The globalization of the world's financial markets in recent decades has made trading a single product without any acknowledgement of the other markets a very difficult proposition. Lately, we have been discussing the recent correlation of the dollar and our equity markets, and more specifically the Dow Jones Industrial Average. Well, today was a shining example. I wrote that I was bidding for a half position of EUR/USD at 1.2772 on today's New York Afternoon update. I had specific technical reasons to enter the trade, but I was kept in the trade for a different reason all together. As I mentioned a few days ago, I have been keeping an eye on the DJIA-EUR/USD relationship leading up to the August 9 FOMC meeting. Any bit of economic data that forecasts an additional rate hike sees the equity markets sell off as the dollar rallies, sending EUR/USD lower. Well today the stock market was strong, despite a rate hike from the ECB and BOE this morning. In fact, the Dow Jones was breaking through the July highs of 11257 as I was long EUR/USD. So instead of closing the EUR/USD long trade out prematurely, I kept an eye on the DJIA as it traded above resistance for guidance.

I have overlaid the DJIA in orange over EUR/USD to illustrate my point. The correlation between the two is quite remarkable. The DJIA appeared to be losing momentum and then began to make a series of higher-lows, as EUR/USD was running into .618 retracement resistance. I exited the trade rather than trailed the stop on these two premises and missed grabbing the whole move by only 5 points or so.

My point is not to say, look what I did, but to suggest you watch the DJIA on your eSignal charts tomorrow, symbol $INDU, following Non-Farm Payrolls. .618 retracement at 11300 should serve as significant resistance and if you are long EUR/USD while the DJIA struggles here, look to tighten up your stop.

Gold and the US dollar have a long history of inverse price action; when the Dollar rallies, gold typically sells off. Today was no different. Spot gold, which can also be monitored on eSignal chart offering using symbol XAU A0-FX, was trading at critical channel support of $640/oz. The inset 5-minute chart shows the price action at $640/oz. Gold rallied hard from this technical support pushing dollars lower and our EUR/USD higher. Spooky, huh? For tomorrow, look to be short EUR/USD, or at least not long, if $640 / oz gives it up.

The last piece of the puzzle today was interest rates, or more specifically the 10-year bond yield. 10-year rates generally move in the same direction as the dollar. So if 10-year rates move lower, the dollar can get weak sending EURUSD rates higher. You're probably sick of hearing it by now, but today was no exception. As we were long EUR/USD this morning, the 10 Yr rate was breaking through the June 13 lows of 4.949% further pressuring the dollar. June 13, in fact is the same day the DJIA, Gold, as well as EUR/USD made significant lows. The 10-year bond yield can be charted on your eSignal using the symbol $TNX. For tomorrow, watch for a confirmed break of 4.949% as a Dollar bearish sign.

As you can see, our eSignal chart offering is a very powerful tool. I believe the minimum requirements are fairly low, so if you have not signed up for access, contact customer service and they will get you started.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.