CORRELATIONS CORNER: A Changing Tide?
Below is a correlation matrix of currencies/major asset classes presented in 3 time frames: Year-T-D, Month-T-D, Week-T-D.
At times, we will also present specific overlaid charts outlining major correlations as well as divergences between either two currencies or currencies against major asset classes.
*In bold/highlighted in yellow are positive and negative correlations x>+,- .80 or highest correlations if none exist x>+,-.80
WEEKLY (9/13/2010 to 9/20/2010)
Familiar correlations have weaned off in the past week as various asset classes have diverged from assumed longer term relationships. This is mostly reflected in the week-to-date US equity/yen cross correlations which have been almost nonexistent after the BOJ’s historic intervention last week and sees the S&P 500 track tighter with spot oil prices and AUDUSD. It also suggests a change in tide towards hard assets and commodity based currencies as the new ‘safe havens of choice’ in an environment that sees various central banks attempting to weaken their currencies for export related benefits. The result sees gold hitting record highs this week and AUDUSD reaching yearly highs.
· S&P 500 tracked highest in FX with EURCAD with a -.87 correlation coefficient but overall moved almost in lockstep with spot oil prices at +.91. Noteworthy is AUDUSD with a +.83 correlation coefficient.
· US 10 yr yields in FX land most highly correlated this week with USDCHF at +.97. Of note is the +.80 correlation with EURCHF, providing evidence of the swissy’s continued role as the safe haven currency of choice over the yen and the dollar.
· The Oil/S&P500 relationship has been an interesting one and sees a +.91 near term relationship. Oil prices also tracked tightly with AUDUSD at +.96 reinforcing the short term shift towards commodity related securities as preferred safe havens.
· In FX land, commodity based currencies tracked tightest as AUDJPY and CADJPY share a +.98 correlation coefficient.
| Security | S&P500 | DJIA | XAUUSD | Spot Crude Oil | US 10 yr. yields | USD Index | EURUSD | AUDUSD | USDJPY | AUDJPY |
| S&P500 | 1.00 | 0.98 | -0.31 | 0.91 | -0.15 | 0.24 | -0.39 | 0.83 | 0.01 | 0.35 |
| Spot Crude Oil | 0.91 | 0.80 | 0.05 | 1.00 | -0.53 | -0.10 | -0.13 | 0.96 | -0.23 | 0.14 |
| AUDUSD | 0.83 | 0.72 | 0.23 | 0.96 | -0.62 | -0.32 | 0.05 | 1.00 | -0.46 | -0.11 |
| NZDUSD | 0.66 | 0.51 | -0.05 | 0.83 | -0.73 | 0.00 | -0.37 | 0.76 | -0.29 | -0.02 |
| EURGBP | 0.44 | 0.46 | 0.33 | 0.44 | -0.19 | -0.52 | 0.37 | 0.64 | -0.64 | -0.45 |
| AUDJPY | 0.35 | 0.40 | -0.54 | 0.14 | 0.55 | 0.74 | -0.41 | -0.11 | 0.93 | 1.00 |
| CADJPY | 0.17 | 0.26 | -0.50 | -0.06 | 0.68 | 0.71 | -0.31 | -0.28 | 0.97 | 0.98 |
| USDJPY | 0.01 | 0.10 | -0.57 | -0.23 | 0.71 | 0.78 | -0.39 | -0.46 | 1.00 | 0.93 |
| EURJPY | -0.11 | -0.03 | -0.35 | -0.29 | 0.69 | 0.59 | -0.13 | -0.48 | 0.97 | 0.88 |
| US 10 yr. yields | -0.15 | 0.05 | -0.59 | -0.53 | 1.00 | 0.64 | -0.26 | -0.62 | 0.71 | 0.55 |
| USDCHF | -0.16 | 0.04 | -0.44 | -0.52 | 0.97 | 0.45 | -0.08 | -0.55 | 0.55 | 0.39 |
| GBPJPY | -0.18 | -0.12 | -0.37 | -0.34 | 0.63 | 0.62 | -0.20 | -0.55 | 0.97 | 0.86 |
| EURCHF | -0.31 | -0.14 | -0.02 | -0.54 | 0.80 | 0.06 | 0.34 | -0.48 | 0.34 | 0.19 |
| XAUUSD | -0.31 | -0.44 | 1.00 | 0.05 | -0.59 | -0.96 | 0.93 | 0.23 | -0.57 | -0.54 |
| EURUSD | -0.39 | -0.45 | 0.93 | -0.13 | -0.26 | -0.87 | 1.00 | 0.05 | -0.39 | -0.41 |
| USDMXN | -0.41 | -0.37 | -0.13 | -0.43 | -0.10 | -0.09 | -0.22 | -0.30 | -0.54 | -0.73 |
| USDNOK | -0.49 | -0.36 | -0.62 | -0.75 | 0.76 | 0.72 | -0.45 | -0.89 | 0.73 | 0.46 |
| USDCAD | -0.70 | -0.71 | -0.14 | -0.66 | -0.06 | 0.09 | -0.25 | -0.64 | -0.14 | -0.42 |
| GBPUSD | -0.73 | -0.79 | 0.47 | -0.53 | -0.01 | -0.23 | 0.50 | -0.56 | 0.30 | 0.11 |
| EURCAD | -0.87 | -0.92 | 0.70 | -0.61 | -0.27 | -0.68 | 0.68 | -0.44 | -0.45 | -0.68 |
Source: Bloomberg
MONTHLY (8/20/2010 to 9/20/2010)
The slightly longer term monthly correlations sees the usual suspects continuing to track closely with equities. AUDUSD remains on top with a +.91 correlation coefficient with the S&P 500. Yen cross/US equity market correlations have dropped off slightly due to the short term divergence between the two but still remain quite strong as AUDJPY still moving in line with the S&P500 with a +.78 coefficient. The commonality here is the Aussie which shows the high yielder being the preferred currency for risk seekers.
