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Dow Surges to Record Highs - What does it Mean for the Euro?

Dow Surges to Record Highs - What does it Mean for the Euro?

David Rodriguez, Head of Product

Summary: The Dow Jones Industrial Average has traded to record highs, and forex correlations suggest this may help the Euro recover against the resurgent US Dollar (ticker: USDOLLAR).

Correlation between the Dow Jones Industrial Average and the Euro/US Dollar

dow_jones_industrial_average_record_versus_euro_body_Picture_1.png, Dow Surges to Record Highs - What does it Mean for the Euro?

Dow Jones Industrial Average (lhs)

Euro/US Dollar Exchange Rate (rhs)

Correlation between the US S&P 500 and S&P 500 Volatility Index (VIX)

The correlation between the Dow Jones Industrial Average and the Euro/US Dollar exchange rate trades near its highest levels in a year, and a surging DJIA bodes well for the otherwise-downtrodden EURUSD.

Both stock markets and the Euro tumbled as financial markets expressed their disappointment with Italian election results, but the speed with which the Dow has recovered suggests that traders are not quite ready to force risky assets off of their highs.

Dow strength suggests that the Euro may likewise prove resilient, and indeed our technical forecast for the Euro favors strength above the key $1.30 mark.

The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) tends to weaken during times of strong equity market performance, but the Index actually trades near multi-year peaks. Our technical forecast for the Dollar Index nonetheless warns of downside risks, and further Dow surges could indeed sink the safe-haven US currency.

The next several days of price action will likely prove pivotal, as critical economic event risk promises sharp moves across currencies and broader financial markets.

Forex Correlations Summary

View forex correlations to the S&P 500, S&P Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.

S&P 500

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.82

0.17

0.07

-0.04

-0.54

0.78

-0.27

1 Month

0.78

0.01

0.41

0.39

-0.51

0.52

-0.22

3 Month

0.39

0.13

0.35

0.44

-0.54

0.50

-0.19

1 Year

0.48

0.44

0.28

0.64

-0.72

0.63

-0.47

Gold

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.11

0.15

-0.43

0.71

-0.38

0.16

-0.39

1 Month

-0.03

0.38

-0.37

0.36

-0.33

0.16

-0.48

3 Month

0.05

0.28

-0.18

0.37

-0.38

0.27

-0.37

1 Year

0.45

0.37

-0.20

0.47

-0.37

0.44

-0.55

Crude Oil

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.65

0.76

-0.82

0.84

-0.11

0.19

-0.91

1 Month

0.60

-0.01

0.06

0.29

-0.31

0.53

-0.29

3 Month

0.55

0.19

0.27

0.29

-0.33

0.32

-0.26

1 Year

0.48

0.41

0.14

0.55

-0.60

0.50

-0.48

US 2yr Yield

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.68

0.19

-0.36

0.77

-0.81

0.64

-0.55

1 Month

0.72

-0.06

0.30

0.38

-0.39

0.32

-0.22

3 Month

0.38

0.04

0.34

0.08

-0.20

-0.01

-0.01

1 Year

0.20

0.05

0.41

0.11

-0.25

0.04

0.02

S&P VIX

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.86

-0.34

0.14

-0.06

0.59

-0.94

0.44

1 Month

-0.70

-0.12

-0.43

-0.31

0.51

-0.41

0.19

3 Month

-0.28

-0.07

-0.31

-0.34

0.47

-0.44

0.10

1 Year

-0.40

-0.34

-0.24

-0.54

0.57

-0.56

0.38

Perfect Positive Correlation:

1.00

Perfect Negative Correlation:

-1.00

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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