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Will Euro move lower with Stocks?

Stock market moved lower in the past week as US data disappointed constantly. On Friday the nonfarm payrolls fell by 125,000, which is worse than that had been expected (-106,000). The S&P 500 moved down to around 1016 zone, 6 points from a 5-day low, while traders saw a weekly close around 1022 region.  Technically the S&P 500 increased losses from a week earlier when the market bounced from a 100-day SMA and confirmed “the bear market coming” as prices broke and closed below the critical 1036-1040 region, which suggests more losses ahead.

In the past week an interesting price action was seen on forex, when Euro surprised the markets and moved higher against the U.S. dollar, even when commodities and the stocks were falling. It seems that now traders positioned short against the commodity currencies such as Australian and Canadian dollar, the currencies that still have plenty of room to fall against the U.S. dollar in the coming week. Aud/Usd down towards 0.8000 , and Usd/Cad up to 1.000 and 1.1000.

Since the correlation between Euro and S&P is broken, is now expected to get back to normal in the near-term, is just a question which one will drag and which one will be pulled.  Considering to a price action seen on Euro over the past three weeks, the upward move looks very corrective that reached a 38.2% of a previous decline from 1.3690 , so a bounce lower is expected from here as traders must realize that Euro trend is still short, so this short covering rally could be just another short opportunity. On the other hand, the S&P broke a significant 1036-1040 support level as mentioned above, which opened  950 and 900 targets, so any short U.S dollar positions against the majors will not last long. With this being said, Eur will probably join to lower Canadian and Australian dollar. However, traders need to be very patient and watch for Monday and Tuesday price action for a possible reversal signs.


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Disclosure: Short stocks