EURUSD Sell Off Jacks Up Correlations – Typical “Risk-Off” Stuff

The sell off in the EURO across multiple currency pairs has shown the typical risk-off type of price behaviour as correlations have been jacked up across the various EURO pairs.

Having checked out the correlation matrix at the mataf site (www.mataf.net) for a few periods you can really see how the short term action in the EURUSD has changed a bit. I used the correlation matrix for the daily time frame set to a 30-period for recent price action and to a 90-period for a longer time window (roughly one calendar quarter) and here are some results 

Daily Correlations – EURUSD way up there with EURCHF and EURJPY Lately

  • EURUSD – EURCHF – short term correlation has been jacked up…..like…a lot!: The 30 day correlation stands at 82.7 versus 90-days at -2.2, that is a huge difference. The screenshots below also show that over much longer periods (30 and 90 weeks) the correlation is quite low.
  • EURUSD – EURJPY – short term correlation has jumped up: The 30 day correlation stands at 91 versus 67.2 for 90-days.
  • EURUSD – EURAUD – another short term correlation that has jumped up a lot:  The 90-day correlation for EURUSD/EURAUD is -14.4, so in that context the increase to a +67.8 for past 30 days looks pretty sharp. Looking at the table below you cal also see that EURUSD-EURAUD has shown a similar correlation level as EURUSD-EURCAD, another “commodity linked” pair.

The chart below shows the figures for the 30-period for Daily and Weekly

12-07-2011_11-37-48_euro_pairs_30period_correlations

The chart below shows the figures for the 90-period for Daily and Weekly

12-07-2011_11-37-48_euro_pairs_90period_correlations

What does this mean for trading the EURO Pairs in the near term?

  • EURO-related news dominating headlines = look for high probability opportunities where several Euro crosses appear to be in agreement. For example, a study of the 1H Chart on the EURJPY and EURCHF for the period from July 11th until London open on July 12th showed highly similar price pattern of decline and consolidation prior to the 8-AM London open. This type of configuration can provide that extra bit of help when looking at opening range breakouts.

 

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