Good day forex trading koalas.
Welcome to another correlation report.
Today we are going to explore the correlation between EUR/USD and S&P 500.
We last visited this pair around half a year ago and this remains one of my main outlook of the financial markets. The S&P 500 being an equity index, is very sensitive towards the sentiment level of the market while the EUR/USD currency pair includes the US dollar, a currency influenced by risk aversion.
Looking at the pair of market instruments above, the following are my conclusions
- The EUR/USD and S&P 500 are loosely correlated. When the EUR/USD started to fall in Apr, the S&P 500 stalled and finally fell too in May. Likewise when the EUR/USD started to climb in Jun, S&P 500 consolidated and started to climb in Jul too. In August, both market instruments started to fall around the same time. In an overview, in times of uncertainty, when S&P 500 falls due to risk aversion, the EUR/USD will probably fall too due to the demand of US dollar as a flight to safety.
- As the two are financial instruments of a different nature, the characteristics differ too. For example, the EUR/USD tends to be more volatile and the moves are more extreme. Typical of currencies. On the other hand, being an equity index, the S&P 500 usually moves in a more subtle way.
As i always mention, in forex nothing is confirmed. We can never have 100% accuracy. Having said so, understanding the various markets and their relationships will definitely help and increase our chances of success. Not forgetting that proper money management is a must and proper planning of our trades is important.
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