Anyone with an interest in the currency markets will have noticed the strong negative correlation between the U.S. dollar and U.S. stock market since the credit crunch hit in earnest in early 2008. No surprises then that coinciding with the strong rally in the S&P 500 of late, we have seen a steady rise in the euro vs. the dollar.

The same thing happened in 2003 when the stockmarket bottomed out following the crash. Until proven otherwise, any view on EUR/USD is by implication a view on the S&P 500.

From a technical perspective, my outlook for EUR/USD is shown in the chart below.

I am looking for the upward move in the euro to continue toward 1.4750 before a short period of consolidation and a final push up toward the psychologically important 1.5000 level. By this time, U.S. dollar sentiment should be universally bearish -- the ideal conditions for the exact opposite! This should then set up the best dollar recovery of the year.

Clearly there are going to be some excellent trading opportunities in EUR/USD -- and other dollar crosses -- over the coming weeks. Subscribers to my Daily FX Trading Service (all sent via email) will be alerted to these opportunities. If you would like a special extended three-month trial of my FX service, then send me an



At the time of publication, McKegg had no positions in the stocks mentioned, although positions can change at any time.