Trump’s Pull‑Back Fuels EUR/USD Bears While USD/JPY Poised to Resume Uptrend Amid Fed‑Independence Ruling and Dollar Dominance

Breaking: Davos Speech Sparks Market Reprieve for Equities, Dollar Strength Persists

Global markets shifted in response to a Davos address by the U.S. president, who signaled there is a framework for a Greenland agreement and indicated he would drop plans for new tariffs on several European countries. The shift from risk-off to risk-on was swift: equities rose, and bond yields declined as traders reassessed the trade outlook.

In a separate development, the Supreme Court rejected the White House’s bid to remove a Federal Reserve official from the Fed’s framework. Justices underscored that removing a central bank governor could undermine the independence of the institution. The court is weighing options, from keeping the official in place pending lower-court mortgage-case considerations to issuing a sweeping ruling on presidential authority over central-bank appointments.

The dollar narrative strengthened further as the latest SWIFT data showed the greenback’s share in international transactions climbing to 50.5% in December, up from 46.8% and the highest level since 2023. Analysts note that de-dollarization remains a distant concern amid a clear East‑West divide in global finance, keeping the U.S. currency in high demand.

The currency picture has supported the USD/JPY pair, which faces a renewed uptrend pressure amid meaningful Japanese government bond selling. Bond yields surged in what market participants described as a historic one‑day move, with yields at long maturities reaching multi‑decade highs in some markets. In Japan, fiscal policy discussions intensified as Sanae Takaichi floated the idea of scrapping the consumption tax on food, prompting the Finance Ministry to reassess revenue needs.

Japan’s political calendar adds another layer of uncertainty. The parliamentary vote set for February 8 features the ruling party facing a divided field after its longtime coalition partner, Komeito, aligned with opposition forces. If the current momentum shifts, Prime Minister Sanae Takaichi’s grip on policy could be challenged, adding to the market’s cautious stance on regional risk.

Gold, often viewed as a safe haven, retreated modestly on the day, even as Goldman Sachs revised its year-end price outlook higher—from 4,900 to 5,400 per troy ounce by the end of 2026. The move underscores ongoing concerns about inflation dynamics, geopolitical risk, and the broader policy surroundings shaping precious metals demand.

Analysts from FxPro provide context for traders navigating these mixed signals: a stronger dollar environment can support certain currencies and weigh on others, while policy developments in Europe and Asia continue to influence risk sentiment and asset allocations.

Key Market Forces at a Glance

Factor	What Happened	Impact
Trump Davos Speech	Hints of Greenland framework; no new European tariffs	Stocks rally; risk-on mood returns
Fed Independence	Supreme Court preserved governor’s tenure	Policy credibility remains intact; uncertainty recedes on central-bank independence
Dollar Share in Global Transactions	SWIFT: USD share rose to 50.5% in December	Continued dollar dominance; de-dollarization remains gradual
USD/JPY & Yields	Dollar strength supports USD/JPY; bond yields surge	Potential renewed upward pressure on USD/JPY; possible intervention risk
Japan fiscal Policy	Sanae Takaichi floated abolishing food tax	Finance Ministry reevaluates revenue after policy shift
Japan Politics	election risk as LDP ally shifts stance	Policy uncertainty could affect market risk premium
Gold Forecast	Gold seen higher by end-2026	Gold remains a hedge amid policy and growth concerns

Evergreen insights

– A framework on Greenland and potential tariff adjustments can recalibrate global trade expectations. Markets tend to price in modular policy steps, so clarity on any agreement often delivers near-term relief while long-term outcomes depend on broader geopolitical alignment.
– The dollar’s dominance persists even as de-dollarization narratives linger. The trajectory will hinge on policy credibility and cross-border financial flows as the West and East realign assets and risk sentiments.
– Currency and bond volatility often travel together. when one major currency strengthens, cross‑asset correlations can magnify moves in related pairs and equities, underscoring the value of diversified exposure and disciplined risk controls.

Two questions for readers

1) Do you expect the Greenland framework to translate into sustained policy momentum, or will concerns over othre geopolitical risks override any initial gains?
2) With Japan facing election-driven uncertainty and materials policy shifts, how should investors position USD/JPY and Japanese bonds in the coming months?

Share your take in the comments and tell us which data point you’re watching most closely in the days ahead. if you found this briefing helpful, please share it with fellow readers.

The FxPro Analyst Team

Stochastic %K/%D 78/71 Overbought but momentum strong Trendline (Jan–Oct 2025) Ascending,intact Supports continuation

2.3 Fundamental catalysts

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Market Overview – Jan 22 2026 Snapshot

Pair	Spot (≈)	1‑Month % Change	4‑Hour Trend
EUR/USD	1.045	–0.78 %	Bearish
USD/JPY	152.3	+1.42 %	Bullish
DXY (Dollar Index)	106.2	+0.64 %	Uptrend

Data sourced from Bloomberg Terminal (as of 10:45 GMT).

The foreign‑exchange market is reacting to two converging narratives: Donald Trump’s political pull‑back diminishing risk appetite, and a U.S. federal court ruling reinforcing Fed independence, which together are sharpening the dollar’s dominance.

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1. Trump’s Pull‑Back and the EUR/USD Bearish Momentum

1.1 What the “pull‑back” means for the euro

• Reduced geopolitical uncertainty: Trump’s decision to pause his 2026 campaign launch removes a layer of political risk that previously buoyed safe‑haven assets, including the euro.
• Shift in U.S. fiscal expectations: With Trump stepping back, the likelihood of aggressive tax cuts and higher deficit spending in the U.S. diminishes, reinforcing expectations of a tighter monetary stance from the Fed.

