Unsurprisingly, the primary focus remains Iran. Negotiations appear to be moving towards an interim agreement that would allow for the reopening of the Strait of Hormuz. Several American, Pakistani and Iranian officials have alluded to a text that is nearly finalized. This prospect triggered a spectacular easing in oil prices at the end of the week, leading to a subsequent rebound in bonds, gold and global equities.

This relief is significant because US inflation continues to worsen. The CPI has now reached 4.2% year-on-year, its highest level in over three years. Energy alone accounts for nearly 60% of this monthly price increase, with energy components jumping 23.5% over the year. The PPI is following the same trajectory, rising to 6.5% year-on-year. In other words, the oil shock has now fully filtered through to official statistics.

In any other context, these figures would probably have triggered a greater market correction. However, the American economy continues to display a  remarkable resilience. Redbook sales are still up 9.1% year-on-year, the Atlanta Fed's GDPNow has climbed back toward 3.3%, bank lending is accelerating at 7.7% year-on-year, and jobless claims remain historically low. The argument for a sharp slowdown in the labor market is becoming increasingly difficult to defend.

This is precisely what places the Fed in a delicate position. The market anticipates that the June meeting will be the first real test for Kevin Warsh at the Fed's helm. No rate hike is expected, although it is highly likely that the easing trend will be abandoned. Following the ECB's rate hike and the prospect of a further increase from the Bank of Japan, investors expect a Fed that is much more vigilant regarding inflationary risks.

That said, the market is not behaving as if it anticipates an imminent recession. Small and mid-cap stocks have just hit new highs, as has the equal-weighted S&P, bolstered by corporate earnings that continue to grow at a rate exceeding 20%.

The dominant narrative, therefore, remains one of receding geopolitical risk rather than an economic slowdown. If a deal on Hormuz is actually signed, the retreat in oil prices could quickly alleviate inflationary pressures and enable markets to refocus on earnings and growth. Otherwise, inflation would remain the primary risk for the second half of the year.

Technically, the dollar index remains anchored near a significant resistance at around 100.64/101.15, which now seems difficult to break given recent geopolitical developments. We will watch for initial short-term support at 99.30, before 98.95. Alongside this, we are monitoring 1.1640 for the EUR/USD: a break above this level should mark the end of the corrective move in place since April. Elsewhere, USD/JPY is flirting with 160.70, the late April peak, while USD/CHF remains below 0.8040, ideally positioned for a resumption of the dollar's decline. Regarding commodity currencies, the Aussie has rallied to its first target at 0.7020 and remains under pressure as long as 0.7100 acts as a ceiling.