The macro sequence over the past week clarified one key point: we are not on the cusp of a recession, although we are no longer in a euphoric expansion phase either. The cycle is slowing, disinflation is pausing, and the global rotation of flows is becoming the markets' main driver.
For several months, the market had been running on a simple scenario: solid growth, easing inflation, two rate cuts starting in June - however, the PCE has complicated that equation. While most inflation indicators were pointing to a gradual return toward 2%, the Fed's preferred gauge surprised to the upside. Not an explosion. Not a return of inflation. But enough to break the scenario's linearity. That changes everything. The Fed no longer has any urgency to act. US real rates remain high. The market is starting to price in that the first cut could come later-or even be the only one.
While investors watch the Fed, the structural transformation is happening elsewhere. Flows are gradually leaving US mega-caps to be redeployed toward:
- small and mid caps,
- value,
- international markets,
- emerging markets.
As a result, we are seeing a reshuffling of the pack, not the formation of a market top. As for the legal decision on tariffs, it does not eliminate trade uncertainty. Iran-United States tensions are keeping an energy risk premium in place. The trade deficit remains massive despite tariff barriers. Political noise prevents a lasting compression in volatility. The dollar is not rising for structural reasons. It is rising partly by reflex and because the Fed is not cutting its rates. That is a major nuance.
Technically, 96.48 on the Dollar Index is still holding up, but 98.00 is struggling to be clearly broken. The greenback rebound scenario therefore remains fragile. In parallel, we will be watching resistance at 1.1920/60 on EUR/USD to preserve the scenario of a consolidation toward 1.1573 initially. A break of 1.1730, along with 98.00 holding on the DXY, should strengthen the bearish conviction.