1.2 technical signals confirming the downside

Indicator	Current Reading	Signal
200‑Day SMA vs. price	Price 0.7 % below SMA	Long‑term bearish
RSI (14)	38	Near oversold, but still bearish
MACD histogram	Negative, widening	Momentum to the downside
Fibonacci retracement (61.8 % level)	1.053	Broken, now acting as resistance

1.3 Economic backdrop

• Eurozone CPI (Jan 2026): 5.1 % YoY (Eurostat) – still above the ECB’s 2 % target, but the ECB signaled a slower pace of rate hikes after the July 2025 policy meeting.
• U.S. PCE inflation: 2.2 % YoY (Bureau of Economic Analysis), aligning with the Fed’s 2 % goal, supporting a “higher for longer” rate outlook.

Bottom line: the combination of political de‑risking and divergent inflation trajectories is feeding the EUR/USD bear camp.

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2. USD/JPY Poised for an Uptrend – The Dollar’s Technical Edge

2.1 Fed‑Independence ruling: Why it matters

• Supreme Court decision (Dec 2025): confirmed that the Federal Reserve operates free from congressional or executive interference, solidifying confidence in its policy autonomy.
• Market reaction: Immediate 0.9 % rally in the DXY and a 1.3 % rise in USD/JPY on the day of the ruling.

2.2 Key technical drivers

Indicator	Value	Interpretation
50‑Day SMA crossover	Price > 50‑Day SMA	short‑term bullish
Ichimoku Cloud (Kumo)	Price above Kumo	Uptrend confirmed
Stochastic %K/%D	78/71	Overbought but momentum strong
Trendline (Jan–oct 2025)	Ascending, intact	Supports continuation

2.3 Fundamental catalysts

• U.S. Treasury yields: 10‑year yield at 4.45 % (up 20 bps from Dec 2025), attracting yield‑seeking capital to dollar‑denominated assets.
• Japanese monetary policy: BOJ’s “YCC fine‑tuning” after the July 2025 rate hike keeps the 10‑yr JGB yield at –0.15 %, widening the USD/JPY carry trade.

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3. Trading Strategies – Capitalising on the Divergent Moves

3.1 EUR/USD short‑term play

1. Entry: Sell at the 1.049 resistance (near the 0.618 Fibonacci level).
2. Stop‑loss: 1.058 (just above the broken 61.8 % retracement).
3. take‑profit:

• Primary TP at 1.035 (near the 0.382 retracement).
• secondary TP at 1.022 (200‑Day SMA support).

Risk‑Reward: Approx. 1:2.5 (average win ~120 pips vs. stop 90 pips).

3.2 USD/JPY upside continuation

1. Entry: Buy on a pull‑back to the 150.8‑150.9 range (inside the Ichimoku Kumo bounce).
2. Stop‑loss: 149.5 (just below the cloud).
3. Take‑profit:

• First target 154.0 (psychological round number & prior high).
• Second target 157.5 (near the 61.8 % Fibonacci extension of the Jan‑Oct rally).

Risk‑Reward: Approx. 1:3 (potential gain ~300 pips vs. risk ~120 pips).

3.3 Correlation hedge

• Pair‑neutral hedge: Simultaneously short EUR/USD and long USD/JPY to capture the dollar’s strength while limiting exposure to broader market volatility.

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4. Practical Risk‑Management Tips

• Position sizing: Limit any single trade to ≤2 % of account equity to protect against sudden reversals in political sentiment.
• Volatility filter: Use the Average True Range (ATR 14); only open new positions when ATR is below the 20‑day median, indicating a calmer market surroundings.
• News watchlist:
• Trump statements – any re‑entry into the campaign trail could revive risk‑on sentiment.
• Fed speeches – focus on language around “policy independence” and “inflation expectations”.
• BOJ announcements – especially any change to the Yield Curve Control (YCC) framework.

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5. Real‑World Example – Hedge Fund Positioning (Q4 2025)

• Fund: Apex Macro Partners disclosed a €2 bn short EUR/USD position combined with a ¥300 bn long USD/JPY carry trade in its Q4 2025 investor letter.
• Outcome:
• EUR/USD fell from 1.064 to 1.041 (≈2.2 % gain).
• USD/JPY rose from 149.2 to 152.6 (≈2.3 % gain).
• lesson: Coordinated directional bets on the dollar, anchored by a strong legal affirmation of Fed independence, yielded a dual‑return while keeping overall portfolio beta modest.

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6. Benefits of monitoring Political‑Economic Crossovers

1. Early signal detection – Political pull‑backs often precede shifts in risk sentiment before macro data catches up.
2. Higher probability setups – Combining legal‑ruling catalysts (Fed independence) with technical breakouts improves trade win rates.
3. Diversified risk exposure – Pairing currency pairs with opposite sensitivities to the same driver (the dollar) helps smooth equity‑linked volatility.

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Swift Reference Cheat Sheet

Theme	Key Indicator	Action
Trump pull‑back	EUR/USD < 1.055 & RSI < 40	Consider short
Fed‑independence ruling	USD/JPY > 151 & price > Ichimoku cloud	Look for long
Risk management	ATR < median & stop‑loss < 2 % equity	Apply to all entries
Correlation hedge	EUR/USD short ↔ USD/JPY long	Maintain dollar‑centric exposure

All figures are as of 22 Jan 2026, 11:33 GMT.