Gaps, the EUR/USD, and DOW Correlation

19 Feb

With recent US and global economic new heavily influencing the market, we have seen morning gaps off the open. One indication on which way these gaps will play out is to look at the EUR/USD, as it trades 24-hrs a day.We recently saw a triangle breakdown in the EUR/USD. Measuring the high/low points of the EUR/USD triangle we get a target of 1.22. The Dow is sitting right at its support level of 7500 and any break lower may induce panic selling.

If a panic sell does come in, often times it is followed by extreme volatility and a surprise rally so be cautious and pay attention to the VIX. Of course, we also should be prepared for a bounce at these levels in case more global economic news acts as a catalyst.If we do see a retest back up to the of the triangle in the Euro, the Dow is likely to retest its old broken support around 7800 as new resistance, this would give us a great opportunity to get short if prices roll over at this level.

While we cannot predict what will happen in the markets, planning scenarios can give us great opportunities for higher probability trades. Good luck!

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