I'm trying to understand this but I need help...

[Technically Fundamental]

Right bear with me on this. IG doesnt have a dollar index chart so I'm using Eur/USD which is basically mirrored to the index from date of intervention therefore correllation=divergence and vice versa.

Up to say 2000, we see correlation which in my mind means that a stronger US economy was leading to a stronger dollar or am I missing something?

Then as the stocks crashed the dollar took off due to what?

So then we have a correction and back to loose correlation after 9/11 yes?

Then all hell breaks loose due to war and BRIC economies having a laugh and mexican billionaires popping up overnight or whatever else.

Now, is this Dollar/Dow divergence caused by lower dollar value being basically reflected in inflating asset prices? Is this happening again now and at a faster and more violent rate? Is it because of QE?

Why is gold trading so high against the $index when last time we had 65 oil the index was way above this level?

What else could affect this chart and/or should be considered when looking at this divergence?

Am I completely barking up the wrong tree here?

Answers on the back of a postcard sil vous plait.

Bon.

 

[foredog]

IT's all correlated until it isn't.

In recent times the S&P etc has gone up/down becasue of GOLD, then OIL, then $ strength/weakness, then Bond yields......

I think you need to take all of these with a pinch of salt.

 

[superspurs]

these people have a live dollar index chart MetaTrader 4 Platform | Forex Ltd

 

[Technically Fundamental]

Merci spurs.

 

[Technically Fundamental]

IT's all correlated until it isn't.

In recent times the S&P etc has gone up/down becasue of GOLD, then OIL, then $ strength/weakness, then Bond yields......

I think you need to take all of these with a pinch of salt.

I'm pinch of salted to the hilt Foredog don't worry . Also I see what you're saying there about flights to qual. At the point of inflexion (or around that time in the real world lol) the dow started to trade up on other assets when the against a combination of multiple factors stemming from the dollar weakness when dollar strength failed to break through 98/99 levels

But shouldn't currency be a direct reflection of economic performance? Is this not why the sh1t is hitting the fan?

 

[pedro01]

Correlations are out of whack right now.

Shurely nothing to do with everything being priced in dollars & dollars being printed like it's about to go Abercrombie & Fitch...

 

[N Rothschild]

IT's all correlated until it isn't.

In recent times the S&P etc has gone up/down becasue of GOLD, then OIL, then $ strength/weakness, then Bond yields......

I think you need to take all of these with a pinch of salt.

 

[Rhody Trader]

But shouldn't currency be a direct reflection of economic performance? Is this not why the sh1t is hitting the fan?

The two main drivers of a currencies value under normal circumstances is trade flow and capital movement. A country which exports more than it imports will tend to have a stronger currency due to demand for its trade goods requiring folks to purchase its currency, and vice versa. This is why a strong economy can sometimes not actually be a positive for a currency if it means a sizeable trade deficit. In some ways the weak economy has actually helped the USD in this regard because it's meant less demand for imports.

At the same time, capital will be attracted to markets where investors perceive there to be the best risk adjusted real rate of return. Right now we have a situation where USD interest rates are so low that capital isn't really attracted to dollar-denominated instruments. Investors are looking elsewhere to higher rates of return, like Australia. Even more, there is a USD carry trade going on because of the low dollar interest rates. You can see it playing out in pairs like AUD/USD.

 

[pedro01]

Currency is also affected by how much of the damn stuff you print or money supply

 

[Technically Fundamental]

Thanks Rhody. All contributory factors there. making a bit more sense.

 

[Technically Fundamental]

IT's all correlated until it isn't.

In recent times the S&P etc has gone up/down becasue of GOLD, then OIL, then $ strength/weakness, then Bond yields......

I think you need to take all of these with a pinch of salt.

Just find it funny that dow and dollar exploded apart at mar 09 and the dollar went straight into the support and we can see it's showing atm.

If gold breaks lower and lends even more strength to the dollar doesn't that add up to a higher prob of equities rebounding off of the 50%?

 

[GladiatorX]

I've never heard a logical arguement of why correlations are important; For example, i've been reading that Gold prices are rising from increased demand caused from individuals moving money from the stock market as we are in a recession... Therefore the assumption that when stocks fall, gold rises is all over the newspapers. However, if the stock market is falling... Therefore Gold will only continue to rise if it continues to fall - So your back to square-one of trying to figure out how to estimate the probability of a given situation going up or down.

I must be missing something; i suppose their can be leaders and laggards.

 

[N Rothschild]

I've never heard a logical arguement of why correlations are important; For example, i've been reading that Gold prices are rising from increased demand caused from individuals moving money from the stock market as we are in a recession... Therefore the assumption that when stocks fall, gold rises is all over the newspapers. However, if the stock market is falling... Therefore Gold will only continue to rise if it continues to fall - So your back to square-one of trying to figure out how to estimate the probability of a given situation going up or down.

