Squawk Morning Briefing: Considering Currencies

Strictly speaking, there are limits to how correlated U. S. equities are with the Euro / U. S. Dollar exchange rate. The clearest example of this is that back in July equities were already in the process of recovering from a correction off their highs yet the Euro was making multi-year lows. However, on any given day the two are mostly synchronized. That is, if there is interest in buying equities then the Euro will rise more often than not.

In our Euro briefing we continue to see the currency consolidating under September’s swing high. This usually leads to a continuation of trend which, in this case, would mean another high to continue the upward sequence from July. From what we’ve observed about the relationship to equities we can conclude that we may be due for a bounce in equities before too long. But even though we might anticipate a new high in the Euro, that doesn’t imply that the equity bounce needs to rise above the September peak.

In our equity briefings we have continued to view both possibilities and it will be the extent and nature of the bounce that will tell us if a significant change in direction is already in progress.

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