FX Correlations (May): How Do Currencies Move In Relation To Each Other?

The following is our monthly correlations update for May. As we have stated time and again, correlations between different currency pairs will inevitably shift over time. Therefore, it is of utmost importance to keep abreast of these fluctuating relationships to fully understand your trades and portfolio. Below are the one-, three-, six- and twelve-month correlations for the seven major currency pairs. Additionally, we have included the six-month trailing correlation for the majors against the EURUSD for a different view of correlation.

AUDUSD remains in bullish movement

AUDUSD remains in bullish movement and the uptrend from 0.6284 extends to as high as 0.8014 level. Further rally is still possible next week and target would be at 0.8200-0.8300 area. Near term support is at 0.7700, and key support is located at 0.7449, only fall below this level will indicate that the uptrend from 0.6284 has completed.

Archive for the 'Canadian Dollar' Category

After finishing 2008 on a low note and getting off to a disastrous start in 2009, the Canadian Dollar (”Loonie”) is slowly clawing its way back. It has now risen over 14% since the beginning of March, and is up 7 cents in May alone, en route to a seven-month high. Circumstances have changed so rapidly that no one could have seen this coming. “The rising Canadian dollar has taken some forecasters by surprise; recent predictions by some Canadian banks said the dollar would be in the high 70-cent US to mid-80-cent range by June.”

Archive for the 'British Pound' Category

The Pound is holding its own against the USD, even touching a four-month high last week. But against other major currencies, the story is just the opposite. While managing to avoid parity against the Euro, for example, the Pound has nonetheless remained range-bound against the common currency. The Australian Dollar, meanwhile, has risen to $2 against the Pound for the first time in 13 years.

Foreigners Continue to Fund US Trade Deficit

The more important data point, however, concerns capital flows. This is applies mainly currency traders, which are less intrinsically worried about the US trade imbalance than how the rest of the world feels about supporting such a balance. For example, if the entire trade deficit is recycled (i.e. invested) back into the US, than theoretically a trade deficit presents nothing to worry about, at least not in the short run. [Of course, such a trend may not be sustainable for the long-term, but that is outside the purview of this post].

Archive for the 'Australian Dollar' Category

The economic outlook continues to improve for Australia. Most recently, both the government and the Central Bank released five-year growth forecasts, both of which show a modest recovery in 2010. “By 2011-12, the commodity-rich economy will again be firing on all cylinders with growth of 4.5%, well above the long-term growth rate of around 3%.”

USD Sinks Pressured by Improving Risk Appetite

USD traded at a five month low pressured by improving risk appetite as global equities and crude prices rally to a new high for 2009. Hope for second-half of the year recovery in the global economy fuels demand for equities and commodities. The USD was also pressured by report that South Korea plans to reduce exposure to US bonds and concern about financing of US debt. The Daily Telegraph reports that the six-month high in US 10 year bond yields defies efforts by the Fed to push long-term interest rates lower. This may be a sign that US yields will have to rise to attract funds to finance the growing US budget deficit. Investors may demand a higher risk premium for holding US assets.

Greenback Continues its Slide As Week Comes to a Close

Industrial output rose 5.2% in April, the sharpest increase in over a half century, and a figure that came in above expectations. Exports helped drive the increase in output, as they have increased two straight months. The data points to the end of the worst of the recession for Japanese manufacturers.

Dollar Trounced On Global Economic Recovery Optimism

Overall: The same old story continues to repeat itself. As economic releases give evidence that the global economic recession is close to a bottom, traders become bullish on riskier assets and sell the dollar. The majority of economic releases, from every region, have been positive recently leading traders to speculate the worst is over and become risk tolerant. On Friday the dollar weakened significantly across the board, dropping against all of the other major currencies. The euro led the way against the greenback, and the other majors followed suit, after it was reported that South Korea’s National Pension Service, which had $187 billion of assets at the end of 2008, announced it had pared its allocation for U.S. Treasuries over the next five years.

Greenback Continues its Slide As Week Comes to a Close

Industrial output rose 5.2% in April, the sharpest increase in over a half century, and a figure that came in above expectations. Exports helped drive the increase in output, as they have increased two straight months. The data points to the end of the worst of the recession for Japanese manufacturers.

USD Loses Safe Haven Bids as Risk Appetite Increases

The dollar fell versus its rivals on Friday as risk appetite improved on more signs of a global economic recovery. Japan's April industrial production surged the most in at least six years; Germany's April retail sales gained for the first time in four months; and US May consumer confidence rose to the highest level since September. The greenback was also pressured by US inflation and funding worries although bond yields fell for a second day following the spike in rates midweek. The Dow rose 97 points to end the month of May at 8500, its third monthly gain. The yen rose after finding support from its 200-day moving average as the deflationary trend in Japan deepened. The euro closed above the 1.40-area resistance at the highest level this year.