· S&P tracks highest with AUDUSD at +.91
· 10 Yr yields and CADJPY tracked best as they shared a +.76 monthly correlation
· Spot crude oil tracks best with NZDUSD with a +.80 relationship
· In FX land, monthly correlations confirming weekly relationships as commodity currencies AUDJPY and CADJPY remaining on top with a +.95 positive correlation coefficient
| Security | S&P500 | DJIA | XAUUSD | Spot Crude Oil | US 10 yr. yields | USD Index | EURUSD | AUDUSD | USDJPY | AUDJPY |
| S&P500 | 1.00 | 0.99 | -0.21 | 0.58 | 0.74 | -0.20 | 0.60 | 0.91 | 0.35 | 0.78 |
| AUDUSD | 0.91 | 0.90 | -0.22 | 0.67 | 0.66 | -0.43 | 0.67 | 1.00 | 0.23 | 0.75 |
| AUDJPY | 0.78 | 0.80 | -0.26 | 0.55 | 0.76 | -0.10 | 0.46 | 0.75 | 0.82 | 1.00 |
| NZDUSD | 0.76 | 0.72 | -0.42 | 0.80 | 0.55 | -0.34 | 0.46 | 0.84 | 0.12 | 0.58 |
| US 10 yr. yields | 0.74 | 0.76 | -0.37 | 0.49 | 1.00 | -0.04 | 0.36 | 0.66 | 0.54 | 0.76 |
| CADJPY | 0.69 | 0.72 | -0.32 | 0.42 | 0.75 | -0.05 | 0.48 | 0.64 | 0.85 | 0.95 |
| EURUSD | 0.60 | 0.58 | 0.09 | 0.28 | 0.36 | -0.62 | 1.00 | 0.67 | 0.10 | 0.46 |
| EURJPY | 0.59 | 0.62 | -0.10 | 0.32 | 0.61 | -0.15 | 0.63 | 0.54 | 0.84 | 0.89 |
| Spot Crude Oil | 0.58 | 0.55 | -0.20 | 1.00 | 0.49 | -0.28 | 0.28 | 0.67 | 0.22 | 0.55 |
| EURCHF | 0.58 | 0.62 | -0.25 | 0.30 | 0.73 | -0.19 | 0.62 | 0.55 | 0.47 | 0.65 |
| GBPJPY | 0.43 | 0.46 | -0.16 | 0.29 | 0.55 | 0.08 | 0.32 | 0.38 | 0.93 | 0.85 |
| GBPUSD | 0.38 | 0.37 | -0.02 | 0.30 | 0.33 | -0.25 | 0.59 | 0.49 | 0.39 | 0.55 |
| EURGBP | 0.37 | 0.36 | 0.13 | 0.05 | 0.12 | -0.51 | 0.67 | 0.36 | -0.22 | 0.06 |
| USDJPY | 0.35 | 0.40 | -0.19 | 0.22 | 0.54 | 0.23 | 0.10 | 0.23 | 1.00 | 0.82 |
| USDCHF | 0.16 | 0.23 | -0.40 | 0.12 | 0.57 | 0.38 | -0.21 | 0.03 | 0.50 | 0.36 |
| XAUUSD | -0.21 | -0.21 | 1.00 | -0.20 | -0.37 | -0.25 | 0.09 | -0.22 | -0.19 | -0.26 |
| EURCAD | -0.41 | -0.42 | 0.60 | -0.36 | -0.53 | -0.23 | 0.21 | -0.40 | -0.29 | -0.44 |
| USDCAD | -0.83 | -0.81 | 0.33 | -0.50 | -0.68 | 0.39 | -0.75 | -0.87 | -0.29 | -0.71 |
| USDNOK | -0.84 | -0.80 | 0.02 | -0.50 | -0.51 | 0.58 | -0.85 | -0.87 | -0.02 | -0.53 |
| USDMXN | -0.85 | -0.85 | 0.12 | -0.48 | -0.70 | 0.28 | -0.67 | -0.75 | -0.39 | -0.71 |
Source: Bloomberg
YEARLY (1/1/2010 to 9/20/2010)
Year to date correlations are consistent with last week. Short term correlation shifts will need to stay intact for extended periods to see any impact on the year to date correlation coefficients.
