The week's most important development likely emerged from the oil markets. Several tankers were finally authorized to pass through the Strait, fueling the notion that an informal agreement between Iran, China and certain regional powers is beginning to take shape. Consequently, crude prices corrected sharply, down over 5% during some sessions, which allowed US Treasuries to rebound and global equities to regain lost ground.
This easing of energy pressures has immediately shifted monetary expectations. Markets are beginning to consider that the oil shock might be transitory and may not compel central banks to further harden their rhetoric. Furthermore, Jerome Powell confirmed that the Fed views its policy as already sufficiently restrictive to wait for greater visibility. Long-term US yields stabilized, while the dollar lost some of its momentum following its strong defensive phase.
Nevertheless, the macroeconomic picture remains mixed. The US economy still shows an impressive resilience: Redbook sales are up over 8% y-o-y, jobless claims remain low, ADP job creations exceeded expectations and several housing indicators surprised to the upside. However, against this PMI indices show a visible slowdown outside the United States, particularly in Europe and Australia, where certain sectors are slipping back down again.
Inflation also remains a point of concern. US household inflation expectations are rising again according to the University of Michigan, with 5-year expectations nearing 4%. Even though the markets are now hoping for a temporary energy shock, the Fed still lacks the go-ahead to rapidly resume rate cuts.
The dominant narrative therefore remains as follows: as long as oil prices retreat and the Strait of Hormuz gradually normalizes, markets can extend their rebound. However, the slightest geopolitical setback would risk immediately reviving inflationary tensions and putting bonds, currencies, and equities back under pressure.
From a technical standpoint, EUR/USD severely tested its support at 1.1645/00 without ever falling below it. At the same time, the Dollar Index also teased the 99.45 level, although has failed to break above it. Thus, although the structure is fragile, we maintain a bearish dollar bias for the time being, though a close above 1.1680 would be required to lend more credibility to this scenario.
Regarding other pairs, USD/JPY is slowly closing in on its year-to-date highs around 160.70, while USD/CHF stalled at 0.7905/36 to maintain its negative bias, ideally followed by a break of 0.7776 to open the way towards 0.7660. Amongst commodity currencies, the Aussie tested 0.7100 without breaking it, thereby preserving its bullish structure, while the Kiwi also held at its equivalent support level of 0.5815.
