Greenback Poised to Knock Over the Dominoes

Before we can attempt to predict the direction of the stock or bond markets, it is imperative we look at intermarket relationships for guidance. Correlations, whether positive or negative, aren't always constant, but they are prevalent enough to justify their use as an analytical tool. That said, traders must keep cognizant of the fact that market moves result from human emotions. As a result, the strength of any particular intermarket relationship will depend on the mindset of the market, as we all know this is in constant flux.

One correlation on our radar is the U.S. dollar vs. risk assets. In general, a stronger greenback works against asset prices simply because it lowers foreign demand for domestic products. In fact, when we measure the correlation between the dollar index futures contract and the S&P 500 futures over the last 180 trading days, the correlation coefficient is a negative 84. This suggests these two markets have moved in the opposite direction well over 80% of the time....273 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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