The surge in crude oil to above $100 a barrel acts as a genuine headwind. It fuels inflation expectations, delays rate cuts, and weighs on consumer confidence. The Fed implicitly acknowledged this last week: despite a gradually deteriorating labor market, its hands remain tied. The monetary easing scenario has been pushed back, with only one potential cut on the cards for 2026.
The message from the rates market is consistent: long-term yields are failing to play their safe-haven role, penalized by rising inflationary expectations. At the same time, the dollar is hesitant to assert itself as a refuge, a sign that the market perceives the oil shock as inflationary rather than recessionary at this stage. Inflation spreads remain contained, reflecting a prevailing conviction: the shock could be temporary.
Nevertheless, the equity market is not giving way. Despite a correction of nearly 10% in the United States, indices are resisting. Fundamentals remain solid: global growth is still expanding, earnings are rising, and economies are structurally less energy-dependent than in the past. The United States, now a net exporter, is partially cushioning the shock, while Europe is feeling the impact more acutely.
The key, therefore, remains oil. A sustained period of over $100 would eventually weigh on growth and could trigger a genuine bear market. Conversely, any signal of de-escalation or the reopening of the Strait of Hormuz would probably trigger a rapid retreat in energy prices and a rebound in risk assets.
In the near term, markets seem to have reached a phase of technical capitulation without yet triggering a clear recovery. Pessimism is extreme, but demand remains insufficient to confirm a bottom. As is often the case, it is neither rhetoric nor scenarios that will make the difference, but price action.
Technically, EUR/USD rallied and stalled at its recovery target of 1.16/1.1665 and appears poised to initiate, ideally, one final bearish leg towards 1.1315/1.1290. Regarding commodity currencies, USD/CAD is near a turning point at 1.3770, while the Aussie has just broken support at 0.6965, and the Kiwi has hit a ceiling at 0.5885, suggesting further downside.
