Goldman Sachs flags shrinking supply shock in USD outlook, sees delayed dollar weakness

Goldman Sachs says Middle East disruptions are creating a weaker-than-feared supply shock, but the bank still sees upside risks to commodity prices and delayed broad dollar depreciation. The U.S. growth outlook is holding up better than other regions, especially Asia-Pacific ex-China, which continues to support the dollar in the near term. European currencies may still be underpricing tighter energy supply risk as shipping constraints and energy-related current account pressure persist.

Analysis

The market is implicitly pricing a world where supply chains absorb energy shocks faster than macro models expect, which is bullish for risk assets but dangerous for anyone short volatility in FX and commodities. The first-order read is that the dollar can stay firmer for longer, but the second-order effect is that EUR and AUD may be the cleanest expressions of a delayed global slowdown because they are being held up by lingering optimism on activity data and inventories. If those buffers are real, the eventual adjustment is less about outright recession and more about a sharper repricing of external balances and earnings translation over the next 1-2 quarters.

The biggest opportunity is in relative value rather than directionally shorting the dollar outright. Europe looks most exposed to an energy-cost impulse that can hit current accounts and industrial margins before it shows up in headline growth, while Japan is comparatively insulated on the trade side but remains vulnerable if higher oil keeps inflation sticky and policy normalization gets pulled forward. Commodity-linked FX may still be too complacent, but the timing matters: this is a spread trade on who has to absorb input-cost inflation versus who can pass it through, not a blanket USD bull case.

The contrarian angle is that the market may be overestimating how fast a geopolitical shock converts into a macro shock. If shipping reroutes, inventories were front-loaded, and energy demand destruction is modest, the dollar’s upside becomes more tactical than structural and cyclicals outperform once the fear premium fades. That argues for fading the most crowded protection trades only on confirmation of stabilizing freight and oil prices, because the real tail risk is a second wave where energy costs stay elevated long enough to hit European margins, household sentiment, and CAPEX decisions in sequence.

Key Decisions for Investors

• Long USD vs EUR via EUR/USD put spreads for 1-3 months: asymmetric payoff if Europe’s energy sensitivity finally translates into weaker external balances; take profit into a 2-3% move lower in EUR/USD, stop if oil and freight rates roll over decisively.
• Pair trade: short EWG / long SPY over the next 4-8 weeks: Germany’s industrial base is more exposed to persistent input-cost pressure, while the U.S. is relatively insulated; target modest alpha from earnings revisions rather than a macro crash.
• Buy AUD/USD downside via 3-month puts or downside call spreads: AUD remains the cleanest cyclical FX expression if global growth data softens after inventory buffers run down; good risk/reward if Chinese demand remains stable but ex-China Asia weakens.
• Long Brent upside skew or call spreads for 2-6 weeks, funded by selling near-dated downside only if shipping disruptions remain contained: the market is underpricing a second-order inflation impulse that can hit terms of trade and FX faster than GDP.
• If you need a contrarian fade, reduce outright USD longs and rotate into high-quality cyclicals only after energy and freight indicators stop worsening: the consensus is still too comfortable with a 'soft landing + temporary shock' narrative, which is vulnerable if the shock persists another quarter.