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Priced in Euros
We keep repeating the mantra that EURUSD is the best indicator of global risk-taking and below are a few charts that supports this view even further. More importantly though they show that watching the Euro is necessary for signals in the stock market.
The chart below left compares the Dow Jones to EURUSD. There certainly is some value in this chart but overall its lacks real correlation strength.
The chart below right is much better. It overlays the Dow Jones to the Dow Jones priced in Euros. On a monthly basis it does a very nice job of giving directional signals.
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Even better though is the chart below. I’ve taken the Dow Jones levels priced in Euros and ran a 21 month fast K stochastic on the data, back to 1960. It shows that the stock market was richly priced in the late ‘90s before becoming quite cheap around 2003. Then again it was expensive in 2007 before the latest opportunity to scoop up some shares. Yes we all know that now but the charts provide a bigger picture and for now they are saying that stocks are still relatively cheap.
Bottom line: Watch EURUSD for stock market signals.
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There is a lot of talk regarding the US GDP figure out on Thursday and we’ll go over the data after it comes out, but I think the jobless claims are more telling of what is going on right now. At the current rate we’re expecting -198k for next week’s NFP report. It’ll take a few weeks sub 490k jobless claims before we start creating jobs on a monthly basis again.
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Finally for today, we were disappointed to see that one reliable source did not even post a consensus expectation for the UK M4 figures. Obviously the BoE’s QE policy has something to do with this as you can plainly see the spike in money supply towards the end of 2008 in the chart below. On a rolling 3 month basis though we’re heading back towards 0% growth so this is obviously disappointing and further illustrates our theme over the past week of disappointing global economic data.
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