It's been a while since the last post. Being frank, it's been a difficult
market to navigate and writing about it wasn't easy either. Since the start
of April we've seen a really strong broad market rally. More recently
though, the price action in the DXY has caught my attention. The US Dollar
has been moving sideways for just over a year now, but we're beginning to
see a higher high form and it's starting to look like a bottoming process.
That has implications for the rest of the market.
Take a look at the DXY chart below. Erratic sideways movement but the first
half of 2026 is interesting because we may have seen a higher high form in
April/May. It's too early to say with confidence whether the dollar will
continue higher but it is interesting to understand the implications if it
does.
What's also caught my attention is the IEF/DBC ratio, which is a bonds
versus commodities indicator. When it falls, commodities are outperforming
bonds and real assets are winning. Recently it fell off a cliff. If that
continues despite dollar strength returning, we're heading into a potentially
difficult inflationary environment. Not the monetary kind driven by
money printing, but a structural one driven by real-world supply
constraints. The war with Iran and the price of oil makes this thesis make
sense. And it looks like investors have felt this coming and have driven stock prices way
higher too in the last two months or so. But if structural inflation truly takes hold, that rally
becomes dangerous.
It's a very back of the napkin analysis but it's still interesting to keep in mind for the near future. What do you think about the risk of structural inflation?
Write down your opinion in the comments below or let me know via the
contact form!