Can a trader read the markets from two different perspective at the same time? The correlation between the EUR/USD pair and the German stock index DAX 30 offer this possibility and, today, their correlation was exemplary.
The pair Euro-Dollar rose 90 pips and DAX 30 fell 206 points at the same time, showing a strong inverse relationship, which continued throughout the day, with both instruments bouncing on/under the 14 periods moving average.
What’s the reason for this inverse correlation between EUR/USD and DAX 30?
EUR/USD and DAX 30, the reason of the inverse correlation
German economy is strongly linked to the exports and the weakness of the European currency makes cheaper German products for the rest of the world. Contrariwise, a strong Euro makes more expensive German products. If the EUR/USD pair rise up, the markets read this movement as a threat for German exports and for the profits of German companies, so the DAX 30 falls. If EUR/USD falls, German stocks attract investors and DAX 30 rise. This relationship exists in every time-frame and today we could see it clearly.