A Forex View From Afar

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The Link Between The S&P And The Currency Market

Written by A Forex View From Afar on Tuesday, May 26, 2009

After a very light day of trading on Monday, the currency market experienced a strong overnight session this Tuesday. The dollar was the clear winner of the overnight sessions, strengthening not only against every other major currency, but against the minor currencies too.

It is interesting though, that the currency market lost its close link with the S&P futures over the last period of trading. The S&P moved only a limited number of points, while the currency market saw some huge swings. For example, last week the S&P had a 50 points range (0.55%), while the major currencies had one of the strongest weeks of 2009. The same case occurred overnight, when the S&P futures declined only 2.60 points, while the euro and the pound declined as much as 140 pips.

However, TheLFB-Forex.com Trade Team noted that, even though the correlation between the dollar index and the S&P futures has decreased lately, the currency market does not have the strength to reverse the current trend on its own. Such a move would require the cooperation of the Treasury and of the Equity markets.

TheLFB-Forex.com Trade Team argues that over the last few days of trading, the uptrend observed in the currency market needs to be retraced first, allowing a number of investors to switch to the bull camp. As soon as the currency and the equity markets hit an important swing point, the dollar may resume its decline while the S&P futures may continue to gain helped by the global recovery.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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