Global Value Rotation: Why European Equities Are Suddenly Back in Play as Dollar Slides

Traders with a taste for pain have spent the last two years watching US tech stocks dance higher, leaving European equities to sulk in the corner, unloved and under-owned. But the mood music is shifting. With the US dollar tumbling and Wall Street’s most crowded trades looking a little less bulletproof, the global value rotation narrative is back, and this time, the numbers actually support it.

The last 24 hours have delivered a cocktail of market signals that would make even the most jaded macro tourist sit up. Value stocks are trouncing growth, according to Seeking Alpha’s latest summary, with large-cap US tech names morphing from market darlings into sources of cash for anyone chasing the next rotation. Meanwhile, the Wall Street Journal is waving the global flag, pointing out that high US valuations and a weakening greenback are finally giving international markets their moment in the sun. The S&P 500’s relentless outperformance has left European and Asian indices trading at decade-low relative valuations. Now, as the dollar’s rout accelerates, the capital flows are starting to move.

Let’s talk numbers. The dollar index (DXY) has cratered in the past week, with no obvious catalyst beyond a market that’s finally pricing in the Fed’s pivot and a whiff of geopolitical risk. Gold’s surge back above $5,000 is the clearest tell that investors are looking for alternatives to US assets. Meanwhile, the European Stoxx 600 and Japan’s Nikkei are both quietly pushing toward multi-year highs. The rotation isn’t just a story for the sell-side’s PowerPoint decks anymore. It’s happening in real time, with fund flows confirming the shift. Bank of America’s latest data shows the largest weekly inflow into European equities since 2021, and ETF flows into ex-US developed markets have picked up for the first time in months.

What’s changed? For starters, the US exceptionalism trade is running out of road. With tech multiples stretched and the Fed boxed in by sticky inflation and political risk, the risk/reward in chasing another leg higher in US megacap tech looks increasingly asymmetric. Meanwhile, European corporates are finally showing signs of life. Earnings revisions are turning positive, and the energy crisis that dominated headlines in 2022 is now a distant memory. Even the perma-bears at SocGen are grudgingly upgrading their outlook for the Eurozone.

The real kicker is the currency. A softer dollar is a tailwind for international earnings, and it makes US assets less attractive on a relative basis. As the dollar slides, global allocators are dusting off their old playbooks and rediscovering the joys of diversification. The narrative that US stocks are the only game in town is looking increasingly tired. If you believe the dollar’s slide has legs, the setup for non-US equities is compelling.

Of course, there’s always a risk that this is just another head fake. We’ve seen plenty of false dawns for Europe and EM in the past decade. But this time, the macro backdrop is different. The US fiscal situation is deteriorating, political risk is rising, and the Fed’s hands are tied. Meanwhile, Europe is quietly benefiting from a manufacturing rebound and a more dovish ECB. If you’re looking for asymmetric bets, this is as good as it gets.

Strykr Watch

For traders who like to live dangerously, keep an eye on the EUR/USD pair. The recent breakout above 1.12 is a big deal, and a sustained move toward 1.15 would confirm the dollar’s downtrend. On the equity side, the Stoxx 600 is flirting with the 500 level, a multi-year resistance. A clean break could trigger a wave of systematic buying from trend-following funds. Japan’s Nikkei is already at 35-year highs, but the real action is in Europe, where valuations are still cheap relative to history.

The technicals are finally lining up with the fundamentals. Relative strength indicators for European indices are flashing bullish, and momentum is building. If you’re looking for confirmation, watch fund flows and cross-asset correlations. A continued slide in the dollar, combined with rising inflows into European and Japanese ETFs, would be the green light.

The risk, of course, is that the US comes roaring back on a blowout NFP print or a surprise Fed pivot. But with consensus positioning still heavily skewed toward US assets, the pain trade is higher for everything else.

The bear case is simple: Europe has disappointed before, and a sudden reversal in the dollar or a new geopolitical shock could send the rotation trade back into hibernation. But with the US election circus heating up and fiscal risks mounting, the odds of a sustained global catch-up rally are rising.

For traders, the opportunity is clear. Long Europe, short US tech is the classic rotation trade. Pair trades using ETFs like EFA (developed ex-US) versus QQQ (US tech) offer a clean way to express the view. For those with a higher risk appetite, levered plays on European banks or exporters could juice returns if the rotation accelerates.

Strykr Take

This is the moment global equity bulls have been waiting for. The US exceptionalism narrative is cracking, and the dollar’s slide is the catalyst. The risk/reward in betting on a global catch-up rally has rarely been better. If you’re still all-in on US tech, it might be time to hedge your bets.

Date published: 2026-02-10 05:15 UTC