Dollar at Seven Week High

Currency markets were active last week and Friday’s US jobs report showed better than expected results. The report showed a deceleration of US job losses but this time the reaction of investors was different. In the past good economic news put downward pressure on the dollar as investors dumped dollar denominated assets in favor of higher yielding currencies. Friday’s news sent the greenback to a seven week high against other major currencies providing many with Forex opportunities.

Dollar Stock Correlation Changing

Many currency traders saw Friday’s results as a sign that the dollar’s usual correlation to the stock market is changing. Usually the dollar rises when the economic news is negative causing investors to seek the safe haven of the dollar. For the past year the dollar has generally followed the lead of stock markets. When stock markets are performing well the dollar falls and if the news is bad the dollar rallies. Investors are now betting that the United States will be the first developed country to recover from the global recession.

Euro/Dollar and the S & P 500

Earlier in the year the correlation between the Euro/dollar rate and the Standard & Poor’s 500 index was 50%. Simply put the euro rose and fell following the S & P 500 index 50% of the time. That link has slipped recently to 30% to 40%.  Many now see the euro/dollar pair breaking out of this pattern. Greg Salvaggio of Tempus Consulting stated, “I think this could be the start of the unwinding of the inverse stocks-dollar correlation. We’ve seen improvement in housing, in manufacturing output and now clearly in the job environment.”

Signs of US Recovery

Many traders see sign of US recovery in recent housing, manufacturing and jobs data. While the US economy is not entirely out of danger many are optimistic. President Obama said that the US may be seeing” the very beginnings” of the recession’s end. Currency exchange rates are bound to be affected by this week’s economic calendar. The Federal Reserve meets Tuesday and the Treasury plans to auction off $75 billion in US debt. Hopefully the news from the US will continue to be positive.