The US dollar has been under increasing selling pressure all year, and just collapsed to its lowest level since April 2022.
When we look beneath the surface, the largest weightings in the DXY—namely the Euro, Yen, and Pound represent almost 83% of the index—and all three are threatening to break out of multi-year bases.
Analyzing the DXY in isolation is akin to evaluating the S&P 500 without considering market internals.
Due to the concentrated weightings in the index, DXY is always going to move in the opposite direction of these heavyweight currencies.
And right now, they are sending a very clear message about the dollar as they close in on textbook trend reversals.
The strength from these major currencies reinforces our thesis that we're stepping into a “Weak Dollar Cycle”.
The synchronized shift among major currencies signifies a significant regime change.
We’re in the early innings of a pivotal global rotation.
As the Dollar weakens, international equities become more and more appealing. This is especially true for emerging markets.
In essence, what began as a “Dollar Story” has evolved into a compelling global narrative.
If these end up being valid reversal patterns in the major currencies, expect lower dollars for longer. Expect more and more global currencies to participate. And expect ex-US equities and emerging markets to offer increasingly compelling long opportunities.
We plan to write a lot more about this theme in the future.
