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Correlation Report : EUR/USD – S&P 500 Oct – Dec 09

Good day,

regular koalas will know that my style involves strongly on determining correlations between the different markets. This is to get the extra edge when it comes to indication about possible market developments.

I have decided to come out with this new section so as to conduct reviews on correlations between the usual market clues i always use. It helps to see in a clearer picture if correlations still exist or not. Hopefully this will help you my dear koala readers in the fight against margin calls!

First up will be the EUR/USD and S&P 500 during the period of OCT – DEC 09.

Comparing the two charts, we can see that the two markets shared a loose correlation except for the month of Dec 09.

During the month of Dec 09, liquidity is low and this can be a possible reason as institutional trading activity is being replaced by speculation. Furthermore, economic releases from the US in the month of Dec 09 were mainly positive. This probably caused a shift from the usual risk aversion trading theme to one of a fundamental theme where by a performing economy rewards it’s equities and currency.

For Oct and Nov, we see the usual risk aversion trading theme. When the market is uncertain, traders exit from their risky assets such as equities ( S&P 500 ) and seek the safety of “stable” financial instruments ( US Dollar ).

With the new year upon us, liquidity will return and hence we may be seeing a return of the risk aversion trading theme. Monitor the relationship closely and stay tuned for more correlation reports.

Trade safely.

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