Optimism returned ahead of the U.S. consumer price index data, which will likely show that inflation in the U.S. continues to cool rapidly, bolstering the case for less aggressive rate hikes by the Fed. 

Easing inflation fears are also very present in Europe and especially in the Eurozone. We see a positive real estate sector, showing investors' mid-term optimism, especially in light of China's reopening measures and sharply lower energy prices - which are back to pre-war levels.

The hawkish Fed caused unprecedented USD strength in 2022, but the monetary cycle now favors the EUR. Higher inflation in the Eurozone means the ECB has more work to do. A Fed pivot is expected sooner than an ECB pivot, as the Fed is already nearing the end of its monetary tightening campaign (about 50-75 bps of rate hikes left) 

While investment banks and analysts again pointed to Fed Chairman Jerome Powell's determination to keep financial conditions tight, I see the lack of clear guidance and more general statements such as "restoring price stability when inflation is high can require measures that are not popular in the short term as we raise rates to slow the economy," as a sign that the Fed wants to keep all options on the table while trying to sound as restrictive as possible. 

Tomorrow's Consumer Price Index data in the U.S. will play a very important role, and a sharp drop in inflation may even be the start of a bear market turnaround - sooner than I would have expected, but China's very quick steps toward normalization (despite very high infection numbers) and the very sharp drop in energy prices may help keep consumer spending solid - especially with a strong labor market in both Europe (not so much in the UK) and the U.S. The weather miracle with a record warm winter also helped Europe in particular avoid an even worse energy crisis.

With gas and other energy prices falling and expectations for a sharp slowdown in economic activity diminishing, there is hope that the worst of the economic damage is over. European assets seem cheap, the EUR undervalued. European equities and the EUR, in particular, could remain on the upswing for longer. The euro is a procyclical currency and signs of an improving economy have always helped the EUR

However, the current positive sentiment could come to a quick end when tomorrow's inflation data arrives - but I see little reason for that, as lower oil, fuel and gas prices have fallen and improved supply chains have also weighed on car prices (and thus used car prices).

Commodities remain on the upswing. Oil prices have declined somewhat following an unexpectedly large increase in U.S. inventories, but overall the outlook for commodities and risk markets remains positive. Copper, which is highly cyclical, rose above $9,000 per ton for the first time since June - a strong sign of rising expectations that the slowdown in economic activity will be less severe than expected - thanks in particular to China.

USD strength appears to be over, as investors are pulling their money out of the USD and putting it into risk markets or even precious metals(especially Gold) and the euro. Safe-haven currencies CHF and JPY are also in low demand.

A rising spread in interest rates (between the ECB and BOJ) will continue to support the EUR. The JPY is losing some of its recent gains as the Bank of Japan seems to be determined to defend the current Treasury yields (by buying unlimited bonds). The GBP remains weak. I see further downside potential against the AUD, with the GBP/AUD likely moving towards a 2-month low near 1.17500