The dollar gave back yesterday's gains on Wednesday, slipping to 97.70 after Trump's record-length State of the Union delivered exactly what markets expected — defiance on tariffs, no new policy surprises. He called the SCOTUS ruling "unfortunate" and "disappointing" but claimed he would continue tariffs under "fully approved and tested alternative legal statutes," explicitly saying Congressional action was unnecessary. The FX market's read: the Section 122 replacement is weaker than the IEEPA regime the Court struck down, and the bluster changes nothing structurally. EUR/USD pushed through 1.1800 to close at 1.1809 as the dollar faded. USD/JPY pushed higher to 156.41 despite earlier softness, with the pair touching 156.82 intraday. Reports that Treasury Secretary Bessent had proactively conducted rate checks last month to support the yen were initially yen-positive, but the move faded as US yields firmed into the close. Gold touched 5,218 intraday but surrendered most gains to close at 5,170 — still up 0.42% on the day and above yesterday's 5,148 low. JP Morgan raised its long-term gold forecast to $4,500/oz and sees prices reaching $6,300 by year-end on continued central bank and investor demand.
Meanwhile, FedEx filed the first major corporate lawsuit seeking a full refund of IEEPA tariff payments — more suits will follow, with $175 billion in total IEEPA revenue now legally exposed. CFTC positioning remains near 5-year bearish extremes on USD at −$20.5 billion (Feb 17 report; the next COT release Friday will capture post-SCOTUS repositioning). The squeeze thesis is mechanically live but needs a genuine catalyst to fire — and tonight's SOTU wasn't it.
The Q2 thesis — structurally bearish USD, long gold, long EUR on dips — continues to strengthen. The SOTU confirmed what the market already priced: Trump will pursue tariffs through alternative authorities, but these are legally weaker (Section 122 is time-limited to 150 days and requires Congressional approval to extend) and economically smaller. Gold's structural bid is reaffirming above 5,000 with Wall Street raising targets. The dollar's correction from 96.5 to 97.9 was an orderly repositioning, and today's fade suggests the corrective bounce may be exhausting. Attention now shifts to Thursday's US-Iran talks in Geneva — Iran's foreign minister says a deal is "within reach" — and Friday's January PPI.