Correlation changes - Week of January 6, 2014

An eye on any sudden changes in the correlation values is always important as it may provide a trading opportunity. The reason is simple that temporary major changes in the correlations may ultimately try to normalize to their longer-term averages.

Let's check the EUR/USD correlations with some of the other pairs. The following data compares last week's average against past one year's average.

EUR/USD correlation table

 

The major changes are seen in the correlation of the following pairs:

  • EUR/USD with AUD/USD. The last one year's data shows negative correlation of -0.38 while during past one week these two pairs went into a strong positive correlation of +0.97.
  • EUR/USD with EUR/GBP: These two pairs again changed the direction from last one year's average negative correlation of -0.26 to positive correlation of +0.62 during last week.
  • EUR/USD with EUR/CHF: The direction changed from past one years weak positive correlation of +0.24 to slightly stronger negative -0.59 during the last week.
  • EUR/USD and USD/JPY: The similar changes took place between EUR/USD and USD/JPY where a change from a week correlation of -0.37 to a stronger positive correlation of +0.72 was seen.

What did not change?

USD/CHF held it's strong opposition to EUR/USD with almost no change in the position. The very strong correlation between these pairs saw a minor change of -0.94 to -0.91. 

You may check more about correlation of currency pairs here.

Connect with the author at Google: +Himanshu Jain.

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