Updates: Week Ending June 6, 2025

You know market participants are tired of Trump’s tariffs when this phenomenon is dubbed the “TACO trade.” Trump Always Chickens Out, or TACO, perfectly describes the fatigue with the constant imposition and pullback of new tariffs at seemingly arbitrary percentages.

Is this some kind of 1,000 IQ market manipulation play or pure idiocy? Nobody knows. What is known, and observable, is that the US dollar index has not been trending positively. On an aggregate level, this indicates a gradual and systemic reduction in USD holdings.

US dollar index (DXY)

May’s Non-Farm Payroll numbers released last week indicated 139,000 jobs were added. The unemployment rate largely remains unchanged at 4.2%.

However, cracks are beginning to show as policy uncertainties continue to threaten the operations of many businesses. WSJ’s article showed John Starr’s, owner of UltraSource, pain point with capital expenditures due to tariff policies. He faces a $2 million levy if the 10% tariffs imposed on April 9th remain in effect, threatening to wipe out profits for the year.

Switching focus to the US dollar index (DXY), we can see that early February showed the first sign of weakness. The index failed to breach above previous highs, signaling a lack of strength that is associated with a higher-high formation.

Right now, there is a floor based on April 21st lows. My interpretation is that the DXY can be used as a sign of volatility. If it doesn’t cross below this floor, it’s an indication of a lack of major positional changes with the US dollar. This might put some of my trades in jeopardy as I do have a few USD positions carried through the weekend.

Trade Recap:

I’m happy with my trading performance over the past week. There’s nothing too exciting as I’m slowing my trading down. Instead of trying to target 0.5x ATR for take profit and stop loss, I’ve decided to let my trades run by setting a wider stop loss based on the daily candlesticks. This way, I’m less prone to intraday fluctuations, which has been messing with my psychology more.

There are a couple of trades to highlight. No major moves have happened yet, but I think I followed my entry criteria quite religiously.

USDCAD Daily

I previously, and prematurely, entered a short position for USDCAD. That was when I was more focused on the trend “scalping” strategy. Now that I’ve pivoted to giving each trade more breathing room and holding for longer, trading off of major levels is now more crucial.

Price tested the 1.375 level in late May and quickly reverted above it. This was a fakeout that probably trapped a lot of sellers trading the initial price breakout. When price crossed and closed below the level, I entered.

The days following my entry had fairly low volatility. While the candles did not overlap much, their bodies are smaller than the pre-breakout ones.

GBPCAD Daily

Likewise, I saw a countertrend opportunity on GBPCAD. Price tested prior highs in late May and failed to close higher. This was the first indication that I should take a countertrend bias.

When price crossed below the ascending trendline, this further confirmed my countertrend bias, and I entered a trade accordingly. The price action was very similar to the USDCAD chart in the sense that volatility died down shortly after.

I’m not too concerned by this since volatility tends to be lower leading up to key economic releases. In this case, it’s the non-farm payrolls. I don’t think there’s a need to post the charts, but I took trades in AUDUSD, EURUSD, and NZDUSD as well due to similar price action analysis.

Pairs-in-Play:

Pivoting over to the pairs-in-play for the week ahead, the Japanese yen pairs have been showing breakout potential. The first pair in focus is EURJPY.

EURJPY Daily

This pair is interesting because its price is in the process of breaking above a resistance level that formed in December 2024. Price attempted to cross above this level in May 2025 but failed.

Since price closed above this level at the end of last week, it’s very possible we see major momentum to the upside for the weeks and months ahead. I think next week’s open will be critical to determining the strength of this move.

GBPJPY Daily

Similar pattern can be observed on the GBPJPY pair. The slight difference is that the price closed below the resistance level at the end of last week. It’s possible to say that the GBPJPY and EURJPY pairs are showing this correlation; however, the strength of the move will likely be different.

CHFJPY Daily

The Japanese yen appears to be weakening across the board as CHFJPY is making an upside breakout from its wedge consolidation. I usually don’t plot or trade wedge consolidations, but this pattern is just too noticeable.

I will still plot intraday zones to optimize my entry if I do end up taking a trade on this pair.