1.       Wherenext for King Dollar?

There are good reasons to think the US Dollar is only just beginning a long term correction. But, from a tactical perspective, it's worth asking how far we've travelledalready.

Qi'smodel for UUP, Invesco's ETF for broad Dollar exposure, now shows a -1.7 sigma(-5.7%) Fair Value Gap. That's a rare occurrence on Qi - since 2009, UUP has only been this cheap to model 5x when in a macro regime. All five saw the FVG close by the market catching back up to model value.

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This time could be different but Qi's model is capturing an element of that.

While interest rate differentials are the biggest single driver accounting for 33% of model explanatory power, the other macro drivers are a desire for VIX to fall,credit spreads to tighten & the US yield curve to stop bear steepening.

Those three speak to the "sell America" narrative that's driven April's price action. So even factoring all that in, UUP looks to have discounted afair degree of bad news down here.

A tactical alternative may be to explore Euro downside given how much it has benefitted from Trump's policy stance. Qi shows EURGBP as 1.1 sigma rich - aFVG with a 60% hit rate & a decent correlation with spot prices which suggests the right kind of mean reversion.

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2.         Macro Risk & Gold

A possible near-term bottom in the Dollar would also signal a probable pause in gold's march higher. Again, there are strong arguments for a multi-year bull run inprecious metals but Qi notes that the VanEck Junior Gold Miners ETF GDXJscreens as 1.1 sigma (+8.5%) rich to macro fair value.

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To put that in context, GDXJ has rallied 46.5%. The ETF was 1.7 sigma below Qi model fair value in Dec'24. Clearly, it has done a stellar job of trading as a safehaven and store of value.

That GDXJ has a negative Qi sensitivity to the Dollar and positive sensitivity to VIX is of nosurprise. However, those relationships are at multi-year extremes suggesting fear is high and already well discounted in the price.

3.       Dollar weakness = Room for Tech to outperform Discretionary

Conversely,for Dollar bears, there are some interesting dynamics in equities that standout.

Ordinarily, aweaker Dollar would suggest being long international exposure and shortdomestic exposure. At the sector level, the relative performance of US Technology vs. US Consumer Discretionary exhibits a strong inverse relationship with the Dollar – it’s atop negative driver for the pair on Qi’s model.

A weaker Dollar should have seen Tech outperform. However, the XLK / XRT ratio is trading at 1.4 sigma and 1.8 sigma, respectively, below Qi’s ST and LT model fair values.

Investors are likely to feel more confident in Dollar shorts if the economic outlookcontinues to look weak but not catastrophic. This would suggest favoring more international Tech over domestic consumer.

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