Correlation of U.S. Dollar to Stock Market
Over the last couple of months, there has been a particularly strong correlation of the stock market to the US dollar. When the stock market strengthens or weakens, the dollar does the opposite. During the month of May, the stock market dropped sharply. During the same time frame, the dollar strengthened significantly on all the major pairs except for the Japanese yen.
The first half of June saw a jump in the stock market. During the same time, the dollar weakened against all the major pairs other than the yen.
Since then, the stock market dropped some more and came back up this week with a particularly big move today to close the month. What did the dollar do? It strengthened and then weakened on that big move today to close the month.
This correlation doesn’t necessarily apply from day to day but is applying to the overall direction. It is also applicable on big movement days. Under the current economic conditions, we are seeing this connection play out on all the major pairs except the yen. Paying attention to the stock market can give us an added advantage in our future currency trades.
By Scott Chandler
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