More Hidden Treasures
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
Here is another interesting discovery.
The Yen and the Pound appear, on average, to move in opposite directions to the U.S. Dollar when non-farm payrolls ("NFP") are announced. There may be some interesting profit maximizing strategies (or hedge opportunities depending on your perspective). Here is the chart of the historical relationship between the USD/JPY and GBP/USD (their 1-minute returns) after NFP announcements:
Labels: Correlations, FX
posted by re: at 9:03 AM
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2 Comments:
Correlations can be tools for the fundamental trader. Mataf publishes a running website update on the correlations of forex pairs.
http://www.mataf.net/en/analysis-correlation.htm
The spreadsheet formula can be programmed to use MT DDE for constant updates.
http://www.investopedia.com/articles/forex/05/051905.asp
Tom Yeomans
Thanks for your comment. These correlations are indeed important. The correlations I have highlighted are one-minute correlations and are specific to a particular announcement.
The correlations you reference are calculated over all time periods for 5, 20, and 100 days. These correlations change over time and in particular they change during periods of market stress.
Announcement days, with lots of market volatility, are when we would expect that correlations would change.
Perhaps I will calculate the 1, 5, and 20 minute correlation matrix following nonfarm payroll announcements. This would, I think, be a useful addition to the longer term average correlations on www.Mataf.net. - John
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