Friday, January 26, stocks hit their last record highs. Buoyed by supposedly strong earnings along with near euphoria about tax reform anecdotes, all three major US indices were sitting at their respective tops after another big week. Everything was apparently going in the right direction:

All the three key U.S. indexes closed at record levels on Friday following better-than-expected earnings from Intel, AbbVie and Honeywell. Additionally, continued economic growth and optimism over a weaker dollar had a positive impact on investor sentiment. The S&P 500 has finished at a record level for 14 trading days so far this month, its best such feat in a month since June 1955. The index also posted its best one-day rise since March 1, 2017.

Over the next few weeks, however, stocks across the world were slammed by a wave of liquidations. Confused and disoriented, mainstream commentary began to zero in on first VIX (and its inverse XIV) and then inflation hysteria. According to the latter, the economy globally was about to become so good it was bad. Central banks, they said, will have to act faster than expected to restrain the boom.

Almost two months later, however, VIX is long forgotten and inflation is heading that way, too. Yet, a lot more than stock market indices remain on the downside of January 26.

First on that list is the euro. Nothing was more emblematic of last year’s weak dollar than Europe’s currency. First, it ran contrary to the established conventional wisdom where the Fed raising rates should be dollar rather than euro positive. In other words, it was global “reflation” in the same sort of way as 2011.

The euro hasn’t gone any farther than it did at the end of January. The exchange rate hasn’t tumbled, either, but its sideways action proposes a lot of other similar action, from oil to UST nominal yields. The dollar is in the middle of everything, just not in that conventional sense.

The exchange value is in many ways pretty simple economics (small “e”). It moves on supply and demand, where during 2014-16 the “rising dollar” was both a surge in short-term demand for offshore“dollar” funding but also a parallel reluctance on the part of global banks to supply it. That’s why it moved so far and so fast during that time and was so destructive as it jumped.