The euro has sold off aggressively in the wake of the Iran war.
We briefly bounced at the range lows, but the move has been weak and lacks follow-through. Now sitting well below the 200-day moving average, with the 21-day crossing lower, a bearish shift in trend dynamics. Last time this setup played out, the euro didn’t stabilize, it continued the move lower. Source: The Market Ear, LSEG
Dollar and the oil crisis
Last time it caught strong bids and squeezed for some 6 months. A similar move would tighten financial conditions quickly. Source. TS Lombard, TME
U.S. Dollar Index $DXY now trading above its 200-day moving average by the largest margin in 12 months 🇺🇸💵📈
Source: Barchart
The dollar index $DXY is now flirting with the downtrend line that has been in place since early 2025 (chart on the left).
It is breaking above the 200-day moving average. A close slightly higher from here, and we could be staring at a proper dollar squeeze. Meanwhile, the EUR has tracked EU gas almost perfectly, and the gap now is massive. The chart on the right shows EUR versus EU gas (inverted). That gap is huge. Source: The Market Ear, LSEG
What is the size of the yen carry trade?
There are various types and forms of the yen carry trade. This table from our comprehensive report on this topic shows that its size is substantial. Using conservative estimates, I would put it at $1 trillion.
A carry trade unwinding time bomb? Watching the JPY appreciating is nice but note the strong correlation between the JPY and the VIX
Source: TME
The Chinese Yuan has strengthened to 6.91 against the US Dollar, the strongest since May 2023.
The Yuan is now on track for its 7th consecutive monthly gain, the longest streak since 2020-2021, up+5% since 2025. It has also been the 3rd-best-performing currency in Asia since September. The most recent move comes after Chinese regulators advised banks to limit purchases of US Treasuries and instructed those with high exposure to pare down positions. China is benefiting from the US Dollar's weakness. Source: The Kobeissi Letter, Bloomberg
THIRD WAVE OF THE US DOLLAR CYCLE
Interesting comment by Crescat Capital: ‘We think the gold panic on Friday on the announcement of Kevin Warsh as the new Fed Chair caused a healthy pullback from short-term overbought conditions in the precious metals markets. While Warsh may appear the least dovish among President Trump’s candidates, we believe he is indeed in favor of lowering interest rates in 2026, as the President has also affirmed. Investors in Crescat’s portfolio of undervalued precious and critical metals miners should not be too concerned. Our activist mining portfolio outperformed gold, silver, and the gold equity benchmarks, both on Friday and cumulatively for the month of January. Still, the gold correction was no small matter. We think it presents a buying opportunity. In fact, now, as much as ever, is the time for gold investors not to panic but to step back and look at the big picture’. Source: Crescat Capital
