At first glance, at the G-10 level, the Dollar is consolidating at weaker levels to kick off the week, weighed down by renewed optimism in Europe after Germany’s fiscal spending deal cleared a significant hurdle. With a successful Bundestag vote on Tuesday looking like a formality, euro sentiment has improved, helping to keep the euro bid on dips.
While the German fiscal vote should pass smoothly, it’s already primarily priced in—meaning the real drivers of FX market moves will be Trump’s evolving trade policies and the dovish/hawkish signals coming out of central bank meetings, although I’m in complete look through mode in the CB front. In short, expect another choppy week ahead, with traders closely watching flows to determine if the script flips from growth to inflation on the US side of the equation.
My stance on Asia FX remains unwavering and aligns with my broader skepticism that China is not the beacon of stability that markets want it to be. Investors are getting far too comfortable with the region’s downside growth risks, underestimating the headwinds that could weigh on Asian economies in the coming months.
The pattern is all too familiar—China throws a stimulus bone, markets rally, sentiment shifts bullish... and then reality sets in. This time around, I see no reason why the latest spin of the FX roulette wheel will play out any differently.
From a risk-reward perspective, Asian FX weakness still looks like the path of least resistance. The U.S. exceptionalism narrative may be facing its own challenges, but global risk sentiment remains too fragile to justify sustained strength in Asian currencies. Until we see more convincing signs of structural recovery—rather than just policy band-aids—I’ll keep leaning toward FX downside across the region.
A sense of anxious anticipation is likely to dominate central bank meetings this week as policymakers take their first collective pulse check on the fallout from Trump’s trade policies. The macro landscape remains a minefield, and central bankers now find themselves walking a tightrope between the twin risks of inflation staying stubbornly high and growth losing steam.
For those hoping for a clear monetary policy pass-through into FX markets—think again. The Fed, Bank of Japan, and Bank of England are all expected to stand pat, opting for a wait-and-see approach rather than making any aggressive moves in either direction.
The latest recession fears that rocked Wall Street haven’t moved the Fed needle—at least, not yet. Powell has made it clear: the central bank isn’t rushing to cut rates and remains laser-focused on inflation trends, not short-term market turbulence. Meanwhile, policymakers in Japan and the UK are equally hesitant, trying to assess the longer-term consequences of trade disruptions, fiscal uncertainty and sticky price pressures.
For now, monetary paralysis remains the default setting as central banks hold their fire and wait for clearer economic signals. The question isn’t just when they’ll act—but whether they’ll be forced to pivot sooner than expected.
The view
Unlike 90 % of my FX colleagues, I find it hard to find a bullish path amid this era of European political and economic uncertainty, translating into a 1.1500 + bullish case for EUR/USD, yet the pair remain bid. The real question is: for how long? With Trump’s tariff war heating up and April 2’s reciprocal tariff D-Day approaching, EU exporters are staring down the barrel of significant trade disruptions. The market has yet to digest the economic fallout fully, but it’s a stretch to call this anything other than a ticking time bomb for the euro.
Adding to the uncertainty, Europe’s fiscal and defence spending initiatives have injected some short-term optimism, but history tells us that political cohesion in the EU is shaky at best. If disagreements re-emerge—especially over Germany’s spending commitments—the euro could lose its footing fast. Meanwhile, the US rate path remains dollar-positive on the other side of the Atlantic. Even after softer CPI and PPI prints, core PCE (the Fed’s preferred inflation gauge) is still running hot and expected to get hotter.. Powell has made it abundantly clear that the Fed isn’t in a hurry to ease, keeping 10-year US yields above 4.25 % and reinforcing the structural case of no immediate dollar collapse.
So why is EUR/USD still holding up? The answer lies in positioning and sentiment-driven flows. The euro has been riding a short squeeze as hedge funds trim dollar longs and asset managers rotate into European equities. But let’s not confuse a positioning cleanup with a genuine bull trend—this is just a market unwinding stretched bets.
At these levels, the euro looks expensive relative to US and EU macro risks, and with tariff escalation around the corner, downside risks are building. Unless something fundamentally shifts, EUR/USD breaking above 1.10-1.12 seems like a tall order. We likely grind back toward the lower end of the 1.05-1.10 range as macro realities take hold. The market might be slow to wake up, but when it does, the euro’s recent resilience could unwind in a hurry
At the end of the day, the bigger trade is still short USD, but timing is everything. I want to be selling dollars ahead of the Fed’s eventual pivot, but not at these stretched levels. EUR/USD needs to drop at least 1.5% before I even think about stepping in on the long side. Until then, I’ll let the market come to me. When the opportunity presents itself, I’ll likely default to short USD/JPY instead—cleaner price action, better risk-reward, and a trade that aligns with Japan’s shifting monetary stance. The dollar’s resilience is tied to Powell’s high bar for easing, but once that starts to crack, the unwinding could be swift. Patience is key here—this isn’t about catching the bottom, it’s about positioning for the inevitable.
If you read between the guardrails, I'm still sitting tight on my EUR/JPY shorts—not because the trade has been a home run yet, but because the structural setup still favours the downside.
With Japan shifting toward a more hawkish footing and the BOJ slowly but surely laying the groundwork for a policy shift, the yen has room to appreciate. Meanwhile, the euro is hanging in there, but for how long? The fiscal bazooka in Europe is spent, trade risks are brewing, and political fractures will eventually come back into focus.
For now, I’m letting the trade breathe—the real move will come when sentiment shifts and the market stops giving the euro a free pass. Stops are tight, patience is high, and conviction is intact.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
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