Transcription
Hey folks, welcome to verified investing.com. My name is Gareth Soloway, chief market strategist here. Now, in today's video, we've got a dive into the currency markets because there's a potential crisis looming with the yen in relation to the US dollar. The yen has now just broken out in terms of weakening against the USD, and we will take a look at that chart in one second.
Before we do that, we've got to dive into the dollar chart, the DXY, which is the dollar against a basket of currencies because it is also at the upper end of a range. Is it going to break out or is it a fake out where Ddallization is going to continue? This is a big pivot point for the US dollar and we've got to dive into that. We'll also look at the British pound against the dollar. The euro and a few other currencies. All right, into the action we go today.
Take a look at this, guys. This is a great chart because not only does it show us that we have this resistance zone on the DXY, and you can see again you have the lows here, and then the highest point since 2025 back in this point, and you can see over here the DXY, which is the dollar index, came up. We tagged it right here, and so far we've been rejected. The dollar has pulled back. Now, this looks a little bit arbitrary, but when you zoom out, look at this, guys. You have this beautiful zone where we had broken out above this level and then come in and bounced off of it, literally since 2022 all the way until it broke down in 2025. Now, what's interesting about this is the breakdown occurred coordinated with the tariff push by President Trump. So we saw again a weakening of the US dollar when the president pushed in his tariff policy. The thought process here is very unique. It's that by placing additional tariffs and kind of at whim on different countries, he alienated those other countries from wanting to be beholden to the US dollar. And therefore the dollar weakened because the idea is these other countries want to move away from being so reliant and giving the US so much power by having the major reserve currency out there being the USD. Right? So again, very intriguing.
But having said that, what we've seen lately is that the dollar has strengthened significantly ever since really Kevin Walsh came in. The dollar has gained momentum and is now testing the upper range of resistance. Now you might say, "Well, why is Kevin Worsh, you know, why is he helping the strength of the dollar?" And the answer is very simple, right? Is he came out and was more hawkish than the markets anticipated. However, I don't believe that is actually the case. I think he purposely was extremely hawkish in his first commentary or his first press conference because he needed to establish that he was an independent player versus the president having essentially control over him. Now remember, the president, before he appointed the new Fed chair, he said, "I will only appoint someone who is going to lower interest rates, not raise rates," and essentially I take the president at his word. Meaning that Kevin Walsh talked a strong game, but I don't buy it for one second. One second. Because you know what? If rates go up, we're going to see the rage tweeting, and it's going to all start again, potentially investigations. And we know that again, the president had discussions with the potential future chair, in this case, Kevin Worsh, who became the chair, about interest rate policy. And we already know that Kevin Worsh has said many times over that he's interested in redoing the CPI excluding outliers. So let's say bubblegum, and I'm just taking arbitrary thing, goes up 300% in cost or in, you know, inflation. Basically, what Kevin Walsh has said is he's interested in excluding that from the CPI and focusing just on everything else. And so to me, that doesn't sound hawkish at all. That sounds very dovish. And so I think the market is misreading Kevin Worsh, and we'll find out as again the markets are pricing in a rate hike before year end. I'm here to tell you I don't buy it. I don't think we're going to get a rate hike. I think in fact no rate hikes this year, and next year we will see at least three rate cuts.
All right, back to the charts. Now we talked about this zone on the USD, and you can see why it's such a big deal. It was support all the way over here and resistance in here. But look at this. If we flip to our weekly chart, it goes back even further. It goes all the way back to 2015 where we were seeing resistance in here on the DXY. Then it broke out, right? And then it became support, right? And then it broke down and became resistance again all through here. And so this is an amazing zone on the dollar. All right. And again, as long as we stay underneath this zone and haven't broken out basically above 10175 or so, I will remain bearish on the DXY, the dollar versus a basket of currencies.
Now, having said that, that doesn't really include the yen. And I want to show you the yen chart here because this is really key. USD JPY. So this is again the do the yen in terms of dollars, right? Or so or so. So essentially what we're looking at here is for every dollar right now, you get 162.328 yen. And what we can see here is this last in 2024, there was a crisis in the stock market where the yen weakened so much that they had to intervene, and that caused a 15% decline in the US stock market in a matter of weeks. It was late July, early August, and you could see the intervention here, and that's where we saw that crisis come into play. Now look at this. I've just been hearing from my sources that based on this breakout on the yen, the USD, JPY, we're now hearing that they are discussing the Japanese central bank intervening again in coordination with the US because the US doesn't like this as well. It's destabilizing. And so, we're going to have to watch and see how this plays out. But we are seeing, look at this breakout potentially starting here. This is the weekly chart. We can go back to the daily. There's your daily candle breaking out above this former pivot from the last time we saw the stock market seeing some major trouble. So keep this on your radar.
