Over the last few days, European stocks have been doing quite well, but that has now come to an end for the time being as the European Central Bank has had to intervene with Greek loans. Greece has had some major debt problems over the last several years, and officials from this country are currently in negotiations with the heads of the EU and IMF financial authorities. 2015 is a big year for Greece financially because of the massive amount of money that becomes due over the next few months--a total of about 9 billion euros. With talks failing for the time being, though, the three day rise in European stocks ended, although not nearly as badly as it could have. Stocks remained only slightly changed at the end of the trading day.
There is a very strong correlation between the U.S. stock market and the dollar. The correlation is a negative one, meaning that when one goes up, the other goes down. When it comes to the euro, the situation is different, mostly because the currency is used throughout many different countries and stock markets. It is centralized by the ECB, but in a much looser manner than what happens within the U.S.
Interestingly enough, there is a strong correlation between the euro and the U.S. stock market, so much so that many professional traders use the euro’s movement early in the day to help them prepare for trading stocks in the U.S. once the market’s open in New York. It’s a brilliant strategy, but it is often too simplistic. However, it is a very good starting point for your daily research when it comes to setting up which actions you want to take. If nothing unexpected occurs, it might even be enough to get through the day with a sizeable profit. This is especially helpful for short term binary options traders that need to research positions and make final decisions very quickly. If you are trading 60 second options, or even as long as 5 to 15 minutes per trade, making decisions as quickly as possible and timing your actions perfectly is a necessity if you want to be successful. Depending on the assets you are trading, the difference in success and failure might be just a penny or two, so this type of timing is essential to being a profitable trader at the end of the year.
Be careful with this approach, though. There used to be a risk on/risk off approach that was popular among short term traders looking at the euro. The story went that when the euro was risky, the U.S. markets were not, and vice versa. This has shifted a lot since 2012, and now both can often be successful at the same time as there is an overall positive correlation. The correlation is still there, but because of the strength of the U.S. dollar right now, it is already in flux. There is a relationship, but it is an indirect one, and as a result, it is something that can change to the exact opposite of what it currently is over time. Keep your eyes open and pay attention to where trends are headed, and little market hacks such as this will pop up for you from time to time. Things like this become a lot easier to find as you gain more experience trading.
For now, European stocks are stalling out and the euro is climbing up out of the hole that it’s in, but unlike what happens in the U.S., it is very possible for these to move in lockstep with each other for prolonged periods of time.