Very interesting to look at a daily chart of any index and a chart of the eurousd. In December 2011 when the euro continued its sell off the index's followed down until Christmas. Once trade started after the 25th except for a couple of days the markets completly decoulped. Our index markets continued higher and the euro continued its decline.
When I'm day trading index futures I still am keeping an eye on the euro but it is at least for now not enough of a red flag to keep me from taking a trade.
The continued outflow of money from mutual funds and other risk markets has resulted in ES liquidity being dominated by short time-frame players, i.e., large day traders and algos. They're demonstrating that they are not as quick, as in prior months, to flee the market at the first sign of trouble. This has been helping to make intra-day trading more counter-trend within concomitant smaller ranges (notwithstanding the slightly elevated range over the last two days).In any event, the decoupling phenomena appears to be somewhat seasonal and may be due (in part) to our domestic markets' bullish seasonality in the Dec.-Jan. timeframe, however Feb. seems to be the time the correlation reverts back to the mean.
What I find more interesting, and certainly more disconcerting (to my bullish inclinations, that is) is the change in the ES/ZB correlation, which has gone from an almost -1 correlation to a positive correlation. Either, bonds are going to sell off, and equities will continue their rally, or equities are going to correct and bonds will make new highs. As a rule the bond market is usually correct!
Last edited by tigertrader; January 14th, 2012 at 05:19 PM.