Hi everyone � here�s a question for you.
In your experience have you found that USD pairs generally follow the ups and downs of the DJIA? It seems that whenever the DJIA fall, USD pairs move in sympathy to the dollar and conversely when it rises they move in sympathy to the non-USD currency.
Is this something that can fundamentally be relied on or is this simply a new correlation in the current economic climate?
Thanks
That correlation is certainly in place now to a large degree and generally comes about from time to time, but definitely isn’t an “always” sort of thing.
Thanks for the reply Rhody.
Today was a great example of both concepts - early am in the US non-USD currency were not tracking along with the DJIA then whamo! The Fed made everyone (except the USD) go higher and the DJIA and non USD currency were tracking together.
Anyway this is an interesting correlation - do you or anyone else know of, or care to specualte on, a fundamental concept that would break this strong correlation. What would have to happen in Europe vs. the US to change this? Could for example the US “stimulate” itself out of the recession while the Euro area does too little stimulation/policy manipulation and have that lead to a general lagging of their ecomony? Then the US equity market might produce positives that make the USD track higher along while the Euro tracks lower?
It’s interesting to think about because while the DJIA is a monster that is difficult to predict its self, if a correlation such as this can be understood then it can add strongly to the ForEx traders tool bag.
Thoughts?
Here’s a [B]well done [/B]to anyone that made money on the Fed spike today!
It wasn’t that the non-USD currencies were tracking the stock market. It was that the USD was going in the opposite direction. Big difference.
Anyway this is an interesting correlation - do you or anyone else know of, or care to specualte on, a fundamental concept that would break this strong correlation. What would have to happen in Europe vs. the US to change this? Could for example the US “stimulate” itself out of the recession while the Euro area does too little stimulation/policy manipulation and have that lead to a general lagging of their ecomony? Then the US equity market might produce positives that make the USD track higher along while the Euro tracks lower?
It’s quite likely that as soon as the fear environment abates this correlation will break down. Right now when investors are scared they flee stocks and head into USD. And when they are feeling less scared they buy stocks and sell USD.