My Dow Jones Trade

My current EUR/USD trade employs a signal I developed based on the Dow Jones Industrial Average (DJIA), which I discussed in this earlier post. Yesterday, August 28, the DJIA spiked upwards over .6%, as you can see from the chart to the left.

Based on this uptrend, I placed a long EUR/USD trade today, August 29, since my historical analysis shows a correlation between a significant increase in the DJIA and the upward movement of the EUR/USD the next day. Here's how that trade's been going so far - as you can see from the chart, the EUR/USD pair is up around 30 pips today. If this trend holds until the end of the day it'll mark another success for my Dow Jones signal.

In addition to the Dow Jones average, other correlated indicators you may want to keep an eye on when trading the EUR/USD pair are the NASDAQ, British and European stock markets, the price of oil and other major commodities, and of course the Federal Reserve's interest rates (to name just a few).

Related topic:
Interesting Correlations Between the EUR/USD and the Dow Jones Industrial Average

Interesting Correlations Between the EUR/USD and the Dow Jones Industrial Average

The other day I got curious about what correlations (and potential causations) could be found between the daily movement of the Dow Jones Industrial Average (DJIA) of shares traded on the New York Stock Exchange (NYSE) and the activity of the EUR/USD currency market. And I found some...at least in the 3 year data set I was studying, an admittedly limited sample.

Here's how I did my research - first I downloaded daily EUR/USD price data available on the Metatrader forex platform, which I've discussed previously. Then I did the same thing for DJIA historical price data available from Yahoo! Finance.

Next I had to clean up the data a bit, since the EUR/USD pair trades on days the NYSE doesn't and so there isn't perfect overlap in their daily activity. Essentially this meant going through week by week and removing all the Sunday trading data from the EUR/USD data. With that done, I had nice sets of parallel data for each market. Then I started playing around with it, trying to determine if a bullish day for the DJIA equated to a bullish day for the EUR/USD, or the opposite. Same for bearish days for the DJIA. There seemed to be a good chance of it, especially since the NYSE market closes several hours before the EUR/USD hits its peak trading period. So it made sense (at least to me) that during this period between the close of the major US exchange and the kick-off of high volume EUR/USD trading, forex traders would analyze the DJIA trend and reach conclusions about its impact on the currency pair, and then place trades on that basis.

And that's what appears to happen on a statistically (and profitably) significant basis. A strongly bullish day for the DJIA correlates with certain trends in the following day's EUR/USD forex trading. And so does a strongly bearish day for the Dow Jones average. Now you may be thinking, enough build up, what are these correlations, exactly? Well, having put several hours into the project, I don't really feel like giving that information away just yet. Maybe someday. But hopefully I've given you enough clues to start figuring out some inter-market correlations yourself. Another market you may want to add to the mix is NASDAQ - you can find price data for this exchange on Yahoo! Finance as well.