At any level of reading, uncertainty remains. On one side, the US president is playing yo-yo with tariffs: raised to 15% and then quickly cut to 10%, it is sometimes hard to find coherence in the current tariff policy, all the more so as Section 122 limits tariffs to 150 days without a vote in Congress. In short, trade noise continues, the trade deficit remains massive and the economic rationale for tariffs is crumbling.
On the other, the latest releases of US inflation indicators showed a firmer-than-expected PCE combined with a higher PPI, reducing the likelihood of a rapid rate cut by the Federal Reserve. Some FOMC members are even talking about hikes… The central message is crystal clear:
- The disinflation cycle is not over
- The Fed is in no rush
- US real rates remain high
At the same time, investors pretty much snubbed Nvidia results: the numbers are solid, although not enough to justify current valuations. This is not a tech crash, but a reallocation of capital with a change in leadership.
To drive the point home, the United States and Israel launched a surprise attack on Iran. Two scenarios now open up. The first is a contained conflict, the scenario we favour for now. Today's emotional reaction does not change the economic narrative and, once the initial oil jolt has passed, things should get back to normal fairly quickly. We will therefore be watching $81 per barrel for Brent. As long as this is not breached, the risks of spillover seem limited. Gold, which is hovering near equilibrium, also supports this scenario. In the event of a hardening, it should indeed appreciate quickly, which is not the case for the moment.
The second is an escalation: with the closure of the Strait of Hormuz, oil prices would surge above $81, fuelling a clear rebound in inflation and forcing the Fed to remain on hold, or even to adopt a hawkish stance, against a backdrop of rising long-term yields. In that case, the dollar would be broadly strong against most G10 currencies.
Technically, the euro is breaking below 1.1730, opening the way for a further decline towards 1.1573. The first resistance stands at 1.1835. USD/JPY is near an intermediate resistance of 157.90, ahead of 159.45, the year's high. Meanwhile, the USD/CHF should hold below 0.7830/75 to preserve its bearish momentum.
