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US Dollar Correlation to Dow Jones Industrial Average at Record

US Dollar Correlation to Dow Jones Industrial Average at Record

2011-10-25 16:41:00
David Rodriguez, Head of Product
Share:

The Dow Jones FXCM Dollar Index recently traded to fresh multi-month lows as the Dow Jones Industrial Average hit its highest levels since early August. The strong link between the US currency and stocks likewise means that the AUDUSD and EURUSD correlations to the Dow trade near record strength.

All in all, we expect this strong correlation to continue. If the Dow and broader stock markets continue their recent rallies, expect the US Dollar to fall further against nearly all major forex counterparts.

Forex Correlations Summary

View forex correlations against Oil, Gold, the Dow Jones Industrial Average, and Copper prices across multiple time frames.

Gold

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.98

0.83

-0.99

0.78

-0.47

0.86

-0.98

1 Month

0.11

0.07

0.13

0.37

-0.42

0.37

-0.36

3 Month

-0.06

0.01

-0.17

-0.01

-0.01

0.02

-0.05

1 Year

0.04

0.18

-0.18

0.21

-0.12

0.20

-0.21

Oil

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.71

0.28

-0.69

1.00

-0.88

0.95

-0.82

1 Month

0.45

0.29

0.15

0.66

-0.71

0.61

-0.68

3 Month

0.40

0.30

-0.03

0.64

-0.62

0.54

-0.55

1 Year

0.34

0.26

-0.01

0.49

-0.50

0.34

-0.41

Dow

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.67

0.21

-0.64

0.99

-0.93

0.95

-0.79

1 Month

0.86

0.65

0.25

0.88

-0.84

0.84

-0.88

3 Month

0.75

0.59

-0.15

0.85

-0.85

0.85

-0.80

1 Year

0.57

0.45

0.04

0.72

-0.76

0.67

-0.61

Copper

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.53

0.34

-0.57

0.76

-0.38

0.61

-0.61

1 Month

0.42

0.38

0.36

0.62

-0.57

0.61

-0.54

3 Month

0.36

0.27

0.05

0.57

-0.55

0.53

-0.43

1 Year

0.28

0.24

-0.01

0.49

-0.46

0.41

-0.37

Perfect Positive Correlation:

1.00

Perfect Negative Correlation:

-1.00

forex_correlations_dow_jones_us_dollar_euro_body_Picture_1.png, US Dollar Correlation to Dow Jones Industrial Average at Record

Dow Jones FXCM Dollar Index/Dow Jones Industrial Average

The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) and the Dow Jones Industrial Average continue to track each other with record accuracy as their correlation is near all-time highs. The safe-haven US currency remains an investor favorite in times of strong risk aversion, and flights to safety typically result in simultaneous USDOLLAR gains and Dow Jones Industrial Average declines.

Expect the USDOLLAR to continue its recent declines if the Dow Jones Industrial Average powers to fresh highs.

forex_correlations_dow_jones_us_dollar_euro_body_Picture_2.png, US Dollar Correlation to Dow Jones Industrial Average at Record

Australian Dollar and Dow Jones Industrial Average

The Australian Dollar has been tracking moves in the Dow Jones Industrial Average with near-record accuracy. With the highest short-term interest rate of any G10 currency, the Aussie dollar remains a speculator’s favorite and tends to strengthen when investors seek high-yielding assets. That same speculator interest typically produces Dow Jones Industrial Average gains, and as such we expect the AUDUSD and DJIA correlation to remain quite strong.

If the Dow Jones surges to fresh highs, expect the Australian Dollar to hit similar peaks against the safe-haven US Dollar.

forex_correlations_dow_jones_us_dollar_euro_body_Picture_3.png, US Dollar Correlation to Dow Jones Industrial Average at Record

Euro/US Dollar and the Dow Jones Industrial Average

The Euro/US Dollar pair has tracked the Dow Jones Industrial Average very closely, underlining the US Dollar’s strong link to broader financial markets. Speculators tend to sell Euros and buy US Dollars during times of flight to safety. The opposite tends to be true when stocks are rallying—traders sell the US Dollar.

We expect the EURUSD and other US Dollar pairs to continue trading in tandem. Thus if you believe that stocks are headed higher, a EURUSD-long position could be an attractive proxy to buying stocks.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

To contact David, e-mail drodriguez@dailyfx.com

To be added to David’s e-mail distribution list for this and other reports, e-mail subject line “Distribution List” todrodriguez@dailyfx.com

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