Friday forex follies: Euro stretches its legs – The Dollar trips

Stephen Innes SPI Asset Management

The dollar and Treasuries are trading like wayward boats — one minute tossed around by equity volatility, the next pulled under by basis swap chaos. There’s no anchor right now, and both remain vulnerable to further selloffs.

Even if the dollar manages a bounce on some fleeting trade optimism, I’m not convinced it sticks. This kind of damage isn’t patched with headlines — it’ll take a Fed backstop in the bond market. A move to 1.15 in EUR/USD is no longer a tail — it’s my base case.

Case in point: the London open was nuts. U.S. 10s slipped below what I call the Bessent line in the sand, yet the dollar inexplicably rallied. Since I wasn’t planning to add to shorts today, I let the tape come to me — and bang, we got given ( I was bid for small) at 1.1265, now we’re 100 pips higher. What I was saying earlier about “ traders have no idea which way to turn right now” I would call that move; proof is in the pudding.

Wild week, but the FX tape doesn’t lie. The dollar's getting torched, and even CNH rallied into a full-blown trade storm. If anyone’s still wondering whether we’re entering “Sell America Inc.” territory, the USD and Treasuries are answering loud and clear.

That the dollar is falling while volatility rips is all you need to know. Global investors are stepping back from U.S. assets. When Treasuries start trading like risk, fund managers need a new playbook — and FX is already front-running that flow. Right now, ( outside of the safe havens JPY and CHF) the euro’s wearing the crown, even as a safe place to simply park in the bank.

The USD’s breakdown is becoming the best barometer for “Sell America.” The rotation into CHF, JPY, and EUR makes sense given the loss of safe-haven appeal. But the move against CNH tells me the market’s building for a broad, structural dollar unwind.

At this point, picking a dollar bottom is as risky as guessing what side of the bed Trump will wake up on, hence the next tariff tweet. The dollar — just like Treasuries — is behaving like a pure risk proxy now. That means it might bounce on good news, but only reflexive bond market behavior can restore real faith.

Analysts talking about a full tariff walk-back are missing the point — it’s not just the tariffs, it’s the plumbing. Until Treasuries start acting like Treasuries again, the euro’s bid has legs. With Bunds stepping up as a credible crisis hedge and EUR as a liquid reserve alt, this rally’s far from done.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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