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Correlation Doesn't Align Traders Positions Among EURUSD, Shares, Gold

Correlation Doesn't Align Traders Positions Among EURUSD, Shares, Gold

2016-03-31 03:48:00
John Kicklighter, Chief Strategist
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Talking Points:

  • There are a number of strong correlations in the financial market from the thematic to the practical
  • Yet, despite strong statistical correlations, related assets often see very disparate positioning
  • We look at a number of remarkable divergences including: USDCAD-Oil; USDJPY-SPX and EURUSD-USDCHF amongst others

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

There are a number of popular correlations drawn across pairs, assets and markets. Yet, the speculation doesn't always conform like price does. Among the motivators there are fundamental supply-demand connections, practical capital flows linking and thematic drivers (like risk trends). Yet as clear and pervasive as some of the most popular cross-market connections may be, there are frequently wide gulfs in the way that traders are positioned in the bedfellows. On a 'risk' basis, price correlation between USDJPY and the S&P 500 has proven remarkable. Yet, despite the strong link, we find speculative positioning among retail traders (SSI) and speculative futures traders (COT) very different. It can vary so dramatically in fact that there are severe disparities in trading views across global equity indexes. We look at a range of correlations with surprising speculative backing including US Oil - USDCAD, AUDUSD - NZDUSD, gold - silver, and EURUSD - USDCHF as well as what the market and trading implications may be in today's Strategy Video.

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