Hidden Relationships

It is not news that news moves financial markets. This blog will publish research on how, when, why, and which news moves what financial markets.

On Monday, November 06, 2006 in a post entitled “Recent Developments in How Economic Announcements Affect Financial Markets” I noted that the EUR and the CHF move in opposite directions when the U.S. trade news is announced.

Here is that relationship of the USD/CHF vs. EUR/USD 1-minute returns after International Trade Balance announcements:

In another similar relationship, the Swiss Franc and the Euro appear, on average, to move in opposite directions to the U.S. Dollar when non-farm payrolls are announced. Both these effects are large and statistically significant. The graphs below shows initial returns of the two series just after the NFP announcement.

Time Series Graph of the USD/CHF and EUR/USD 1-minute returns after Non-Farm Payroll (NFP) announcements:

USD/CHF Vs. EUR/USD 1-minute returns after NFP announcements:In these case the announcement effect relationship, embodied in the estimate news parameters for each currency, can be subsumed in one estimate that is the ratio of the parameters, and assuming that the news coefficients are constant, so are the above relationships.