Trade Idea: USD/JPY - Buy At 96.15

Although the greenback retreated after yesterday’s rally to 97.24 in part due to profit taking ahead of weekend (we indicated in our previous update that 97.30/35, being 1.618 time projection of 93.85 to 95.51 measuring from 94.66 would cap upside), Tenkan-Sen should attract renewed buying interest and downside should be ltd to 95.95 (50% Fibonacci retracement of 94.66 to 97.24) and Kijun-Sen (now at 95.83) should contain pullback and dollar shall stage another upmove later today. Break of 97.24 resistance would confirm recent upleg from 93.85 is still under way and further headway towards 97.65, being 50% Fibonacci retracement of entire fall from 101.45 to 93.85, which is likely to limit upside today.

Trade Idea: EUR/USD - Buy Again at 1.4035

The single currency found renewed buying interest at 1.3906 yesterday in New York session as expected (our long entry level was 1.3920 and got a fill there), then euro rallied today and met our target at 1.4020 (making another 100 points profit). Once resistance at 1.4051 was penetrated, the single currency gathered momentum and rallied to a fresh 2009 high of 1.4151 before easing.

Credit Concern Has Replaced Risk Appetite In Determining USD's Movement?

S&P revised downward the outlook on the UK sovereign credit rating to 'negative' from 'stable', suggesting the nation's AAA credit rating is at risk, as UK's net government debt may reach 100% of GDP and stay near that level in the medium term. This once again triggered investors' concerns on sovereign defaults which has been subdued after several debt-laden emerging economies, including Turkey, Latvia, Hungary and Ukraine, were placed on negative watch or downgraded by Moody's and S&P in late 2008.

Key Events Ahead: ECB, BoE, BoC, RBA, ISMs, NFP

We are going to have a busy week as June starts. 5 major central banks will meet to decide on monetary policies with the RBA meeting on June 2 and ECB, BOE, BOC meeting on June 4. However, pause on rate cuts is expected for all central banks and focus will be shifted to the progress of unconventional measures and economic outlook forecasts. In the US ISM surveys will be released on June 1 and June 3 while employment report will be released on June 5.

EUR/USD - Weekly Forex Analysis for Jun 1-5, 2009

EUR/USD (a daily chart of which is shown), after an expected bearish correction in the first half of the past week, went on to break the 1.4050 high set the prior week. This past Friday saw the pair breakout significantly above 1.4050 to hit a high of 1.4166, before closing the week just below this new 2009 year-to-date high. Week after week since the lows in late April, price action has made higher highs and higher lows to form a steep, well-defined uptrend that has been in place for more than a month now. For the upcoming trading week of June 1-5, the next major upside resistance target in the pair’s current bullish run resides around the 1.4360 price region.

EUR/USD: Trading the U.S. ISM Manufacturing

Manufacturing activity in the U.S. is expected to contract at a slower pace in May as economists forecast the ISM index to increase to 42.0 from 40.1 in the previous month, and the release could reinforce an enhanced outlook for future growth as economic activity improves.

Heavy Technicals Will Meet Market-Moving Event Risk For The GBPCHF Range

False breakouts and volatility have been the scourge of range strategies these past few weeks. Individual currencies, as well as general market themes (like risk appetite), have been unable to spark a clear and tradable rallies. At the same time, congestion has been choppy and frequently overruns technical boundaries.

Canadian Dollar Correlation to Crude Oil Futures Near Record-Highs

The Canadian Dollar’s correlation to Crude Oil Futures prices has hit near record-highs, as the export-dependent country’s currency has regained its sensitivity to energy costs. The 20-day correlation between the USD/CAD and the front-month NYMEX Crude Oil Futures price now stands at an impressive -0.65—variations in crude oil prices can explain approximately 40 percent of movements in the Canadian dollar. A jump in sensitivity underlines the notion that markets remain very strongly connected, and common factors may continue to move currencies and other key asset classes.

British Pound Crosses: Bullish Bases

-GBPCHF tests 2009 high, measured resistance at 1.8220
-GBPCAD forming for a test of 1.8400
-GBPAUD monthly candle is bullish

Rising U.K. House Prices Fuel Optimism For Recovery

• GM in Last Lap to Chapter 11 – Wall Street Journal
• Fed Holds Steady as Rates Rise in Market – Wall Street Journal
• Fiat pulls out of Opel talks– Financial Times
• Bernanke's Bid to Revive U.S. Housing Scuttled by Climbing Rates, Defaults – Bloomberg
• Indian Expansion, Rise in Japan Production Add to Signs Worst May Be Over – Bloomberg

Euro Sets Fresh Yearly High As Equities Continues To Rally, Will U.S. GDP Add To Bullish Sentiment?

The Euro continued to find support overnight as it set a new yearly high of 1.4091 on the back of an improvement in April German retail sales and rallying equity markets.

US Dollar Tumble Finds Little Support against Euro

The EURUSD has defied expectations and broken to fresh year-to-date peaks, bucking a series of lower lows and lower highs. Our short-term bearish bias has clearly been shaken, and the next major resistance level comes at a confluence of trend-channel highs and relatively less-significant Fibonacci retracement marks.

