Expectations vs Reality: Oil and the Dollar
The disconnect between Wall Street expectations and how policies actually played out created the macro whiplash seen across both charts:
]The Trade: What Markets Priced In Late 2024
The Drill Baby Drill Assumption: Consensus expected a supply flood from deregulation and quick federal leasing, crushing crude prices into the dirt around 50 to 60 dollars sustained.
The Unstoppable King Dollar: Traders bet broad tariffs and deregulation would spark a roaring domestic boom, forcing the Fed to freeze rate cuts while blowing out foreign competitors, sending DXY vertical.
The Reality: What Actually Happened in 2025 and 2026
Sanctions and Geopolitics Trumped Deregulation: Slapping sanctions back onto Russian flows, tightening squeeze points on Venezuelan barrels, and escalating Middle East friction choked physical supply far faster than domestic drillers could ever add rigs. Plus, US producers kept capital discipline rather than reckless overdrilling. Supply tightened, and oil ripped.
Aggressive Tariffs Acted as a Drag, Not Pure Dollar Fuel: The sweeping, shifting tariff regime and trade frictions with Canada, Europe, and Asia created massive supply chain uncertainty and weighed on US domestic growth earlier in the year.
The Deficit and De Dollarization Friction: Ballooning national debt and unpredictable trade posture pushed several trading partners toward non dollar settlements, taking the steam out of that late 2024 dollar rally and allowing DXY to bleed down toward 98.
The Currency Stance Itself: Markets initially forgot that the administration historically expressed frustration with an overly strong dollar making US exports uncompetitive.
Wall Street positioned for a low energy, super dollar boom. Instead, physical supply dictated oil, and domestic growth drag capped the greenback until energy inflation recently forced the bond market to wake back up.
Touching on the Daily: DXY Looking Noticeably Stronger
Now that oil has held near triple digits, the inflation lag is catching up and driving bond yields higher. That is putting a real floor under the dollar.
On the daily chart(not shown), TVC:DXY is showing clear signs of bottoming. The red selling pressure on momentum indicators is gone, RSI is curling upward from oversold territory, and price is directly testing the downward trendline near the 100 level.
While crude takes a slight breather at the top of its channel, the daily dollar setup looks ready to push. If DXY clears the 100 resistance mark, the feedback loop is back in play: high oil sparks inflation, yields rise, and the dollar follows crude higher.
TGtg!
TITradingView Ideas14 Sept