In a meeting last week, I got a question I don’t hear often.
“What would actually make the U.S. Dollar go up?”
It’s a good question. Most people spend their time explaining why the dollar is weak. Few stop to think about what would change that.
Jason Perz, our head of futures and forex, said the most obvious catalyst would be the Fed hiking rates again.
Higher rates can attract capital and support a currency. The problem is he does not see that happening anytime soon.
My mind went somewhere else entirely. For me, it comes down to risk.
If money starts coming out of stocks and other risk assets, where does it go? Historically, it goes into the dollar.
That’s been the missing piece over the past few years.
The dollar hasn’t been weak because of some grand conspiracy or policy mistake. It’s been weak because it hasn’t been needed.
When stocks are in a raging bull market and investors are making money, there’s little demand for safety.
And yes, I know some of you laugh when you hear the words “safety” and “U.S. dollar” in the same sentence.
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.
Which brings us to sentiment, supply and demand, and why some recent magazine covers might matter more than people think.
Checking in on Sentiment
The default explanation for a weak dollar is always political.
It must be the president.
It must be the Fed.
It must be some policy mistake.
As if a weaker dollar is automatically a “problem” that needs to be solved.
Over the weekend, Barron’s ran a cover story about the dollar, titled “Dollar in Decline. The U.S. Currency Has Lost Dominance. What Investors Should Do Now”:
Two weeks ago, The Economist published its own version of the same message, “The Age of a Treacherous Falling Dollar. Those Holding American Assets Will Have to Get Used to It”:
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.
We saw this movie in October 2022:
Back then, both Bloomberg Businessweek and Barron’s were running “bullish dollar” covers.
The narrative was clear: The dollar was unstoppable.
Except it wasn’t.
The dollar had already peaked late that September. Those covers marked the final stages of extreme optimism.
Shortly after, the dollar rolled over and stocks began a powerful advance:
That’s how this tends to work. By the time the journalists crystallize the story, the trade is often crowded.
Today the tone has flipped completely. Now the consensus is that the dollar is in structural decline.
So the real question becomes this:
If everyone agrees the dollar is weak and getting weaker, is that when it’s most vulnerable to doing the opposite?
To answer that, we have to move beyond headlines and get back to what actually matters.
Supply and demand.
Supply and Demand for Dollars
Sentiment matters. It moves markets.
But price is what pays.
If the dollar is going to rally in any meaningful way, the first step is simple. The downtrend has to end.
Since last summer, the U.S. Dollar Index (DXY) has stopped falling and started moving sideways:
That might not sound exciting, but transitions begin that way. Before prices can go up, they have to stop going down.
The question is whether that process is already underway.
When we look under the hood, momentum adds an interesting layer.
On the most recent lows, momentum failed to confirm the price weakness. Instead, it put in a bullish divergence.
That’s the kind of behavior we often see around important turning points.
Sellers push price to marginal new lows, but the underlying momentum is no longer deteriorating.
That doesn’t mean the dollar is in a new uptrend. Not yet.
The big level is still 100 on the DXY. Perz, our currency master, thinks the real trigger is closer to 101. Either way, we agree on the bigger point.
As long as the dollar remains below those former breakdown levels from 2023 and 2024, it’s still in a downtrend.
And a downtrending dollar has been bullish for stocks and other risk assets.
Not because of some accounting illusion or currency trick.
Simply because when investors are making money in equities and other risk-on assets, there’s no urgency to hide in cash. The demand for safety dries up.
But flip that script.
If the dollar starts reclaiming those former lows and pushes back above 100 to 101, that’s not just a currency story.
That’s a risk story. That’s money rotating out of aggressive assets and back into safety.
You want to know what could cause real havoc in equities?
Watch the dollar.
And now that the magazine covers are screaming about its demise, history suggests the bigger risk might be in the other direction.
Everybody thinks the dollar is dead.
That’s usually when it wakes up.
This Week in Everybody’s Wrong
On Monday, we described how Chicago is breaking out while New York is breaking down.
Bull markets mean capital rotates, money flows, and leadership changes.
If you’re not being selective, you’re volunteering to own the wrong things.
On Tuesday, we named the “Word of the Year.”
When leadership changes, the gap between winners and losers widens.
Six weeks into 2026, what we’re seeing is “Dispersion.”
On Wednesday, we wondered whether what we’re seeing is rotation or the last hurrah.
Well, the Dow Jones Industrial Average and the Dow Jones Transportation Average are confirming that business is expanding.
And here’s the line in the sand.
On Thursday, we zoomed out for a look at the landscape for one of the most important sectors in the stock market.
The S&P 500 Large-Cap Technology Index is down about 7% since late October.
But there’s a difference between tech stocks collapsing and tech stocks consolidating.
On Friday, we weighed more evidence and connected some dots.
Energy stocks are off to a monster start in 2026, and that raises a big question.
Are we witnessing the early stages of a sustained leadership cycle?
On Saturday, Grant Hawkridge shared some more data-derived wisdom from Down Under.
Grant and I are both visual learners, which is just one of the many things we have in common.
And I love this line about charts “making behavior visible”…
Have a great Sunday.
We’ll see you Monday morning…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs