Is The US Dollar Index Fooling Everyone... Again?

1) USD – What would actually make the U.S. Dollar go up?  If money starts coming out of stocks and other risk assets, where does it go?  Historically, it goes into the dollar.  The dollar hasn't been weak because of some grand conspiracy or policy mistake. It's been weak because it hasn't been needed.  I know some of you laugh when you hear the words "safety" and "U.S. dollar" in the same sentence.  I get it.  But go back to the 2021 to 2022 bear market, the COVID-19 crash, or the Great Financial Crisis.  When investors rushed to reduce risk, the dollar was one of the first places they ran.  So if you're looking for a scenario where the dollar rallies meaningfully, it probably doesn't start with politics.  It starts with risk coming off the table.  How about sentiment?  You know how I love a contrarian view from major magazine articles.  How about this one that just ran?  And just two weeks ago The Economist ran a cover called “The Dangerous Dollar”.  Two major publications. Same asset. Same conclusion.  When I see that kind of alignment, I'm not thinking about policy. I'm thinking about sentiment.  Magazine covers are not leading indicators. They are reflections of what investors are already feeling.  By the time the story is obvious enough to make the cover, the move has usually been in place for a while.  Back in 2022 it was the opposite…the magazines were bullish on the dollar…right before it rolled over.  The big level the US Dollar needs to push through to change its downward trend is $100.  As long as the Dollar Index stays below the 2023, 2024 breakout highs…it’s in a downtrend and likely supportive of stocks.  But if it meaningfully breaks above that $100 level, we’d need to think about risk differently because the dollar could be signaling a shift.  Right now, that is not the case, but we’re watching.

2) OIL – The entire decline from the recent highs stopped almost precisely at the 61.8% retracement of the rally from the COVID-19 lows. Now look at momentum. The weekly RSI never reached oversold conditions during the decline. That's classic bullish behavior.

3) VIX – From Iran war rattling to Mexican cartel carnage, if a “crisis” were at hand, we’d see VIX really spiking.  So far, that is not the case.  The top of TREND is at 22.12, and it is currently trading at 20.27.  That puts it in a neutral position as traders are trying to price risks.  Effectively, that just creates a choppy market.  Internal indicators suggest we should see VIX drop.  Clearly, the market is already aware of Iran, Mexico, etc.  And if VIX isn’t spiking on that, it’s going to need something else that markets haven’t yet thought of.  Those are the ones that create risk…the unknown unknowns.  A break in VIX below 19.10…and a hold…would likely start to push the market higher.  We’ll see.