the effect of eurusd on emini es

January 6th, 2022, 10:01 AM

I would like to hear some opinions on how does eurusd pair affect the emini es? Just out of my curiosity. Ty, and best regards.

January 6th, 2022, 10:23 AM

you could start with correlations e.g. here: https://www1.oanda.com/lang/de/forex-trading/analysis/currency-correlation

Or you could run another analysis like OLS or Robust OLS and check if e.g. daily returns and similar are connected in an statistical significant way.

Basic Statistics could easily be done in Microsoft Excel. Luckily it is not necessary to learn R, Matlab, Python etc. for most stuff which is of help.

January 6th, 2022, 10:53 AM

If you look at the macro level, perhaps there is a vague tendency, that the USD is appreciating vs. the EUR if:

US-stocks are outperforming European stocks

and US interest rates are rising faster than European interest rates.

That would make sense as money/liquidity is flowing in direction of the USA in such a case.

source - YCharts

January 6th, 2022, 12:29 PM

Yeah, something's wrong with that correlation table. EUR is not positively correlated with SPX over the last year. Euro -8% in 2021, SPX up 25%.

To the OP, correlations establish themselves and then subsequently break down, and the cycle repeats. There is no relationship that always holds, and trying to find such a relationship (one that always holds) is a dead end.

So, you must determine on any given time period (a day, etc.) what is really driving the market. That doesn't mean that you should always know why something is happening. But looking at the rout on growth stocks since 2pm yesterday, you will see a big surge in the USD. The FOMC minutes drove the market, and the USD reacted, as did equities, obviously including ES.

So, look for relationships and see what matters. Obviously if the taper accelerates, this opens the door for sooner rate hikes, and this is bullish for USD. USD is more expensive to borrow, which makes speculative growth names (think ARKK holdings) suffer due to more restrictive cash flow, and so this is the *reason* why USD popped, with ES (and NQ more so) declining.

While that relationship is in play, you may be able to use it to your advantage. That is, it matters while it matters... but not afterward.

Consider that with currencies, we measure them as ratios relative to one another. Imagine that simultaneously the ECB and FOMC announce rate increases. What would happen to EURUSD? Well, presumably it wouldn't really move much (wild swings up and down, to be sure, but it likely wouldn't actually go anywhere after it settles down). However, what would the effect be on equities? Very likely, global equities would sell off. So, understand that these may be simple relationships on the one hand, but there are a lot of variables, and so you must always try to determine what matters, and never rely on an overly simplified "EURUSD is down so ES should be too" or anything like that.

A couple of days ago I made this post, if you are an elite member, which also relates.

January 6th, 2022, 01:48 PM

Totally agree , we have to be careful in using free tools on the internet.

Nevertheless EurUsd consists of two parts.

Thus it depends if one measures correlation in regard to Euro-base or USD-base.
In one case it gives you a positive correlation and in the other case it gives negative correlation.

But like josh clearly pointed out. Trading on assumed correlations is not as easy as seeing that two instruments moved in tandem in the past.

josh

Yeah, something's wrong with that correlation table. EUR is not positively correlated with SPX over the last year. Euro -8% in 2021, SPX up 25%.

the effect of eurusd on emini es

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the effect of eurusd on emini es