Markets embrace risk as Dollar extends decline

The Dollar has seen a very strong and extended decline, exactly as we discussed and expected in our previous updates. Dollar weakness has now pushed to new lows, breaking below the 2025 levels, which suggests we may soon be heading into more overextended conditions. This means that at some point we may see some meaningful pullbacks. At the same time, there is still a lot going on in the background, including uncertainty and potential escalation between the US and Iran, the risk of a partial US government shutdown, and most recent event was the Fed decision yesterday. The Fed decided to hold rates steady at the first meeting of 2026 as the economy is doing quite well, but there is also strong pressure coming from President Trump toward Powell, which could help stabilize the dollar in the near term.

On the other hand, stocks remain firmly in risk on mode. META, Tesla, and Microsoft reported strong results above expectations, and there are also new reports about further investments into OpenAI. So we are still in a phase of strong risk on flows and tech boom. But as said, given how extended the recent legs lower on the dollar have been this week, some pullbacks are likely to show up. But looking at intraday chart , the price action shows a fourth wave rally, which already tested the 96.80 resistance quite nicely over the last few sessions; area from where we are looking for another sell off. Even if we see a retest of that zone once again, that would still be acceptable, as the broader bearish trend remains clearly in play as long as the market is trading below 97.70.