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Other noteworthy relationships include the increasingly tight correlation between the G10 Forex Carry Trade and the Reuters/Jefferies CRB Commodities Index. Given that financial deleveraging can affect all types of highly-leveraged markets, we see that many commodities have sold off and rallied at the same time as the FX Carry trade. The G10 Forex Carry Trade currently consists of going long the New Zealand Dollar, Norwegian Krone, and Danish Krone while going short the US Dollar, Swiss Franc, and Japanese Yen. A continuation of ongoing themes of financial market stress will likely keep these relationships intact through the foreseeable future. 

Forex Correlations Summary

Forex correlations against Oil, Gold, and the Dow Jones Industrials Average for the past 20 trading days:


Strongest Forex Correlations

US Dollar/Japanese Yen and the
US Dow Jones Industrials Average

The correlation between the US Dollar/Japanese Yen pair and the Dow Jones Industrials Average is currently near its highest in at least 20 years, as increasingly risk-averse markets dominate price action in the USDJPY. Every downward move in global equity indices encourages traders to close short positions in the low-yielding Yen—fully consistent with the broader theme of financial deleveraging. Continued losses in the Dow and other major markets would likely lead to further JPY rallies. 


Forex Carry Trade and the Reuters/Jefferies CRB Commodities Index

The correlation between commodity markets and the G10 Forex carry trade has never been stronger. Due to the highly leveraged nature of FX carry trades, they tend to sell off sharply in times of elevated market stress. Though commodity markets have not historically been as adversely impacted by market stress, we see that the previous run-up in Crude Oil and other prices led to a similar leveraging of commodity investments. For said reasons, it seems that the theme of global deleveraging may continue to affect both carry trade and commodity markets. p>


Euro/US Dollar and NYMEX Crude Oil Prices

The correlation between NYMEX Crude Oil prices and the Euro/US Dollar pair has quite literally never been stronger. The US Dollar has held a fairly negative relationship to Crude Oil since it began its rally from the 30 dollar mark in 2003. Given Crude’s meteoric ascent and similarly dramatic tumbles through recent trade, we have seen Crude Oil trade virtually lock-step with the EURUSD. A continuation of strong volatility in the NYMEX contract would likely coincide with similar moves in the US Dollar. As such, outlook for crude oil bears watching.



Written by David Rodriguez, Quantitative Analyst for

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