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Foreign Exchange Correlation Trade (Incl video from NASDAQ market site)

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Will all of this European negativity derail U.S. stocks? It might, but equities are resisting this headwind. A falling euro usually pulls U.S. equities down with it, but the wild card here is cash on the sidelines. January was a record month for fund inflows, and there is still plenty of dry powder available.

Also, many of the correlations that bedeviled markets last year have faded, as correlations often do. Just because the correlation trade worked last year -- in this case, that between a falling euro and falling U.S. stocks -- doesn't mean it'll work this year. Markets are always changing, so don't fall into the trap of blindly believing that they've become static. Just when you believe you have the markets figured out, they have a way of pulling the rug out.

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At the time of publication, Ponsi was long the EUR-USD. He was short the FXB.


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