· Y-T-D Equity to FX correlations remain highest with AUDJPY, AUDUSD, CADJPY, USDCAD, and USDMXN
· Commodity currencies, AUDJPY and CADJPY, still tracking highest with US 10 yr yields at +.72 and +.74 respectively.
· Y-T-D fx correlations with crude oil remain closest with the S&P 500 and USDCAD at +.66 and -.63 respectively
| Security | S&P500 | DJIA | XAUUSD | Spot Crude Oil | US 10 yr. yields | USD Index | EURUSD | AUDUSD | USDJPY | AUDJPY |
| S&P500 | 1.00 | 0.99 | 0.15 | 0.66 | 0.67 | -0.41 | 0.48 | 0.82 | 0.53 | 0.83 |
| AUDJPY | 0.83 | 0.83 | 0.11 | 0.60 | 0.72 | -0.29 | 0.40 | 0.88 | 0.77 | 1.00 |
| AUDUSD | 0.82 | 0.81 | 0.21 | 0.62 | 0.56 | -0.49 | 0.55 | 1.00 | 0.39 | 0.88 |
| CADJPY | 0.79 | 0.79 | 0.08 | 0.56 | 0.74 | -0.21 | 0.33 | 0.72 | 0.84 | 0.92 |
| NZDUSD | 0.74 | 0.74 | 0.22 | 0.55 | 0.46 | -0.51 | 0.57 | 0.87 | 0.28 | 0.75 |
| EURJPY | 0.70 | 0.69 | 0.03 | 0.51 | 0.67 | -0.56 | 0.73 | 0.66 | 0.71 | 0.81 |
| US 10 yr. yields | 0.67 | 0.67 | -0.06 | 0.48 | 1.00 | -0.21 | 0.32 | 0.56 | 0.65 | 0.72 |
| GBPJPY | 0.66 | 0.66 | 0.04 | 0.52 | 0.61 | -0.36 | 0.43 | 0.58 | 0.78 | 0.79 |
| Spot Crude Oil | 0.66 | 0.63 | 0.25 | 1.00 | 0.48 | -0.48 | 0.41 | 0.62 | 0.34 | 0.60 |
| USDJPY | 0.53 | 0.53 | -0.05 | 0.34 | 0.65 | 0.10 | 0.03 | 0.39 | 1.00 | 0.77 |
| EURUSD | 0.48 | 0.46 | 0.08 | 0.41 | 0.32 | -0.89 | 1.00 | 0.55 | 0.03 | 0.40 |
| GBPUSD | 0.45 | 0.45 | 0.12 | 0.45 | 0.25 | -0.68 | 0.65 | 0.49 | 0.12 | 0.39 |
| EURCHF | 0.37 | 0.38 | -0.21 | 0.21 | 0.47 | -0.39 | 0.51 | 0.28 | 0.28 | 0.34 |
| XAUUSD | 0.15 | 0.13 | 1.00 | 0.25 | -0.06 | -0.11 | 0.08 | 0.21 | -0.05 | 0.11 |
| EURGBP | 0.09 | 0.07 | -0.02 | 0.01 | 0.12 | -0.38 | 0.54 | 0.16 | -0.09 | 0.06 |
| USDCHF | -0.22 | -0.20 | -0.26 | -0.28 | 0.04 | 0.68 | -0.70 | -0.39 | 0.20 | -0.16 |
| EURCAD | -0.39 | -0.38 | -0.11 | -0.24 | -0.33 | -0.43 | 0.46 | -0.32 | -0.45 | -0.45 |
| USDNOK | -0.71 | -0.70 | -0.20 | -0.58 | -0.47 | 0.73 | -0.80 | -0.79 | -0.21 | -0.65 |
| USDCAD | -0.84 | -0.82 | -0.18 | -0.63 | -0.61 | 0.44 | -0.51 | -0.83 | -0.47 | -0.81 |
| USDMXN | -0.84 | -0.83 | -0.26 | -0.60 | -0.57 | 0.43 | -0.51 | -0.79 | -0.46 | -0.78 |
Source: Bloomberg
Regards,
Daniel W. Hwang
Senior Technical Strategist
GAIN Capital Group | FOREX.com
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Insightful and Useful Comment!