The key take-away point here: Forex, Stocks, and Commodities all move with risk sentiment, aka optimism or pessimism about the economy. More specifically, risk currencies and currency pairs (the ones with the riskier currency on the left) move in the same direction as stocks and commodities, and the safety ones (with the safe-haven currency on the left) move in the opposite direction.
Thus these three markets, risk currency pairs, stocks, and commodities , can be used effectively to note divergences that may well signal trend shifts in other asset markets. In particular, if forex and commodities are moving in the opposite direction of stocks, that negative divergence should be a great big warning for stock investors to prepare for a trend shift.
Note too that checking overall trends in any two of these markets, forex, commodities, and stocks, to predict the future trend of whatever market you follow, is an excellent idea. Be especially mindful when you see one market’s trend diverge from that of the other over more than just a few days. It likely means that the a change is coming.
Note: When the S&P hits its lower Bollinger Band and begins to pull up and away from it, we tend to see at least a rally up into the middle of the Bollinger Band range, and similar rallies in other risk assets. As of this writing, however, the EUR/USD and AUD/JPY are both still falling, so we are skeptical about current attempts by the S&P and other risk assets to begin the anticipated bounce.
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