USD/JPY remains stuck near key resistance at 158.00 – 158.50 as traders focus on Treasury yield dynamics. The yield of 2-year Treasuries climbed towards the 4.79% level, while the yield of 10-year Treasuries pulled back towards 5.12%.

In case USD/JPY declines below the 158.00 level, it will head towards the 157.00 level. A move below 157.00 will open the way to the test of the support at 155.00 – 155.50. RSI is in the moderate territory, so there is plenty of room to gain downside momentum in case the right catalysts emerge.

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2026.10.20 2026.10.20
US Stock Market Trends Drive the Dollar. Forecast as of 20.10.2026

Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/

Before the release of US inflation data, the currency market reacted to movements in Brent crude prices. Rising oil prices were seen as a sign of accelerating inflation and higher Fed interest rates. This strengthened the US dollar. Now things are different. Let’s discuss this topic and make a trading plan for EUR/USD. 

Major Takeaways

• European assets are being sold off.
• France faces a major budget challenge.
• The US dollar reacts to stock market movements.
• Selling EURUSD if the price fails to break above 1.128, 1.13, or 1.134 remains a relevant strategy.

Weekly Fundamental Forecast for Dollar

US Treasury yields are rising because of a strong US economy and expectations that the Fed will continue tightening monetary policy. European bond yields are rising because of protests in France and other European countries. Is there a difference? Absolutely! And this difference raises doubts about whether the EUR/USD rally can last.

The yield spread between French and German bonds has reached a two-week high and is approaching the 15-year peak recorded in early October. To keep its debt at the current level of approximately 120% of GDP, France would have to achieve something remarkable: keep its budget deficit below 2% of GDP for several consecutive years. It has not managed to do so since the 1970s.

French-German Bond Yield Spread

Source: Bloomberg.

The government aims to reduce the budget deficit to 5% of GDP by cutting spending by €43 billion. However, voters oppose these measures. People are taking to the streets to protest against the rising cost of living. The wave of discontent is spreading beyond France to Italy, Portugal, Belgium, and other eurozone countries. 

Protests are slowing economic activity and boosting support for right-wing parties willing to confront the EU, potentially even leaving the currency bloc. The euro faces a double blow from slower GDP growth and rising Frexit risk. It is no surprise that European assets are being sold off so quickly. Yet EUR/USD is not falling. It is actually trying to rise! A paradox?

In fact, it is not France but the US stock market that is setting the tone in Forex. The sell-off in technology stocks during the week ending October 16 gave way to a rebound at the start of the new trading week. Investors bought the dip and started selling Treasury bonds. Why seek safe-haven assets when the Nasdaq 100 is doing well?

US Treasury Yields and the Nasdaq 100

Source: Bloomberg.

As a result, Treasury yields rose, supporting the US dollar and helping it recover. EURUSD fell. Then the Nasdaq 100 stumbled, Treasury yields followed it lower, and the euro launched another counterattack.

Oil no longer drives the foreign exchange market. US stock indices and American exceptionalism now drive the Forex market. Under normal circumstances, a decline in the S&P 500 and weaker global risk appetite would be seen as a signal to buy the US dollar as a safe-haven currency. But not today.

In my view, fears surrounding technology giants and AI bubbles are overblown. Strong corporate earnings will renew interest in AI, push the Nasdaq 100 higher, and reassure US dollar bulls.

Weekly Trading Plan for EUR/USD

Thus, a failure to break above the resistance levels of 1.128, 1.13, or 1.134 would provide an opportunity to sell EUR/USD.

This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.

Price chart of EURUSD in real time mode

The pair continued its corrective upward trading, reaching the resistance level at 211.20 and settling below it. We highlight the importance of monitoring price action at this stage and waiting for the close of the next four-hour candle to confirm the expected direction for the upcoming trading sessions.

Continued trading below the current resistance would increase the chances of renewed bearish attempts, with initial targets at 210.30 and 209.60, breaking above the resistance and holding there would give the pair an opportunity to launch a fresh bullish move, initially targeting 212.00 and 212.65.

The expected trading range for today is between 210.30 and 211.40

Trend forecast: Neutral

The pair has maintained its stability below the additional resistance barrier at 177.80, reaffirming its commitment to the previously suggested bearish scenario. The current sideways movement reflects continued conflicting signals from the main technical indicators. We therefore await further negative momentum to help the pair resume its bearish waves, targeting 176.35 and 175.75.

Conversely, a break above the current barrier and sustained trading above it would give the pair an opportunity to recover further losses, by rising gradually toward 178.60 and 179.40.

The expected trading range for today is between 176.35 and 177.80

Trend forecast: Bearish

Euro: French Debt Is the Pressure Point

Political turmoil in Europe, and France in particular, is continuing to trouble traders, Reuters reported on Monday. France’s 10-year bond yield approached 5% this month, hitting its highest level since 2002. As of the end of the second quarter, public debt was 119% of France’s GDP. The ECB and euro zone finance ministers have urged France to pass its budget for 2027 in a bid to calm bond markets. Because France is going through an excessive deficit procedure, it is not eligible for the ECB’s tools to stabilize financial markets.

Pound: Jobs Data Back the Hike Case

According to data released this morning by the Office for National Statistics, UK unemployment for the period between June and August was 4.7%. That is the lowest it has been in a year. While payroll employees did increase, by about 13,000 in September, they are still down about 66,000 on the year. There were other weaker indicators. Vacancies dropped to 691,000, the lowest since 2021, during the pandemic, and total pay growth for the same period slowed to 3.7% from 3.9%. With pay still growing faster than inflation, real wages are still rising, which should support the case for a November rate hike. Wednesday’s CPI should show if inflation has kept increasing.