Initially, the oil shock supported the greenback. Rising energy prices fueled inflation expectations, forcing the Federal Reserve to maintain a restrictive stance. Expectations for rate cuts were pushed back, which mechanically bolstered the dollar via the interest rate differential.
However, this support is eroding. The bond market is beginning to stabilize, or even anticipate an economic slowdown should the energy shock persist. Historically, this phase often corresponds to an inflection point: after pricing in inflation, markets begin to integrate the economic cost of the shock.
At the same time, macroeconomic data remains solid. Consumption is resisting, employment is resilient, and activity indicators remain positive. This resilience limits the demand for the dollar as a safe-haven asset and prevents a more pronounced appreciation.
Another key element is the credibility of the geopolitical narrative. Markets are becoming increasingly less sensitive to political announcements and are now demanding concrete evidence of de-escalation. This shift reduces erratic dollar movements and reinforces its anchoring in fundamentals.
The determining variable therefore remains unchanged: the trajectory of oil. Remaining above $100 would prolong the dollar's bullish bias via rates. Conversely, a rapid normalization of the energy market would revive rate-cut expectations and weigh on the greenback.
Technically, EUR/USD rallied and stalled at its first target of 1.1815. The bias remains positive, however, as long as 1.1645 holds firm, with an upside target maintained at 1.1910. In parallel, we will monitor 99.15 on the Dollar Index to maintain the bearish bias toward 96.85/70.
Elsewhere, USD/JPY is treading water between 160.45 and 157.50. The Aussie returned to test its YTD highs at around 0.7200 without managing to break through, carrying the risk of an intermediate pullback toward 0.7035 or even 0.6915. The Kiwi, meanwhile, remains the weakest vehicle after stalling at 0.5930, signaling a new bearish leg toward 0.5679.
