10 prior to the weekend. The greenback positioned itself around CAD1.3640 ahead of the conflict in Iran, concluding last week at CAD1.3550. The US dollar breached the trendline that links the lows from January and March (approximately CAD1.3580) but closed above this level. The US dollar neared CAD1.3620 today. Options for 380 million at CAD1.3615 expire today. The prior support level at CAD1.3620 could present resistance. The Australian dollar approached $0.7230 before the weekend, marking its peak since June 2022. The central bank convenes tomorrow and is anticipated to implement its third increase of the year. The asset is currently experiencing consolidation within the range of approximately $0.7165 to $0.7225 today. The Australian dollar appears susceptible to the phenomenon of “buy the rumor, sell the fact.”