Georgia, US
Legendary Market Wizard
Experience: None
Platform: SC
Broker: Denali+Rithmic
Trading: ES, NQ, YM
Posts: 6,216 since Jan 2011
Thanks Given: 6,752
Thanks Received: 18,136
|
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.
|