Hello Trader,
Markets change. What worked then doesn’t mean it will work now. Just look at the dollar and crude.
Yet, I see traders run a playbook from a market that died five years ago and shake my head.
How do they not realize what they’re doing?
Their accounts erode over time. Yet, they blame the tape instead of the model.
Nowhere does that show up more clearly than in the link between the dollar, oil, and interest rates. Those three got rewritten this decade.
It’s time to change your thinking.
So let me walk you through why the dollar and crude move together now.
The bond market already tipped its hand on where inflation goes from here, and I’ll get into what it’s telling us.
You’ll walk away with three adjustments to make this week.
Plus, I’ll tell you where I stand on each one too.
Why The Old Dollar and Crude Framework Broke
For close to forty years, the textbook version was simple: A falling dollar pushed oil higher, and a rising dollar pushed oil lower.
Interest rates moved opposite the dollar and stabilized whichever side of the trade got stretched. The behavioral logic held up fine.
Picture yourself short the dollar while rates climb. You’d think twice about that position. You might even buy dollars back. The reverse worked the same way, since holding dollars while rates fell shrank your reward for owning them, and capital went looking elsewhere.
That model worked for decades. The dollar and crude moved in opposite directions. It doesn’t work now.
The secular bull market in bonds sat underneath all of it. From 1982 to 2020, bonds rallied for nearly four decades, and rates fell right along with them.
For almost every active trader alive today, that single trend defined an entire career. It died in the early part of this decade.
Bonds are in a long-term bear market now. The conditions that produced the old correlation are gone.
The dollar and crude oil trend in the same direction today. Oil rises, the dollar follows it higher. Oil drops, the dollar gets dragged down with it.
Anyone still stuck in the 1982-to-2020 framework has lived in permanent confusion. Price action makes no sense to them because the model underneath is broken. The market keeps printing fresh evidence, and they keep filing it away as noise.
Inflation explains the whole difference. It used to fade after every spike. Now it sticks around.
Why Inflation Flipped The Script
I wrote to you not long ago about the Fed hiking short-term rates to squeeze the long end. That piece and this one come from the same root. The Fed controls the front of the curve, and market forces control everything past it.
Those market forces are pricing higher inflation further out in time. We’re in a period of secular inflation that could easily run another decade, and there will be waves inside that trend.
Some stretches will bring acceleration. Others will bring deceleration. The trajectory isn’t going anywhere.
The bond market already confirmed it. Yields broke out of a 40-year downtrend, and they haven’t gone back inside. A four-decade trend line doesn’t break for a cyclical reason.
That single break changed how currencies, bonds, and commodities interact. Crude oil drives inflation, and interest rates follow inflation higher.
Oil rallies. Bonds sell off in response. Capital starts hunting for the currency that compensates owners best, and the dollar wins that contest because it pays competitive interest relative to inflation.
The other majors don’t come close. Run the math on sitting in Euros right now:
- Inflation running near 4%
- The Euro yielding near 2%
- A guaranteed 2% real loss before the currency moves at all
Global capital has no reason to park in Euros or Yen on those terms. It rotates into dollars instead, since the dollar remains one of the only major currencies yielding anywhere near the prevailing inflation rate.
The dollar has turned into the cleanest inflation hedge in the fiat world.
How I’m Positioned
Mental models matter more than strategies. A wrong model eventually turns every trade built on top of it against you.
Stop waiting on a return to the low-inflation 2010s. Cost of living and asset prices will keep climbing in nominal terms.
Three adjustments follow from the new framework, and I’ll tell you where I stand on each.
First, quit fading the dollar when oil rips. The two reinforce each other now, and shorting one against the other has been a losing trade across this entire regime. I’ve stopped taking that trade entirely.
Second, treat the dollar as a yield play. Capital buys dollars to earn real income these days, not only to hide from risk. I own dollar exposure for the carry, and I intend to keep holding it while the inflation trajectory stays intact.
Third, use the dollar and crude together as a leading indicator for rates. When both rise, expect bond yields to keep climbing. I’m carrying my equity exposure lighter in the rate-sensitive corners of the market because of it.
Positions matter more than opinions. Mine are lined up with this regime rather than the one that died in 2020.
My Trinity Terminal scans for the setups this regime keeps producing, and I take members through every one of them. You get the levels I’m watching, the trades I’m taking, and my reasoning behind both.
The dollar and crude will keep moving together whether you’re positioned for it or not.
Come join me inside.
I’ll keep you posted as this plays out,
Take Care,
Gianni Di Poce
