JPMorgan’s Emerging Markets Bet: Is the Dollar’s Slide Setting Up a New Macro Regime?

Sometimes the market hands you a gift. This week, JPMorgan doubled down on its overweight call for emerging markets and eurozone equities, citing a rare alignment of strong earnings, a softening dollar, and inflation that, for once, looks contained. If you’re still trading the old playbook, you’re missing the real story: the king dollar’s grip is slipping, and the world’s largest bank is quietly pivoting to risk-on assets that haven’t mattered for years. The question isn’t whether this is a rotation. The question is whether this is the start of a new macro regime, one where the dollar’s decline finally lets EM and eurozone equities off the leash.

Let’s break down the facts. According to Proactive Investors, JPMorgan’s latest note to clients is explicit: overweight EM and eurozone, underweight US. The rationale? Earnings momentum in EM is broadening, inflation is “contained,” and the dollar is finally showing cracks after years of relentless strength. The market, always eager to chase a new narrative, is starting to take notice. Flows into EM ETFs have ticked up for the first time since 2023, and eurozone equities are seeing their first real bid in quarters. The DXY, which has been the market’s security blanket since the pandemic, is stalling out at multi-year resistance. The setup is textbook: dollar down, EM up. But is it really that simple?

The context here is everything. For the past five years, the dollar has been the only game in town. US exceptionalism, tech dominance, and a Fed that was always a step ahead kept global capital parked in the US. EM and eurozone equities were the punchline at every macro dinner table. But the winds are shifting. The Fed is in transition, with Kevin Warsh’s nomination throwing policy into flux. The ECB, for all its dithering, is no longer the market’s favorite short. Inflation in the eurozone has stabilized, and EM central banks, after years of pain, are finally seeing the fruits of their tightening cycles. The result? A macro setup that hasn’t existed since the pre-pandemic era. The dollar is vulnerable, and the rest of the world is finally catching up.

Historically, these rotations don’t happen in a straight line. The last time EM outperformed US equities for more than a quarter was 2017. Since then, it’s been a graveyard of false starts and head fakes. But the ingredients are different this time. The dollar is not just pausing, it’s rolling over. The DXY has failed to break above 97.28, and the technicals are ugly. The RSI is trending down, and the 50-day moving average is crossing below the 200-day for the first time in years. Flows are following. According to EPFR, EM equity funds saw $2.1 billion in inflows last week, the largest since 2022. Eurozone equities, long the domain of value traps and dividend tourists, are suddenly seeing real earnings growth. The market is waking up to the possibility that the US is not the only game in town.

The analysis here is simple, but not easy. The market is pricing in a soft landing for the US, but it’s also starting to price in a catch-up trade for the rest of the world. JPMorgan’s call is not just a tactical trade. It’s a bet on a regime shift. If the dollar continues to weaken, EM and eurozone equities have room to run. The risk is that the dollar’s decline is just a head fake, and the old regime reasserts itself. But the technicals and the flows suggest otherwise. The market is hungry for a new narrative, and this is the first time in years that the macro setup actually supports it.

Strykr Watch

Technically, the DXY is the key tell. Support sits at 96.50, with resistance at 97.28. A sustained break below 96.50 opens the door for a real move lower, with 95.00 as the next target. EM equities, as measured by the MSCI EM Index, are testing resistance at 1,120, with support at 1,070. Eurozone equities (think Euro Stoxx 50) are flirting with a breakout above 4,500. The RSI on both is trending up, and the moving averages are starting to curl higher. Flows are the real story. Watch for continued inflows into EM and eurozone ETFs. If the trend holds, the rotation is real. Volatility is moderate, but could spike if the dollar snaps lower. The Strykr Score on EM is 68/100, bullish, but not frothy.

The risks are not trivial. The biggest is a Fed hawkish surprise. If Kevin Warsh comes in swinging and the market reprices the path of US rates, the dollar could rip higher and the rotation would be dead on arrival. There’s also the risk that EM inflation re-accelerates, forcing central banks to tighten into weakness. Political risk is always lurking in EM, and eurozone equities are not immune to the continent’s endless political drama. Finally, if US growth surprises to the upside, the dollar could find a second wind. Stops should be tight, and traders should be ready to pivot if the macro winds shift.

But the opportunities are real. For the first time in years, the macro setup favors non-US equities. Long EM and eurozone on dips, with stops just below key support levels. For the more tactical, look for confirmation in ETF flows and DXY price action. If the dollar breaks 96.50, add to risk. For the macro crowd, this is a chance to front-run a regime shift that could last quarters, not weeks. The risk-reward is asymmetric, but only if the dollar’s decline is real.

Strykr Take

JPMorgan’s EM and eurozone overweight call is not just a tactical trade. It’s a bet on a new macro regime. The dollar’s decline is the catalyst, and the flows are following. This is the first real opportunity for non-US equities in years, and the market is just starting to wake up. Strykr’s call: the rotation is real, but traders need to stay nimble. Watch the dollar, watch the flows, and don’t get married to the trade. The regime shift is here, but it won’t be a straight line.