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US Dollar Correlation to Dow Provides Safe Haven amidst Euro Crises

US Dollar Correlation to Dow Provides Safe Haven amidst Euro Crises

2012-06-26 15:00:00
David Rodriguez, Head of Product
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Ongoing European fiscal crises continue to affect the Euro and the safe-haven US Dollar (ticker: USDOLLAR) could benefit if the weekend’s European summit produces further tensions. The correlation between the Dow Jones Industrial Average and the Dow Jones FXCM Dollar Index underlines said point. Stock markets tend to fall on financial market uncertainty, and that same confusion most often leads to strength in the safe-haven US Dollar.

Forex correlations to broader financial markets continue to trade near record-strength, and we expect any major moves in the Dow Jones to force similarly large swings in the Dollar Index and key USD-denominated currency pairs.

Forex Correlations SummaryView forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.

GLD

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.52

0.69

-0.79

0.63

-0.60

0.62

-0.75

1 Month

0.36

0.05

-0.49

0.14

0.06

0.22

-0.34

3 Month

0.46

0.17

-0.44

0.34

-0.07

0.38

-0.51

1 Year

0.20

0.16

-0.22

0.24

-0.15

0.24

-0.29

USO

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.60

0.62

-0.52

0.65

-0.76

0.82

-0.70

1 Month

0.52

0.58

0.00

0.73

-0.85

0.74

-0.67

3 Month

0.46

0.41

0.02

0.68

-0.71

0.67

-0.56

1 Year

0.48

0.39

-0.01

0.66

-0.64

0.60

-0.55

DIA

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.96

0.87

-0.15

0.97

-0.99

0.96

-0.88

1 Month

0.51

0.68

0.15

0.80

-0.91

0.76

-0.69

3 Month

0.48

0.54

0.24

0.72

-0.82

0.68

-0.56

1 Year

0.65

0.56

-0.05

0.81

-0.83

0.77

-0.70

FTSE100

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.75

0.67

0.06

0.65

-0.59

0.57

-0.59

1 Month

0.57

0.61

0.30

0.68

-0.64

0.57

-0.56

3 Month

0.43

0.38

0.37

0.57

-0.65

0.53

-0.37

1 Year

0.47

0.39

0.02

0.69

-0.67

0.65

-0.55

SLV

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.40

0.63

-0.88

0.51

-0.45

0.49

-0.67

1 Month

0.40

0.32

-0.37

0.43

-0.24

0.46

-0.52

3 Month

0.46

0.29

-0.31

0.47

-0.30

0.48

-0.55

1 Year

0.34

0.27

-0.20

0.40

-0.34

0.38

-0.42

Perfect Positive Correlation:

1.00

Perfect Negative Correlation:

-1.00

Correlation between Dow Jones FXCM Dollar Index and Dow Jones Industrial Average

forex_correlations_us_dollar_to_dow_jones_body_Picture_1.png, US Dollar Correlation to Dow Provides Safe Haven amidst Euro Crises

Dow Jones FXCM Dollar Index (lhs)

Inverse of Dow Jones Industrial Average (rhs)

The correlation between the Dow Jones Industrial Average and the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) now trades near year-to-date highs, underlining the US Dollar’s sensitivity to movements in broader financial markets.

Sharp sell-offs in the Dow Jones Industrial Average and similarly risky assets have coincided with sharp jumps in the US Dollar. Price action emphasizes that the US currency remains an important source of safety in times of pronounced market turmoil. Given clear market indecision ahead of a key European summit at the weekend and ongoing European financial crises, we believe that the USDOLLAR stands to benefit on any ensuing financial market stress.

We’ll continue to watch for any important moves in the Dow Jones Industrial Average and broader markets. Indeed, earlier correlation studies emphasize that cross-market links remain as strong as ever on clear European market stresses.

--- 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” to drodriguez@dailyfx.com

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

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