Euro ignores the cut, Dollar ignores Powell — Welcome to the macro rotation trade

Market wrap

Asian markets traded on a firmer note, with Japanese equities inching higher and the yen on the back foot after the first round of U.S.-Japan trade talks delivered what President Trump called “big progress.” The key market read? Japan may avoid steeper tariffs — and just as importantly, currency wasn’t on the table. That gave the yen a reason to ease and let risk sentiment breathe a little on the export-heavy Tokyo exchange.

Gold, meanwhile, ripped to fresh record highs — still the go-to shelter in this storm of shifting alliances and tariff drama. Treasuries saw mild buying and the dollar gauge ticked higher, suggesting a cautious tilt, not a full-on flight to safety. U.S. futures were in the green, but European futures sagged a bit — perhaps some pre-ECB event risk hedging, or just a case of sitting this one out until the next shoe drops.

One story that continues to fly under the radar but deserves more trader attention: Japan’s GPIF quietly shifted its foreign equity benchmark to exclude onshore China A-shares. No official rationale was given, but it doesn’t take a genius to connect the dots — rising geopolitical heat and China’s domestic economic fragilities are spooking big allocators. It’s not just a rebalance — it’s a smoke signal. If Tokyo was the test balloon, it’s clearly floating. But China risk? That’s being slowly priced out, at least in Japanese terms.

Forex markets

A hawkish Powell and hotter-than-expected US retail sales? In another cycle, that combo would’ve lit a fire under the dollar. Not this time. FX traders are laser-focused on the underperformance of US risk assets and the relative macro rotation game — and right now, that’s keeping the greenback on the back foot. The euro, despite staring down a well-telegraphed 25bp ECB cut today, is still primed for another leg higher. Why? Because when was the last time you saw EURUSD bid this hard into a rate cut? Exactly.

I’ve trimmed my long EURUSD position from extremes to something more average-sized — not because I’ve lost conviction, but because the positioning is stretched. Still, this remains one of my favorite setups. Once the ECB event risk is cleared and the gap risk evaporates, speculators will pile into the trade they wanted to have on before the meeting. That’s classic post-event positioning flow. If we get a clean break above 1.1425-35 and make a direct run for 1.1500, we’ll complete the virtuous loop. If not? Well, disappointment could creep into the tape, but the structural dollar bear case remains.

Let’s be honest — Powell’s hawkish tone isn’t pushing front-end rates higher. The OIS curve still has over 60% odds priced for a June cut. That’s telling you all you need to know: markets aren’t buying the higher-for-longer story because US growth expectations are getting worse, not better. And that’s why short-term rate differentials have gone mute in FX pricing. If they were in play, I’d be short a gajillion EURUSD up here. But they’re not — not yet.

The dollar’s current weakness is idiosyncratic, driven less by Fed speak and more by broader concerns about the fragility of US outperformance. The euro, highly liquid and institutionally clean, is reaping the benefit of that rotation. Even if some profit-taking kicks in post-ECB, it’s hard to argue against the idea that the euro is the cleanest dirty shirt in FX right now.

Meanwhile, the yen’s still stuck in RORO mode — risk-on, risk-off — chasing equity flows like a shadow. So is the dollar, to an extent, which gives that pair a strange kind of synergy. I think the US-Japan trade negotiations are a great story, and we will see a handshake soon. And how that fits into the FX equation is a probability matrix waiting in the wings.

But with bond market reflexivity kicking back in, I’m keeping an open mind. If we don’t get a clean breakout this week, I’m eyeing the EUR/USD 1.12–1.15 range until US data decisively breaks one way or the other and forces the market to reprice the Fed curve more aggressively dovish.

Big picture? The dollar pancake moment is still out there, but it might not be spectacular — especially if both the US and China start tipping into recession territory. In that scenario, there’s no clear winner — just a scramble to avoid being the last one holding the bag.

The view

When I keep thinking it’s Friday — and it’s only Thursday — that says it all. It’s not just the grind; it’s the whiplash. Between tariff curveballs, bond market spasms, and central banks walking tightropes, every trading day feels like a full week. If you’re reaching for the weekend by Thursday, you’re not alone — this market isn’t just volatile, it’s exhausting.

And to compound matters, I don’t just trade these markets — I write about them too. Not for glory, just to piece together the chaos and pin down where I think I’m heading. But let’s be honest — these days, even connecting the dots from one time zone to the next feels like a stretch. It’s like chasing moving targets in a hall of mirrors. The map keeps redrawing itself while you’re mid-trade.

Finally, one of the great misreads — and the key trader edge most rookies miss, but must learn to adapt — is that profitable traders don’t just slap odds on an outcome and walk away..Traders live inside the update loop. Real pros recalibrate with every tick, every headline, every macro squiggle. That’s Bayesian reasoning in motion: dynamic, adaptive, ruthless. Static forecasts? That’s analyst territory, although arguably the good ones don’t. The game is about refining your probabilities as new info hits the tape — not locking in views, but reshaping them. These past two weeks have been pure chaos, but the direction was clear for those running live models in their head, not narratives. That’s the edge: not being right once, but evolving fast enough to stay right as the world pivots underneath.