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Categorized in | Featured Articles

Dollar Stock Correlation Changing

US Data Improving

forex21A deceleration of US job losses and improved housing and manufacturing data lifted stocks and surprisingly the US dollar. Typically when risk sentiment rises the dollar declines against higher yielding currencies. Negative data usually caused investors to seek the safe haven of the dollar causing it to rise on global Forex markets. During the last year currency exchange rates were largely affected by stock markets. When stocks rose the dollar declined against other currencies and when stocks fell the dollar rose on safe haven demand.

Dollar Returning to Fundamentals

It appears that the stock dollar correlation is starting to change. After Fridays US jobs data the dollar changed its traditional pattern and rose against other major currencies. Earlier in the year the correlation between the euro-dollar rate and the Standard and Poor’s 500 was about 50% meaning that the euro and S&P 500 rose and fell in tandem. Some currency experts expect the link between the two to weaken further. Joseph Trevisani of FX Solutions stated that the dollar’s gains on Friday are “a sign that the currency markets are weaning themselves from the ‘good-news-is-bad-news for the dollar’ syndrome and returning to fundamental measures of economic growth and interest rate cycles.”

Many traders and investors welcome the change. Alan Ruskin of RBS Securities stated, “The idea of selling the dollar on strong U.S. data because it is risk-positive is being appropriately challenged.”

Full Economic Calendar This Week

Currency exchange rates will undoubtedly be affected by this week’s economic calendar. On Tuesday the US Federal Reserve will meet for two days and investors will be closely scrutinizing statements due to be released on Wednesday. Also on Wednesday international trade data for June is due to be released. On Thursday retail sales for July will be released and on Friday industrial production and consumer sentiment for August will be released.

Fed to Auction $75 Billion of US Debt

This coming week the US Treasury will auction $75 billion of 3 year notes, 10 year notes and 30 year bonds. The auction is expected to show investor confidence in the US’s ability to finance its debts.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.


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