It is precisely this paradox that now dominates the macroeconomic narrative for investors. On one hand, business indicators are still resisting: retail sales remain solid, job creations are resilient, PMIs generally stay in expansion territory, and expected earnings for US companies are even continuing to rise. The latest statistics have further confirmed this resilience, with an ISM manufacturing index exceeding expectations, consumption that is not faltering, and a labor market that refuses to deteriorate sharply.
However, this economic strength is becoming almost a problem for the markets. Simultaneously, inflationary pressures are gradually reappearing. Rising oil prices, logistical disruptions around the Strait of Hormuz, and a rebound in producer prices are fueling a "higher for longer" monetary scenario. The latest PPI figures surprised to the upside, while several inflationary components are beginning to reflect the ongoing energy shock.
As a result, rate cut expectations have been sharply downscaled. Where markets were still expecting several rounds of rate cuts just a few weeks ago, investors now anticipate almost no rapid support from the Fed. Jerome Powell himself said that the central bank still maintains a sufficiently restrictive policy to wait for more visibility before taking action.
This resurgence of inflationary tensions also explains the behavior of US long-term yields, which are gradually ceasing to play their traditional role as a safe haven. As long as oil prices remain high, bond markets fear that a lasting return of inflation will prevent the Fed from easing its monetary policy despite the gradual slowdown in growth.
Meanwhile, the equity market remains surprisingly resilient. Earnings continue to support the underlying trend, and internal indicators do not yet signal the entry into a true bear market. However, the rise in oil prices is now acting as a tax on global growth. Should crude remain sustainably above $100 a barrel, the risk would no longer be merely inflationary: it would gradually become recessionary.
The central scenario therefore remains that of a temporary shock, with geopolitical easing allowing oil to recede in the coming weeks. However, the longer the conflict drags on, the more the market will have to price in an environment combining slower growth, persistent inflation, and a Fed forced to remain restrictive for longer, which directly benefits the dollar.
Technically, EUR/USD is currently testing its key support at 1.1645/00, to be viewed in parallel with the 99.45 resistance on the DXY. A clean break of these technical levels would invalidate the bearish dollar scenario.
Elsewhere, USD/JPY has moved past 158.10, invalidating the bearish scenario. The next resistance is located at 160.50. Mewnhile, USD/CHF failed to break 0.7775 to open the way to 0.7660. The first resistance lies at 0.7905/36. There is no change on the AUD/USD, which remains below 0.7200/15 and is now testing its first support at 0.7100. The Kiwi also hit a wall at 0.6000 and is approaching 0.5815, a level equivalent to 0.7100 on the Aussie.