Now just to go over this, I want to show you this, guys. So let's go to our macro maps here. And this is showing us debt to GDP. And you might say, "Well, why does the yen keep weakening against the dollar when so many other countries' currencies have actually strengthened against the dollar?" And this tells you everything you need to know. Go over to the Japanese. Here it is right up here. The Japanese debt to GD, government debt to GDP. Look at where it is: 20, almost 250%. Now, if you go to the US, you can see the US is better for sure, but it's still not great. I mean, number three here at 123.3% debt to GDP. Now the dollar has strengthened against the yen because they have a worse debt to GDP. But if we look at other countries, for instance, like the pound, the pound or the United Kingdom here, their currency, obviously the British pound, that has a less debt to GDP number than the US, and that currency has actually over the last year or so strengthened and broken out. All right, if we look at other countries out there, right? If we look at other countries down here, Germany, the yen, the euro, etc. I mean, you could look at the Euro zone, but for the most part, debt to GDP is much, much better. And the euro has also broken out against the dollar. So, you guys see where I'm going with this? It's very clear that currencies now are behaving more so in relation to total debt to GDP, and that is helping whether it strengthens or weakens against the US dollar. All right. By the way, great charts here overall. You can flip over to inflation rate, interest rate, GDP, unemployment rate, and really see the whole entire world. It is very, very cool here.
All right. So, let's get back to these. So, we're seeing the yen weaken and essentially the dollar yen break out here to the upside. But what about the euro? All right, EURUSD. Let's take a look here. Now, this is more important, folks. What we're seeing on this, and let me get rid of this trend line right here, is if we go to our weekly chart, let me get rid of that line as well. We can see there was a downtrend where the dollar was strengthening against the euro. So the euro was falling ever since the financial crisis right here was 2007, 2008. Here was your 2008 peak, just as the stock market here and globally were collapsing. Now what we know is that the Federal Reserve, the way they handled it, and listen, you may not agree with QE. I certainly didn't agree with quantitative easing and all of this printing of money by the Fed, but the markets looked at it as the gold standard. The Federal Reserve here in the US was the gold standard versus the ECB, um, the Bank of Japan and all the other, you know, central banks. And therefore, the dollar actually strengthened for years from 2008 all the way down till it bottomed in 2022. And then you saw a breakout. Guess when the breakout occurred? In April of 2025 when the president introduced his tariffs. And this is where all of a sudden money started to move out of the dollar and into the euro against the dollar. And we've seen it. Now listen, the dollar has rallied recently. So we have seen a pullback in the euro against the dollar. But for the most part, this is still a very good breakout, guys. This is an incredible breakout. Long-term chart going back to 2008 breaks out in 2025. So, we're talking, you know, 17 years of dollar dominance has now broken, and the euro is likely going to trade higher.
If we look at the GBPUSD as well, and we can see this as well, GBP, there we go. USD, we can see the same function downward. Here's your 2007 high, which was just before the financial crisis. The dollar then strengthens against the British pound, driving the British pound down, down, down. But look at this. This is a technical breakout. And so again, now we're starting to see, and the tariff policy seems to have been the trigger for the breakout here, is that we're now seeing the pound bull flagging after breaking out here and looking to break out and go even higher. And this is just a great... I mean, look at this, guys. This is just a fantastic bull consolidation up move, sideways consolidation. We should start heading to the upside.
So, listen, we can go over more and more charts here overall. Um, you know, we can look at the Canadian dollar USD here as well. That again, I actually like this chart. I'll show you why. So, you have this downs sloping line and look, we're down at support on the Canadian dollar here. But look, if you look at this chart overall, so it's at support. And if we look at this, I love charts like this where you get this kind of pattern formation. It's kind of an inverse head and shoulder. But this actually shows me the Canadian USD, the US dollar um against, or Canadian USD is going to eventually turn back up. I'm actually a big bull on the Canadian dollar here. All right. So again, we could go on and on through lots of currencies, but again, the key here is the yen is potentially on the verge of causing intervention by weakening so much and breaking again, dollar yen breaking out above recent levels, showing intense weakening here, while the other currencies, the GBP, euro have already broken out against the dollar and look to move higher. And this tells me again the ddollarization, while it's a 10, 20, 30-year process, very, very long, reserve currencies don't die overnight like that. This will continue. The dollar will weaken, but unfortunately the yen (maybe fortunately, whatever you want to say) the yen will weaken more because of that debt to GDP. Remember that debt to GDP is unbelievably important.
All right, guys, there's your lesson for today. As always, folks, do not forget that we want to make sure, as always, we're focusing in on what the charts are telling us. You guys have a great rest of your day. I'll talk to you soon. Take.