Last week’s trading brought about a second buy signal with a double top break at $102, completing a bullish catapult pattern, and flipping the trend back to positive after having been in a negative trend since March 2025.

The U.S. Dollar has continued higher in recent weeks with the ICE U.S. Dollar Spot Index (DX/Y) advancing 1.9% (through 10/8) since reversing back into Xs on 9/18. Last week’s trading brought about a second buy signal with a double top break at $102, completing a bullish catapult pattern, and flipping the trend back to positive after having been in a negative trend since March 2025. Since reaching the low of $96 in January of this year, the U.S. Dollar has advanced roughly 6.7% on the chart, bringing the index ever closer to the 10% threshold for switching from a falling dollar to rising dollar environment as defined in our U.S. Dollar Study. Click here to read the last time the study was updated within the report.

While we won’t rehash everything discussed within the study, it is worth revisiting its tenants and the long-term impact on asset class performance in rising and falling dollar environments.

Study Parameters:

• Rising Dollar Market: Any move of at least 10% from a low constitutes a new "rising dollar market." The beginning of this trend is established at the low watermark and the trend remains in force until a correction of at least 10% occurs, at which point the peak of that rally then marks the end of the rising trend in the dollar. This represents a "trough-to-peak" move in the dollar, and that period is what we use to qualify a rising dollar market.
• Falling Dollar Market: Any decline of at least 10% in the dollar index from a peak begins a "falling dollar market". The beginning of this trend is established at the high watermark and the trend remains in force until a rally of at least 10% occurs off a low, at which point the trough of that decline marks the end of the falling trend in the dollar. This represents a "peak-to-trough" move in the dollar, and the period within is what we use to qualify a falling dollar market.

Our study is backward looking and uses a 10% rise (or fall) in the dollar to demarcate rising and falling environments. By this definition we are still in a falling dollar environment and thus you will see in the tables and graphs below, the current period categorized as a falling dollar environment, which started in January 2025, when DX/Y peaked at 110.  This doesn’t necessarily mean that we have not already entered a rising dollar environment - if DX/Y were to hit 105.10 (a 10% move from the low it reached in January 2026) our study would begin a new rising period from the date of the January low.

By the 10% threshold, there have been a total of 14 rising dollar markets and 15 falling dollar markets since 1985 (including the current falling environment, which began last January) using our criteria. The average duration of a (rising or falling) cycle is 514 days, and results in average moves of about +21% in rising environments and -17% in falling environments (keep in mind that the manner in which these trends were calculated means that no trend could have resulted in a move materially less than 10% in either direction).

On average, falling dollar periods have lasted 435 days. Meanwhile, the average rising period has been notably longer at 598 days, with the most recent complete rising period (July 2023 – Jan 2025) lasting 549 days. You will notice that the current falling dollar environment shows a return of just -7% for DX/Y, this is because the dollar has rebounded from its low but not yet reached the 10% mark; at its January low, DX/Y was down roughly 13% from its 2025 peak.

From an asset class performance perspective, international equities and commodities have faced the strongest headwinds within rising dollar environments but have the most tailwinds in falling dollar environments. While the NDW DALI Asset Class Rankings favor risk-on assets – including international equities and commodities, along with domestic equities – a rising dollar environment could cause an impact to that risk-on posture and would bring a new set of challenges. Given that the change in dollar environment has yet to change, now is the time to develop a plan for if/when it may.

On very basic approach to prepare is to simply consider a currency hedged ETF to help mitigate the impacts of the rising dollar. iShares maintains a lineup of currency hedged ETFs with the largest among them being the iShares Currency Hedged MSCI EAFE ETF (HEFA). On the trend chart, HEFA has maintained a positive trend since May 2020 and a buy signal since April 2025. After rallying to a new all-time chart high at $47.50 in August of this year, the fund has reversed down into Os to $46 with recent trading. HEFA has maintained positive long-term market relative strength since November 2025 and still possesses positive near-term market RS, which coupled with the positive trending picture, brings the fund score to above 5. From here, support for the fund resides at $45 and $43.50.

For those considering a more tactical, rules-based approach, there are a few ways ETFs like HEFA can be used in combination with the likes of the iShares MSCI EAFE ETF (EFA). One approach to potentially considering is tactically switching based on buy signals on the ICE U.S. Dollar Spot Index (DX/Y), which was discussed in the Daily Equity Report earlier this year in June. Another approach is to tactically switch the allocation between the two ETFs based on fund score and focus the allocation on the fund with the superior fund score. Below is a hypothetical strategy that simply switches between the higher scoring of the two funds on a monthly basis since early 2002. The performance of both ETFs individually along with when the hypothetical portfolio maintained hedged or unhedged exposure is shown below in the graph. Over the roughly 24-year period the cumulative performance of the switching portfolio outperforms the individual ETFs if they were bought and held. It is worth bearing in mind, transaction costs were not considered within the hypothetical portfolio, and the study assumes full investment within the ETFs, regardless of whether the fund score is high or low or whether international equities are in or out of favor.

It should also be noted that this study was conducted using return data for developed international equities. It shouldn’t be assumed that the results would be the same for any other international equity exposure. The basket of currencies that underly the US Dollar Index are all developed market currencies, so it’s reasonable to expect that the DX/Y signals used in our study are a more useful indicator for developed market currencies than they are for emerging markets, for example. In large part, any of the approaches discussed above offers a way to mitigate potential headwinds and tactically approach international equities exposure based on the environment of the U.S. Dollar.