I draw inspiration from a brief analysis of AUD-USD to make some considerations on the moment we are living.
In recent weeks the world economy has been in difficulty because of Covid-19, however, from a rapid comparison of the data, we can see how the Australian economy has strengthened over the American one since the beginning of the year.
Under normal conditions, I would be looking for a level where to buy the currency pair. But that of Covid-19 is not a crisis like any other. We have seen this in several respects, such as the total uncorrelation between American equities and safe-haven currencies (CHF and JPY).
If you take the chart with the comparison of the two markets, you can see that since March the USD-JPY and S&P 500 Futures have moved almost following an inverse correlation. That is because investors have preferred the US dollar as a safe-haven currency.
You can also see this aspect with the chart above, that compares AUD-USD (in red) always to the S&P 500 Futures (in blue).
Here you can see a perfect correlation between the two markets. What does this mean? It means that if the American market starts a new bearish phase, the fundamentals of the two economies will not matter; Aud-Usd will follow the movement of the S&P 500 Futures.
In conclusion, with the Covid-19 crisis, everything it is cancelled, also for the great liquidity that the central banks are putting in the markets. Markets must be “navigated on sight”; surely when the situation will normalise, there will be great opportunities, but for the moment caution is needed.
In recent weeks the world economy has been in difficulty because of Covid-19, however, from a rapid comparison of the data, we can see how the Australian economy has strengthened over the American one since the beginning of the year.
Under normal conditions, I would be looking for a level where to buy the currency pair. But that of Covid-19 is not a crisis like any other. We have seen this in several respects, such as the total uncorrelation between American equities and safe-haven currencies (CHF and JPY).
If you take the chart with the comparison of the two markets, you can see that since March the USD-JPY and S&P 500 Futures have moved almost following an inverse correlation. That is because investors have preferred the US dollar as a safe-haven currency.
You can also see this aspect with the chart above, that compares AUD-USD (in red) always to the S&P 500 Futures (in blue).
Here you can see a perfect correlation between the two markets. What does this mean? It means that if the American market starts a new bearish phase, the fundamentals of the two economies will not matter; Aud-Usd will follow the movement of the S&P 500 Futures.
In conclusion, with the Covid-19 crisis, everything it is cancelled, also for the great liquidity that the central banks are putting in the markets. Markets must be “navigated on sight”; surely when the situation will normalise, there will be great opportunities, but for the moment caution is needed.