It has been a lacklustre week across risk assets, with macro uncertainty keeping both traditional and crypto markets in a holding pattern. Inflation surprises, geopolitical posturing, and looming trade wars have all contributed to a risk-off sentiment, yet price action remains stubbornly indecisive.
Macro: The Dollar’s Final Stand?
Markets have had plenty of time to digest the latest inflation prints, but the real story has been unfolding in the FX space. Despite hotter than expected US CPI (+0.5% MoM and + 3% YoY) and PPI (+0.4% MoM and +3.5% YoY) data, the USD has struggled to rally (-0.8% on the week), which is a sign that positioning may have become too one-sided.
The Fed’s reluctance to commit to cuts, reinforced by Powell’s latest Senate testimony, has indeed kept the USD well supported at the start of the week, but USD is increasingly showing signs of topping out. Adding to this narrative, a potential ceasefire in the Russia-Ukraine war is now in play after a fruitful conversation between Trump and Putin, with negotiations set to begin. Since then, oil and USD have retraced lower, while EUR has made a decent bounce with spot closing in on 1.0500 (+1% on the week). If a ceasefire does materialise, we would expect further downside for USD and yields, setting up a strong risk-on environment.
Crypto: Waiting for a Breakout
Crypto continues to struggle for direction amid a lack of sector-specific catalysts, with positioning remaining cautious and perp funding rates constrained in light of the liquidation bloodbath observed last week. BTC remains the only real game in town but has been stuck in a choppy range between USD 94,000-USD 98,000 this week. ETF flows paint a cautious picture, while alts continue to struggle to hold onto gains.
However, a potential shift in regulatory sentiment could change the tide. The SEC has acknowledged filings for both an XRP ETF and a DOGE ETF, signalling a possible softening of its stance on digital assets. Meanwhile, ETH briefly outperformed earlier in the week after CBOE submitted a request to the SEC for approval of staking in the 21Shares ETH ETF. Despite the excitement, ETH has failed to break much beyond USD 2,700 and is waiting for the next catalyst.
Markets remain fixated on Trump’s next moves. Will he escalate tariffs and inflation rhetoric, forcing the Fed’s hand? Or will he shift towards geopolitical diplomacy? For now, the market remains hesitant to fully buy into the Trump playbook, preferring to wait on the sidelines. But conditions continue to look primed for another leg higher in risk assets—it is not a question of if, but when.
On this Valentine’s Day… no love for risk assets just yet. But maybe the market is just playing hard to get.
