IIFT Daily Note with Peter Brown

Late rally in Stocks and Foreign Exchange

Posted by:  |  Time: 6:38 am  |  Topic:  |  Comments: 2
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Well it took some time but after a bad day on European stock markets the market finally rallied at close. It was a negative day from the start with Italian markets reaching limit down at one stage. Euro reached 1.3250, the S&P bottomed at 1386.

The rally has stalled this morning at 1.3650 and 1404. Today is quarter end and year end in some places.Expect some volatility.

The secret to the direction is the Euro bond and equity markets. So keep an eye on Spainish and Italian bond yields and the equity markets. This will give the mood ‘Risk On’  ‘Risk Off’

If the market gets bearish these are great levels to sell.

2 Comments

Patrick Lambe

April 12, 2012

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I was at the talk the 1 day course in Galway in February which I found very interesting and informative. I am not 100 % clear on one topic though, namely the relationship between the EUR/USD currency pair and a falling or rising the stock market.

I’m a little confused here. I think that in a rising stock market, a trader would be more inclined to take out a SELL position on the EUR/USD currency pair, but I may be wrong. Please clarify.

Peter Brown

April 12, 2012

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Hi Patrick,
For most of the time the market works in a simple pattern. Risk On Risk Off
Generally in Risk On mode everything rises except the dollar. The reverse is true in Risk Off mode everything falls except the Dollar.
So the relationship between stocks and the Euro is that they rise and fall together.
You can see these correlations by looking back on your charts and by comparing one with another.

Regards

Peter