Good day forex traders.
Welcome to another correlation report of the EUR/USD – S&P 500. Long term readers would have known that this financial instrument pair is something us the geeky koalas look upon regularly. The S&P 500 – EUR/USD has shown historically that it somewhat enjoys a fair amount of correlation due to the similar fundamentals, ie the US economy.
In the previous report back in Jan 2011, w noted that the Euro Zone was improving and similarly both the EUR/USD and S&P 500 were gaining.
Source for S&P 500 : Google Finance
Looking at the EUR/USD ( top ) and the S&P 500 ( bottom ) from May till date, we note a fairly correlated relationship. In the section 1, both financial instruments were basically ranging due to the increasing apprehension from the economies of Europe and the US. In particularly, the Euro Zone budget deficit crisis was starting to deteriorate. The S&P 500 dipped at the beginning of August 2011 and it was followed by the EUR/USD currency pair about a month later. As you can see in section 2, there is a corresponding peak as circled and this further suggests the existence of a correlation. Since then, both financial instruments are bearish.
As we can observe above, the EUR/USD – S&P 500 correlation is an useful tool to aid us in our daily currency trading activities. Having said so, we cannot rely on it entirely as the fundamentals and market conditions will prevent movements from happening together as seen above. Rather, we should be using the S&P 500 – EUR/USD correlation as an indication of possible trend changes or momentum development.
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