NFP FX Correlation Matrix

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. I expanded on this in the post on Wednesday, December 27, 2006, “Hidden Relationships” noting that the Swiss Franc and the Euro also appear, on average, to move in opposite directions to the U.S. Dollar when non-farm payrolls are announced.

Then on Friday, January 26, 2007 in "More Hidden Treasures" I looked at how 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.

These NFP relationship can be encapsulated in a correlation matrix for foreign exchange returns right after the news. Here is the NFP return correlation matrix 1 minute after the announcement:

Announcement	NFP
Minute	1
	AUD	CAD	CHF	EUR	GBP	JPY
AUD	1	-0.8692	-0.925	0.9432	0.9136	-0.8767
CAD	-0.8692	1	0.8232	-0.8417	-0.832	0.7753
CHF	-0.925	0.8232	1	-0.9901	-0.9688	0.8832
EUR	0.9432	-0.8417	-0.9901	1	0.9655	-0.889
GBP	0.9136	-0.832	-0.9688	0.9655	1	-0.9016
JPY	-0.8767	0.7753	0.8832	-0.889	-0.9016	1

I have highlighted the correlations previously discussed. But as one can see there are other interesting leverage/hedging opportunities. Note that all of these correlations are significant. The 5% critical value(two-tailed) = 0.2787 for 50 observations (monthly data from Nov 1 2002 i.e. October 2002 release to Dec 8 2006 i.e. November 2006 release). If anyone would like a spreadsheet of my calculation of the 1, 5, 10, 20 and 30 minute return correlation matrices for the U.S. announcements of nonfarm payrolls, initial jobless claims, retail sales, and CPI, please send me an email to john.parkerATrelevanteconomics.com.