Currency stock interrelations

About a month ago we discussed how a rising dollar might not necessarily correlate with a drop in the stock market. Well here we are nearly 2 months later from the late Nov USD index lows, with USD up 6% and the stock market has drifted up along with it. That said, I think there is a good probability that the USD could make a double top here. I predicted 5 wks back in private correspondence that 1.4300 would hold for the EUR-USD cross for awhile and it did for 5 wks. Now, I also think that other than intraweek dips below, that 1.4060 should provide at least temporary if not longer term support for the EUR-USD cross. This is important as tonight, we tested 1.4068 so far... If true, that should provide good support for at least the commodity driven side of the stock indexes. Trade well, Doc

Edited by Echo, 21 January 2010 - 02:48 AM.

eurusd is at good support here - 140-141, and some corrective upside is likely -but still think it will be lower by May.

About a month ago we discussed how a rising dollar might not necessarily correlate with a drop in the stock market. Well here we are nearly 2 months later from the late Nov USD index lows, with USD up 6% and the stock market has drifted up along with it.

Echo,

The USD had never had a distinctive inverse correlation with the U.S. equity market until after the 2007 stock market crash. And, this negative correlation's most prominent over the last 15 months for reasons that I'm sure you and everyone else have been fully aware of. Favorable currency exchange rates are now accounted for big chunks of corporate profits. Since the U.S. consumers ATM machine, aka Home Equity, has been taken away, more corporations are relying on overseas operations to make up for their losses in the U.S.. And, for this well known common sense, a rising Dollar, by all means, will impact the U.S. equity market negatively.

It may not correlate perfectly on the daily or monthly basis, but, as we're relying more and more on exporting goods and services, the rising Dollar will hurt major U.S. corporations over the long run. You can certainly take out some "imperfect" periods of their inverse correlation, cover your eyes, and pretend that rising Dollar will have no effect on the corporate earnings, but that's not the reality. However, that's your prerogative.

BTW, here's the EUR/USD overnight...

looks headed to 1.37-1.38 area