 

[Technically Fundamental]

I've never heard a logical arguement of why correlations are important; For example, i've been reading that Gold prices are rising from increased demand caused from individuals moving money from the stock market as we are in a recession... Therefore the assumption that when stocks fall, gold rises is all over the newspapers. However, if the stock market is falling... Therefore Gold will only continue to rise if it continues to fall - So your back to square-one of trying to figure out how to estimate the probability of a given situation going up or down.

I must be missing something; i suppose their can be leaders and laggards.

Dangerous word that.

If a lower dollar can inflate asset prices then the stock market and gold would both rise. Sound familiar

If they raise interest rates that should reign in the dollar a bit and boom we have our pull back.

Only diff is I think the Dow will be manipulated through the exact 50 to 11+ before that happens.

PTJ killed it 87 and that's a widely known fact. With people like Robert Peston around will they let this kind of price action become a headline? I dunno.

This is the theory I'm testing anyway.

 

[virtuos0]

I would say that you need to educate yourself on economics and the history of finance. Start off with Keynes, Friedman, Adam smith etc.. once you have a broad based understanding then you can formulate your own ideas. Trust me when I say that your own ideas will be just as valid as any other out there, because even the greatest economic minds often have diametrically opposing views.

I personally believe that China is pulling the strings at the moment, and has been for a while by talking down the dollar and buying every commodity in sight. If China farts the US is going to pass out.

 

[GladiatorX]

TF,
what you fail to understand is that you will never understand

I'm really disappointed that you would say that to TF; i had a large respect for you and you seem very knowledgeable but putting people down and making them feel inadequate is just pathetic. A real lack of respect and consideration for the efforts/pain of someone trying to create an understanding of something that he hasn't the qualifications to get proffesionally informed on/ isn't in regular touch with proffesional traders.

I'm genuinely just disappointed that you would put someone down like that.

 

[cr6196]

I'm really disappointed that you would say that to TF; i had a large respect for you and you seem very knowledgeable but putting people down and making them feel inadequate is just pathetic. A real lack of respect and consideration for the efforts/pain of someone trying to create an understanding of something that he hasn't the qualifications to get proffesionally informed on/ isn't in regular touch with proffesional traders.

I'm genuinely just disappointed that you would put someone down like that.

yep it is seriously beyond me how any retail trader can think they can find an edge in any sort of fundemental analysis...looking at correlations might be useful for understanding what is happening in the present but useless for predicting most future behaviour, it just gives you a false sense of security as you think you actually understand why stuff is happening...

there are so many factors interacting that there is little you can gain in terms of actual tradeable information, esp the closer to the present you get/smaller TFs (FA might be useful over the very long term, 1/2+ yr, but again that is expensive)...you could just enjoy a good mind **** on the other hand...

 

[montmorencyt2w]

Just find it funny that dow and dollar exploded apart at mar 09 and the dollar went straight into the support and we can see it's showing atm.

If gold breaks lower and lends even more strength to the dollar doesn't that add up to a higher prob of equities rebounding off of the 50%?

I don't know if it will help, but this guy has some interesting things to say:

Ashraf Laidi - Incisive Global Markets Analysis

OK, he has a book to sell and webinars to promote and he works for CMC....but apart from all that, there is a lot of free info there / YouTube, some of which at least I found interesting.

 

[Technically Fundamental]

yep it is seriously beyond me how any retail trader can think they can find an edge in any sort of fundemental analysis...looking at correlations might be useful for understanding what is happening in the present but useless for predicting most future behaviour, it just gives you a false sense of security as you think you actually understand why stuff is happening...

there are so many factors interacting that there is little you can gain in terms of actual tradeable information, esp the closer to the present you get/smaller TFs (FA might be useful over the very long term, 1/2+ yr, but again that is expensive)...you could just enjoy a good mind **** on the other hand...

Who said I'm trying to get an edge? I was just asking a few questions.

 

[montmorencyt2w]

yep it is seriously beyond me how any retail trader can think they can find an edge in any sort of fundemental analysis...looking at correlations might be useful for understanding what is happening in the present but useless for predicting most future behaviour, it just gives you a false sense of security as you think you actually understand why stuff is happening...

there are so many factors interacting that there is little you can gain in terms of actual tradeable information, esp the closer to the present you get/smaller TFs (FA might be useful over the very long term, 1/2+ yr, but again that is expensive)...you could just enjoy a good mind **** on the other hand...

Well be that as it may, I found that after months of steadfastly "ignoring the news", I was getting a bit fed up of seeing a pair or whatever suddenly plunge or soar, and not having much clue as to why. I therefore decided to make a determined effort to get to know a bit more about the various forces that were making this happen. Is the market random? No I don't think so, although it can appear to be, especially, as you allude to, over short TFs.

Even if I can't directly trade on these factors (although more knowledgable and skilled people probably could), at least I now have a better chance of standing out of the way of some of these sudden moves.

TF: I don't know if this throws any light. Just his opinion of course, but might give some ideas:

After volatile week, we see euro coming out on top