AUDUSD and S&P 500 have been highly correlated for years but last year, their correlation take another level. Their 1-year correlation is %98.1 meaning %96.2 of AUDUSD’s moves can be explained by S&P 500. This is not just a one-way street, the granger causality test that we study shows they both cause each other.
This high correlation sometimes gave some opportunities for trading when they start to differ from each other. The first two of the marked areas S&P 500’s surge and fast fall cause a delayed same reaction in AUDUSD. And for the second two, it was the AUDUSD that caused S&P 500 to move.
There can’t be one right way to trade these divergences or a %100 profitable one. But to give you some idea we share two examples. These examples are from the first two of the marked zones. These signals are from the times when correlation weakens, may not work well in other times.
Example 1: There are two zones marked with vertical lines. At the first one, S&P 500 rise 4 days in a to
w while AUDUSD remained flat. After that AUDUSD followed the S&P 500’s example and surge. In the second zone, AUDUSD was flat again and S&P 500 fell 4 days in a row. After that AUDUSD began to fall.
Example 2: We marked two signal points that gave a hint of reversal after example 1’s movement. The first signal came when AUDUSD stopped rising for 2 days in a row while S&P 500 continued to increase. AUDUSD gave the signal of reversal. As for the second signal, this time S&P 500 reversed 2 days in a row while AUDUSD continued its fall. Then they both reversed.