Week Ahead: AI Capex Shapes Risk Sentiment

The AI theme continues to dominate equity positioning, but the tone has changed. Markets have moved away from optimism around intelligence gains and toward a harder focus on economics.

The current phase of the AI cycle centres on infrastructure, power consumption and chip ownership rather than software headlines, with major US technology firms collectively spending more than $400 billion this year on AI-related chips, data centres, and energy capacity, despite AI-driven profits remaining far lower.

Such an imbalance keeps valuations sensitive to earnings guidance and capex discipline. Market participants are increasingly alert to the risk that AI adoption may prove slower or less profitable than equity prices imply.

This tension helps explain why US indices have struggled to sustain breakouts.

The SP500 recently printed a new all-time high before reversing lower, reflecting growing hesitation rather than outright risk aversion. Momentum remains constructive, but the margin for disappointment has narrowed.

For traders, AI continues to support the broader equity trend, while also acting as a volatility trigger when expectations slip.

Dollar Pressure Builds Ahead of Key US Data

The US dollar enters the week on the defensive, with the USD Index finding support near 97.90. The price action last week reflected growing conviction that the Fed may need to ease further as labour conditions soften.

As such, the Non-Farm Employment Change this week is forecasted at 50K, down from 119K previously, while the unemployment rate is expected to rise to 4.5% from 4.4%. A print close to forecasts would reinforce expectations of a slower US economy and could extend downside pressure on the dollar.

Dollar weakness continues to underpin select risk assets, though traders remain reluctant to chase moves ahead of data confirmation.

Central Banks Add Cross-Currents to FX Markets

Central bank decisions add another layer of complexity.

The Bank of England (BoE) is expected to cut its Official Bank Rate to 3.75% from 4.00%, placing focus on forward guidance rather than the cut itself. Sterling reactions are likely to depend on whether policymakers signal further easing in early 2026.

In Japan, the Bank of Japan (BoJ) is forecasted to raise its policy rate to 0.75% from 0.50%. Any indication that policy normalisation will continue could lend support to the yen and cap USDJPY rallies, particularly if US data disappoints.

Upcoming Economic Events

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Key Symbols to Watch

SP500

• The index made a fresh all-time high before pulling back sharply.
• AI-heavy stocks continue to drive direction, but valuations face tighter scrutiny.
• A sustained hold above 6,790 keeps upside open; failure may accelerate profit-taking.

Gold (XAUUSD)

• Gold retreated from 4,360 and now consolidates near 4,220.
• Holding above this zone may open a move back toward 4,300.
• US data remains the primary short-term catalyst.

US Dollar Index (USDX)

• USDX found support near 97.90 after last week’s decline.
• Resistance sits near 98.30 and 98.55.
• Weak labour data could expose the 97.40 area.

Bitcoin (BTCUSD)

• Bitcoin continues to consolidate within a descending channel.
• A close below 87,712 could expose lower levels near the 70K handle.
• Recovery attempts depend on stabilising risk sentiment.

Bottom Line

The AI theme continues to support US equities, but traders are becoming more selective as infrastructure costs rise and earnings expectations face closer scrutiny.

US labour data, inflation readings, and key central bank decisions will help determine whether easing expectations remain justified.

A softer data run could keep pressure on the dollar and support gold and risk assets, while any upside surprise may prompt sharper pullbacks as positioning adjusts.

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