Forex traders do need to keep an eye on what’s going on in the equities. And while most traders look at the S&P 500 for an idea of what stocks are doing, I take a slightly different tact. To me the read on equities is about risk aversion or risk appetite. Sure I’m looking for support and resistance but I’m really after the psychology of where people are putting their money and whether their looking for high return while assuming risk or safety.
I think the Dow is the best barometer for that.
Also consider that there still a good push-pull between the Dow and the dollar. Of course it’s the dollar that effects the majors: EUR/USD, USD/JPY, GBP/USD, and even the USD/CHF.
As the Asian session is underway and the “Greek Tragedy” and ECB response (or lack of it) is still being digested, the Dow futures are down 16. The funny thing about the EUR/USD mid-morning bounce today is that when has a bailout strengthened a currency. That maybe what traders are asking themselves now too.
With the intraday EUR/USD at resistance at the Dow Jones stalling around the 10,150 psychological level, my current positions are based upon both these two markets heading lower off resistance and the U.S. Dollar — in turn — heading higher.
– the Queen