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A Change in USD/JPY Risk Correlation Gives USDollar Some New Moves

A Change in USD/JPY Risk Correlation Gives USDollar Some New Moves

Benjamin Spier, Technical Strategist
  • USDollar index rises on Obama comments and other risk positive stories
  • The index still declined on positive Aussie and Pound stories
  • S&P correlations surprise usual expectations

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A look back at the past 24 hours of Forex trading using movements in the US Dollar Index

US Dollar 15-Minute 08:00 09/10 to 08:00 09/11 EST

A_Change_in_USDJPY_Risk_Correlation_Gives_USDollar_Index_Some_New_Moves__body_Picture_1.png, A Change in USD/JPY Risk Correlation Gives USDollar Some New Moves

Charts created by Benjamin Spier using Marketscope 2.0

A look back at the performance of the USDollar index over the past two days has exposed an interesting trend. The index has classically been known to fall with a rise in risk trends, because the US Dollar performs as a safe haven in most of its pairs. However, over the past two weeks, the USD/JPY pair’s positive correlation to risk trends has caused the greenback index to often rise on risk positive news.

The USDollar index is based evenly on the trading of the Dollar against the Yen, Pound, Euro, and Aussie. GBP/USD, AUD/USD, and EUR/USD will all usually rise on respective local positive economic releases or headlines, which will therefore often drive the USDollar index lower. This can be seen in the decline following today’s UK employment data during the European session, or during yesterday’s release of stronger Australian business confidence. The Pound and Aussie rose against USD after each respective release, sending the USDollar index lower.

However, the USDollar index has risen following stories that relate to the entire global economy and are not specific to one of the four economies in the USDollar index. President Obama’s announcement last night that the US will put military action against Syria on hold, as the world pursues diplomatic efforts, sent the US Dollar higher. A similar occurrence happened after a report of stronger Chinese industrial production.

The change in USDollar reaction to global risk trends is due to the Japanese Yen’s strengthening as a safe haven currency against the greenback. For the past two weeks, USD/JPY has surpassed AUD/USD in the level of sensitivity to global risk trends. The correlation between the USD/JPY pair and the S&P index rose from 0.27 for the past year to 0.76 for the past two weeks. While the correlation between AUD/USD and the S&P has only rise from 0.40 for the past year to 0.57 for the past two weeks.

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-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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