Little has changed from one week to the next. The macro picture continues to favor growth, with productivity rising, fiscal stimulus "on the way" and bank credit re-accelerating. At this point in the cycle, there is no recessionary loop as long as consumer spending holds up.
The labor market is on hold: not strong enough for new entrants, but not yet weak enough to break consumption, especially given the wealth effect (equities/real estate) and baby boomers' spending.
On prices, after the impact of tariffs, disinflation is resuming, with CPI around 2.6%-2.7% and slightly positive real incomes.
Monetary policy remains accommodative, with rate cuts expected, a return of QE of around $50bn, plus a "mortgage" QE via FNMA/Freddie (a $200bn package is being discussed). It is a "liquidity" cocktail that is typically dollar-negative over the medium term. At the same time, political pressure on the Fed chair is more likely to encourage a move out of the dollar and into precious metals (gold, silver).
Despite these medium-term negatives, the dollar could benefit from heightened volatility during the mid-terms period to rebound early this year, also helped by strong macro data that does not suggest there an immediate rate cut by the US Federal Reserve. Observers are not, in any case, expecting a first rate cut before the end of the second quarter.
Technically, EUR/USD is continuing to drift lower towards 1.1550, then 1.1470 at most. Only a break below that level would validate a long-term trend-reversal pattern. In the meantime, the European currency can be seen as trading within a wide trading range between 1.1470 and 1.1920.
The USD/JPY continued its advance and hit its target at 158.88/159.25. Even though indicators are overbought and rumours of a joint intervention by the US and Japanese central banks to push the yen lower regularly make headlines, it is difficult at this stage to be genuinely negative. First support sits at 158.85, while the next resistance is at 161.95.
On commodity-linked currencies, USD/CAD is consolidating flat below 1.3940, with first support at 1.3850. A break of that level should confirm the end of the rebound under way since late 2025. The Aussie and the kiwi remain well bid above 0.6600 and 0.5730.