Cable Extends Gains to Easily Exceed 1.6000 Barriers (Daily Classical)

• Euro setbacks continue to be very well supported
• Dollar/Yen locked in choppy consolidation trade
• Cable easily exceeds key psychological barriers; ignores overbought readings
• Dollar/Swiss rallies one again well capped ahead of 1.0930

US Dollar Tumble Finds Little Support against Euro

The EURUSD has defied expectations and broken to fresh year-to-date peaks, bucking a series of lower lows and lower highs. Our short-term bearish bias has clearly been shaken, and the next major resistance level comes at a confluence of trend-channel highs and relatively less-significant Fibonacci retracement marks.

Heavy Technicals Will Meet Market-Moving Event Risk For The GBPCHF Range

False breakouts and volatility have been the scourge of range strategies these past few weeks. Individual currencies, as well as general market themes (like risk appetite), have been unable to spark a clear and tradable rallies. At the same time, congestion has been choppy and frequently overruns technical boundaries.

US Markets Trading Flat on Mixed Data While Euro Rises to 2009 High Friday, 29 May 2009 13:58:25 GMT

US markets are trading near the previous day's close as investors react to weaker data at home despite some signs of improvement in Japan, Europe, and India. Releases in the US included a revision to first quarter GDP that came in slightly better at 5.7% but worse than the 5.5% forecast on Bloomberg. Personal consumption came in at 1.5%, noticeably below the 2.0% previously cited. Also, recently released Chicago PMI data posted a sharp fall as the region contracted for the 8th month. The figure is important in that its release ahead of national PMI data often acts as a leading indicator for the country as a whole. NAPM's Milwaukee reading meanwhile posted a slight increase ahead of expectations to 43 from 39, signalling conditions that are deteriorating less rapidly. Final revision to the consumer confidence reading by the University of Michigan also increased further to 68.7 from a preliminary 67.9. Currency markets are seeing more risk appetite as the US dollar continues to depreciate against several key crosses with the euro hitting a year-to-date record high above 1.41.

Euro May Pullback Slightly Before Heading To December High

Hourly charts on EURUSD suggest a pullback is likely as the move of nearly four hundred pips in less than two days lifts RSI into overbought territory. The currency is also approaching a key fibonacci retracement at 1.423. Previous entries above 70 have often resulted in the euro falling from the top of an upper channel that began in April. The pair may pull back at least 100 pips following a range of nearly four hundred pips in the past two days toward the previous high set last Friday at 1.4049. Long term direction however seems to indicate further strength for the euro as risk appetite remains high and optimism floods investors out of dollars and US treasury bonds.

Markets Rally Higher Into End-of-Month Close

US markets rallied with greater than one percent gains to close higher for the third consecutive month. Stocks shifted between gains and losses for much of the day before bolting upward in the last thirty minutes of trading on no significant news in the final hour of trading. Dow gained 4.06% in May which was noticeably smaller than increases in March and April of 7.35% and 7.73%, respectively. Overall, the Dow is down 3.15% on the year-to-date while the S&P500 etched a small advance of 1.76%. Meanwhile, the NASDAQ leads the three markets with a 12.51% gain on the year as the tech heavy index recovered quickly on the resiliency of technology giants including Google, Microsoft and Apple.

US Dollar Decline Shows No Signs of Slowing as US GDP Still Shows 5.7% Contraction in Q1

US Dollar Decline Shows No Signs of Slowing as US GDP Still Shows 5.7% Contraction in Q1
• Euro Ends the Week Right Below Key Resistance at 1.4180 – ECB to Release Credit Easing Details Next Week
• British Pound Clears 1.60 Once Again, BOE Meeting May Prove to Be a Non-Event Next Week US Dollar Decline Shows No Signs of Slowing as US GDP Still Shows 5.7% Contraction in Q1
The US dollar continued to plunge across the majors on Friday, leaving it down more than 2 percent versus the commodity dollars and down over 1 percent against the euro, British pound, Japanese yen, and Swiss franc. Looking to the US economic calendar, US GDP was revised up to -5.7 percent in Q1 from -6.1 percent, leaving the past two quarters as the worst in 50 years.

Forex Trading Weekly Forecast - 06.01.09

US Dollar: Will Heavy Event Risk Stem the Bleeding?
Euro Outlook to Depend on ECB Rhetoric, S&P 500 Performance
Yen Loses on Carry Demand, Data to Highlight Economic Downsides
British Pound Remains Overbought After Rally Above 1.61
Swiss Franc To Face 1Q GDP, Record-Drop in Consumer Price Growth
Canadian Dollar Surge May Slow on Critical Economic Event Risk
Australian Dollar’s Strength Hinges on GDP and RBA Decision
New Zealand Dollar Looking To Ride Rising Commodity Demand