Technicals | Nov 17 2011
By David Rodriguez, Quantitative Strategist
Correlations between the US Dollar (ticker: USDOLLAR ), Dow Jones Industrial Average, Silver prices, and the Australian Dollar trade near record-strength. Currencies continue to offer alternatives to positions in other markets.
The US Dollar’s (ticker: USDOLLAR ) record correlation to the Dow Jones Industrial Average and strong link to silver prices underline the fact that major markets continue moving in virtual lock-step. In effect this means that positions such as the Australian Dollar/US Dollar could be used as alternatives to positions in the DJIA and S&P 500, while the Euro/US Dollar’s link to silver prices offers similarly attractive proxies.
Forex Correlations Summary
View forex correlations to Gold, Oil, Dow Jones Industrial Average, UK FTSE 100 Index, and Silver prices.
Dow Jones Industrial Average versus Dow Jones FXCM Dollar Index
The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) remains extremely correlated to the Dow Jones Industrial Average, underlining the fact that markets continue to flock to the safe-haven US currency during times of market stress. The Dow Jones remains in a progressively narrower trading range as the USDOLLAR persists above recent support levels.
Expect the next major break in the DJIA to coincide with similar moves in the Dow Jones FXCM Dollar Index. Given recent upward momentum in the Greenback and downward short-term momentum in stocks, we expect the USDOLLAR to break higher as the Dow Jones Industrial Average drops below congestion support.
Dow Jones Industrial Average versus Australian Dollar/US Dollar Forex Pair
The Australian Dollar retains its strong correlation to the Dow Jones Industrial Average, offering a high-yielding alternative to positions in the DJIA. As the highest-yielding currency of the G10, the Australian Dollar has been a speculator’s currency of choice during times of robust risk sentiment. Of course, high yields are a double-edged sword: when markets sell off, the Australian Dollar likewise falls sharply.
We expect the AUDUSD to remain a strong proxy to trading the Dow Jones and other risky asset classes.
Euro/US Dollar versus Price of Silver
The Euro/US Dollar has become strongly correlated to the price of silver, acting as a relatively strong proxy to positions in the silver market. One thing worth noting is that this correlation has been fairly volatile in the past year-frequently flipping between positive and negative amidst broader market volatility. Yet at its core, we expect silver prices to remain correlated to US Dollar pairs.
The precious/industrial metal remains a hedge against US Dollar weakness, and many have looked to silver during times of sharp USD sell-offs. We expect this to continue to be the case, and silver similarly stands to lose on any sharp Greenback rallies.
The views expressed are not FNArena's (see our disclaimer).
For real time news and analysis, please visit http://www.dailyfx.com/real_time_news
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
www.dailyfx.com
Disclaimer
Forex Capital Markets is headquartered at Financial Square 32 Old Slip, 10th Floor, New York, NY 10005 USA.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before you decide to trade the foreign exchange products offered by Forex Capital Markets, LLC, Forex Capital Markets Limited, inclusive of all EU branches, FXCM Asia Limited, or FXCM Australia Limited, any affiliates of aforementioned firms, or other firms under the FXCM group of companies [collectively “FXCM Group”] you should carefully consider your objectives, financial situation, needs and level of experience. If you decide to trade foreign exchange products offered by FXCM Australia Limited you must read and understand the Financial Services Guide and the Product Disclosure Statement. FXCM Group may provide general market information and commentary which is not intended to be investment advice and the content of this email must not be construed as personal advice. By trading, you could sustain a total loss of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading in foreign exchange products. Foreign exchange products are only suitable for those customers who fully understand the market risk. FXCM recommends you seek advice from a separate financial advisor.
FXCM Group assumes no liability for errors, inaccuracies or omissions in these materials and does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXCM Group shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. This email is not a solicitation to buy or sell currency. All information contained in this e-mail is strictly confidential and is only intended for use by the recipient. All e-mail sent to or from this address will be received by the FXCM corporate e-mail system and is subject to archival and review by someone other than the recipient.”
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.