A move below this level could mark the end of the kneejerk Trump rally in the US dollar and send the greenback into the medium-term bearish consolidation zone and let the major peers regain some ground despite dovish expectations there.

In this context, the Reserve Bank of Australia (RBA) cut its interest rates for the first time in more than four years, but the AUDUSD spent yesterday recovering losses. The EURUSD on the other hand remains under pressure – except yesterday’s rebound - as the European Central Bank (ECB) expectations remain soft and sweet despite a higher-than-expected CPI print in France. The ECB is now expected to pull the interest rates below 2% to help the underlying economies deal with the economic weakness and the US threat. The latter divergence between the ECB and the Fed expectations should keep the EURUSD’s upside potential limited above the 1.05 psychological level. Many traders could also chose to turn neutral before Sunday’s German election.

Across the Channel, sterling hawks got a boost from the higher-than-expected CPI report released earlier this week – which showed that headline inflation in Britain returned to 3% in January. Combined with the US dollar’s recent weakness, Cable is drilling above 1.2650, the major 38.2% Fibonacci retracement on September to January selloff. The pair has freshly stepped into the medium-term bullish consolidation zone and could extend gains on the back of more hawkish Bank of England (BoE) outlook and hope that Britain could get less harmed by Trump policies. But UK’s growth outlook is on a slippery ground and Rachel Reeves growth plans are not going... according to the plan. On the contrary, consumer confidence in the UK sank to the lowest levels since Labour came to power. And lower confidence and spending from households means trouble for the UK economy that relies heavily on services. As such, Cable’s rally could bump into solid offers near the 200-DMA – that stands a few pips below the 1.28 mark.

On the trade front

Donald Trump said earlier this week that 25% levies would probably be imposed on cars, chips and pharmaceuticals, but didn’t really provide clarity on whether the cars made under the free trade agreement with Canada and Mexico would be impacted. German DAX index gave back gains this week, along with the rising political tensions into this weekend’s snap election. The EURUS is under pressure this morning.

More details on US tariffs are expected to land around April 2nd... But more specifically on the European front, the US’ pulling back its military support is reviving discussions about how much to spend on defence to get the European armies up to date and how to finance costs. The US safety shocker could wake up the sleeping European Beauty – but it will take time.

On the Chinese front, the news are surprisingly well. Not only that Xi Jinping met with the Chinese Big Tech leaders to show off their now-improved relationship, but Trump also said that there could be a trade agreement with China as he’s got a ‘great’ relationship with Xi. And to top it all, Alibaba announced strong quarterly results – its fastest in a year – and said that AI is their ‘primary objective’. Alibaba shares gained more than 12% in Hong Kong today and they are up by more than 75% since mid-January.

Overall, the Chinese AI story is developing with Alibaba’s AI model on one hand and DeepSeek’s ChatGPT-like AI model on the other hand. Both feed into other companies’ services. Apple for example chose to integrate Alibaba’s AI model in its Chinese phones hoping to boost sales, while BYD and Tencent – the provider of the Chinese WeChat app - are teaming up with DeepSeek to enhance their services. And Chinese companies’ ambition to integrate AI models into existing services in a fast fashion is boosting appetite for investors globally – along with Xi’s most obvious support. As such, the HSI index is testing the highest levels since last October with sizeable upside potential. Chinese technology stocks are trading at significant discounts compared to their US counterparts. The Nasdaq Golden Dragon Index, which tracks major Chinese companies listed in the US, is trading at a forward PE ratio near a record low relative to the Nasdaq 100 Index.