Correlation Between USD/JPY and Dow.

Let’s take a look at the correlation between the USD/JPY and the Dow.

Generally, the strength or weakness of the dollar, impacts the U.S. stock market, particularly stocks of large multi-national corporations (MNCs).

For large U.S. multinationals that sell goods and services overseas, a rising U.S. dollar can put a crimp into the profits.

If the dollar is strong, it makes a difference for those companies since it makes it difficult for them to increase prices or even maintain sales at current levels.

That said, you might assume that the USD/JPY and Dow would be highly correlated.

However, a look at the chart below would tell you that it isn’t quite the case. While the correlation is positive, it isn’t as strong.

Take a look at the Dow (blue line).

It peaked at 14,000 late in 2007 before dropping like a hot potato in 2008.

At the same time, USD/JPY (orange line) also fell, but not as sharply as the Dow.

This serves as a reminder that we should always take into account fundamentals, technicals, and market sentiment, so always read up!

Don’t take correlations for granted because they aren’t a sure-fire thing!

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