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Does the Equity Market Lead the Currency Market?

Market timing should be impossible

Kaushik Ganesan
10 min read
25 Oct 2021

SUMMARY

  • Past equity market returns seem to predict currency returns
  • Such a currency timing strategy may be interesting as a diversifier
  • However, it is difficult to rationalize the results

INTRODUCTION

Bloomberg TV at 08:30 am EST: “The S&P 500 futures are trading lower as the US Dollar depreciated against G10 currencies overnight.”

CNBC at 9:45 am EST: “The USD appreciated given a strong opening in the S&P 500 due to better economic data.”

Stocks, bonds, currencies, and commodities are all interrelated and it is difficult to answer what variable is leading and which is lagging. Considering the starting and ending points of this complex multi-dimensional system of relationships is like asking, “Which came first, the chicken or egg?”.

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