EUR/USD correlation with S&P 500 signals potential dollar instability ahead

The EUR/USD pair has shown an unusual positive correlation with the S&P 500 index, raising concerns about underlying dollar stability as traditional market relationships appear to be breaking down. Currently trading at 1.0415, EUR/USD has gained 0.15% alongside equity strength, diverging from typical risk-off patterns where dollar strength accompanies stock weakness. This correlation breakdown suggests investors are increasingly questioning the dollar's safe-haven status amid mounting fiscal concerns and Federal Reserve policy uncertainty. Technical analysis shows EUR/USD testing the 1.0420 resistance level, with momentum indicators pointing to potential further gains if this level breaks. The Dollar Index (DXY) has retreated to 105.90, showing vulnerability below the key 106.00 psychological level. Market participants are closely monitoring this correlation anomaly as a potential early warning signal for a broader dollar correction, particularly if risk assets continue to rally without corresponding dollar support.