Last night I told you the Euro is actually stronger stronger than the USD is weak, this is because of ECB intervention, while the EUR/USD is an excellent proxy for the $USD being the Euro has a positive correlation with the market (they move together), it is actually the $USD the market is interested in, it just so happens the $USD has an inverse correlation with the market so divergences are harder to pick out as their normal correlation would be the mirror opposite of each other.
Again, yesterday I did point out the fact the $USD is not as weak as it would appear due to the fact that the ECB has been supporting the Euro. I'll also remind you that it is the $USD that the market is most interested in as far as arbitrage goes because most commodities across the world are priced in US Dollars, like oil.
This is an example of the $USD and EUR correlation with the market and why the EUR or EUR/USD is typically easier to use even though the $USD is the important part of the equation (it works most of the time because the Euro accounts for 50% of the US Dollar Index, by far more than any other currency).
*I'll admit these aren't the best examples as the Euro has been out of sync with the market recently due in part to Euro repatriation during late December before the year end and ECB intervention more recently.
This is the $USD intraday on a 15 mi chart in green, the SPY in red. The areas in white boxes are the mirror opposite and that is the normal correlation, the divergences are in red, it's when the two move together so for most people use to divergence analysis, this is the opposite of what they'd normally look for.
However using the Euro (green) vs the SPY (red) the divergences are easier to see. In a few cases the yellow boxes are actually divergences in the Euro that are leading the market, look at the first one to the left in which the Euro is heading up while the SPY is still moving down, shortly after the SPY follows the Euro, this is much easier to see. In the white box they are moving together which would be their typical correlation, in the one red box they are the mirror opposite and this is one of those times in which they have fallen out of sync briefly.
The divergences often can be a useful part of your larger analysis.
Here's a look at the EUR/USD pair...
This 5 min chart is tolled back to end at last Friday when we were seeing a couple of parabolic moves up in the Euro, I never trust these moves, but they apparently had the support of the European Central Bank.
This is the pair currently with this week's new trade starting at the blue arrow, it looks as if the Euro may just be losing momentum (perhaps the ECB has backed off considering Germany's situation, after all they are the manufacturing giant of Europe and an expensive Euro only hurts their economy more, they are 1 quarter away from recession). So it's entirely possible that the Euro is near a reversal, this is largely market negative and those parabolic spikes will likely be retraced quickly, which would also put pressure on the market quickly.
This has been the Euro recently lending support to the overall market (euro in red).
However this is today, tracking the SPY early on, but now actually falling behind in a negative divergence intraday. The market is more in line with the $USD which is sliding down a bit. The EUR/USD support may very well be coming to an end, just another piece of the puzzle that puts more pressure on the market.
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