The Rise in EURUSD has accompanied a rise in the S&P 500.
The S&P 500 from April 16, 2014 to March 23, 2018
EURUSD from April 16, 2014 to March 23, 2018
EURUSD turned bearish in 2014 with a precipitous drop in value. This happened due to Federal Reserve tightening, the European Central Bank cutting interest rates and fears concerning Greek debt.
With interest rates at zero and the Federal Reserve hiking rates to 1.75%, other factors have been at play for the bullish EURUSD rate. Perceived political risk in the U.S. (beyond the Presidency), U.S. debt obligations, potential trade wars, and a general lack of trust in the Trump Administration to bring about fiscal responsibility and stimulate growth have brought down the U.S. Dollar.
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However, historically, the S&P 500 has risen when EURUSD has done so as well. However, it may not have as volatile of a reaction during each upswing of the Eurodollar.
The fall of the Euro in mid 2011 going into August 2012 came with a market that was more or less ranging, but not truly breaking out. However, the rise of the Eurodollar in 2012 came along with a rise in the S&P 500 that would last for two years until the Eurodollar started its collapse and this collapse was accompanied by a stalled S&P 500.
The same scenario played itself out during the Financial Crisis. The weakening of the U.S. Dollar against the Euro was becoming so clear that even in 2005, it was a mainstream topic in the United States.
The weakening dollar combined with an S&P 500 that
EURUSD actually continued its rise as the S&P 500 began its decline and ranged for much of 2008. EURUSD formed a double top and dropped in August, which was a precursor to the S&P 500’s collapse.
Once again, the S&P 500 runs in tandem with EURUSD. 2003-2006 once again showed this.
The fact that history has repeated itself during the “Trump Bump” should not be terribly surprising. If EURUSD falls and the S&P 500 stalls, it may be a precursor to a correction or a recession. Keep an eye on both.
If you want to invest in currencies with lower exposure to the S&P 500 movements, get a free consultation with Freevestor.
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