Strategy Video: Using Correlations to Find a Better Yen Cross Trade
• The Yen crosses maintain a high correlation as they are particularly sensitive to 'risk' trends
• The pairs differ in sensitivity to the theme and thereby trip technical moves at different times
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EURJPY has tumbled the past few weeks as risk aversion gains traction and volatility picks up. For those that want to take advantage of the considerable potential in the Yen's connection to broader risk trends but feel the best technical levels for entry have passed, the thematic trade has not passed. A fundamentally-motivated currency like the Japanese Yen establishes strong correlations across its pairings along. However, each offers a different sensitivity to the sentiment theme which means the breaks or reversals that happen with the development of the theme occur at different times and under different intensities. For example, if you think risk aversion is just starting but the EURJPY is too far along to jump on now; the NZDJPY may offer a place to trade the view. We discuss using correlations, fundamental themes and technicals across pairs in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.