Archived IMT (2010.01.22)

FADING CORRELATION between the USD and major equity indices is best highlighted by EURUSD-S&P500 **** http://chart.ly/c7ynqh **** , which hit a 4-month low of 0.27 from an average of 0.84 in June-Dec. As the chart indicates, the decline of the correlation accelerated in mid December, coinciding with Greeces credit downgrade, which eroded the euros role as a risk currency. With the USD trading at its 200-day MA for first time in 8 months, and emerging consensus for US Q4 GDP standing at 5.5%, well above that of the G5, the anticipatory nature of USD-longs will likely remain at least into mid Q1. This could help maintain a win-win scenario for the US dollar, whereby falling equities to continue propping the low yielding currency and improved risk appetite is associated with higher probability of a Fed tightening.