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Correlation

NZDJPY Could Rally After Tonight's BoJNZDJPY could be getting ready to run higher after tonight's announcement by the Bank of Japan. The BoJ is suppose to increase their stimulus package and if they do by the amount which is expected or by more we should get a sell-off in the Yen pushing this pair higher. If it happens we will be looking to correlate the Long NZDJPY with a Short in AUDJPY which will greatly reduce my directional risk. With proper money management I can be dead wrong on my NZDJPY call yet still make a profit.
Long
by unique4x
1
Is the S&P500 overrated on this moment? Maby DB has influence..Maby there is coming a very hard fall in the S&P500 soon, but why? If we look our graph were i plot GOLD, DB (deutsche bank) and the S&P500. We can make a prediction of the S&P500 based on deutsche bank. Deutsche bank is crashing hard last time with company results. And if we look at our figure we can understand that the S&P500 is in a bullmarket and also correlated to DB. We also known that there are into the S&P500 a lot financial institutes that really affects the stockprice of DB. If we make a prediction about the S&P500 we can say three things: - MACD and MACD-signal will cross each other, were we go under zero (this means a sell signal) - RSI is to high for a to long period (this means a sell signal) - Bollinger bands are highly in volatility (there could be happen something negative or positive) - MA will crosses under the Basis of the Bollinger bands (this means a sell signal) - DB is correlated to S&P500, Gold is oppositing them Information derived from Bloomberg, ING TA-FA
FX:SPX500Short
by tmp_cox
Watching GBPUSD to regain bearish momentumWe will be watching to see if GBPUSD can regain its bearish momentum before the Fed announces interest rates on Wed. Although the street does not anticipate any move by the Fed, they may give a hawkish tone and if so that should add fuel to the short side. With that said we will be looking for a close below the short-term trendline on the hourly chart along with confluence from our price prediction algorithm. If we can get that setup prior to the Feds announcement we will be taking GBPUSD short while correlating it with GBPCHF to give us protection.
Short
by unique4x
AUDCAD: Fundamental trend gives us great opportunitiesThe underlying trend is that oil production won't slow down anytime soon and that the oil price will continue to plunge, whereas copper and gold fall at a much slower rate in general. Both currency pairs correlations and Central Banks agendas make them lose value periodically vs the dollar, but that isn't a problem for these setups I outline here. In fact, the mild correlation between the two makes it possible to have an independent trend, born out of these peculiar characteristics of the instruments that we pit against each other, which are basically audusd and cadusd. Rgmov implies that the trend is bullish for the AUD, and I think it makes a lot of sense. We can observe how large and sharp the bullish swings are, specially when under the yearly and quarterly averages. The setups are detailed on chart, feel free to experiment with the concept. Trading it in pairs provides us with more flexibility and no fear of getting stopped, so that will be my favored approach when trading it from now on, but I'd also take the oversold CCI trades in the AUDCAD pair since they are quite sharp and one directional when they occur.
by IvanLabrie
16
Looking for USDCHF + EURUSD Correlation Breakdown TradeUSDCHF has essentially been trading exactly off Euro news for a bit now and I think it wants to keep this trend going, regardless of strength/weakness of Swiss data coming out this week. This presents an opportunity. Look for Swiss data to move USDCHF out of correlation, play the retrace game back to where it "should" be given the price of EURUSD. This is a pretty dicey trade, be careful and keep an eye on the price action in the ladders and get out if things seem to be breaking down for real. This correlation will exist until it doesn't so don't get caught in the shift.
by roshhhyy
USDJPY Could Be Poised For A BreakdownUSDJPY could be poised for a breakdown and resume it's longer-term trend. We will be waiting for a hourly close below the short-term trendline drawn on the chart as well as confirmation from our algorithm. If we take this trade we will be correlating it with CHFJPY, although proper money management must be put in place. For more information and to trade alongside our professional traders with the benefit of utilizing our algorithm please visit www.unique4xpro.com
Short
by unique4x
SELL NZDUSD @0.73 - TP 700PIPS: BREXIT, RBNZ, FED & USDJPY HEDGEShort NZDUSD is in my top 2 FX Trades for several reasons: 1. NZD is considered the riskiest G10 currency cross, so NZD trades weaker in risk-off markets, or when equities/ SPX trade lower (you can see the high correlation with SPX at the bottom of the graph). - With Brexit occurring last week, global risk has increased, this is especially the case for NZD due to commonwealth connections. Therefore NZD is likely to come under pressure in the future as risk-off sentiment continues to dominate, as the US Election nears, Global growth worries continue (Japan, Europe, China) and Brexit/ uncertainty about further EuroArea exits continues to intensify - we can see Gold and US Treasuries continue to gain supporting the risk-off view and thus supporting selling NZD. Also, risk-off encourages $ buying as a safe haven deposit on the Brexit backdrop. - Further, going into earnings season next week, historically risk currencies (NZD) perform poorly as investors seek safer assets to hedge against earning surprises, thus this helps NZD selling and USD buying. Plus, most investors will want to hold some $ cash in order to fulfil their earnings based equity trading, so this also helps the short Kiwi$ trade by increasing $ demand relative to NZD. 2. The RBNZ Meeting on the 10th August is likely to be dovish and I 80% expect a rate cut of 25-50bps from 2.25% to 2.00%-1.75% , as;1) Brexit risks are weighed in on and potentially priced into a rate decision, in follow up to the supportive/ dovish statements from RBNZ members immediately after the Brexit decision and 2) NZD Macro Environment has performed poorly since the March Rate cut from 2.5% to 2.25% e.g. The last prints still consistently dragging: Retail Sales at 1.0% vs 1.1%qoq & 0.8% vs 1% Q1qoq; CPI 0.4% yoy, 0.2% qoq; Unemployment Rate at 5.7% vs 5.5%. 3) the RBNZ has a historical pattern of cutting their rate every third meeting, and this August meeting is the third meeting. Plus it will have been 5 months since their last cut in March - this also historically is a large time for a another rate cut as previously to that the RBNZ cut in December, Dec-Mar which was only 3 months, and before that in october (oct-dec) which was 2 months so the odds are good if NZD data continues to be bad given the time since the last cut of 5 months is relatively large. And the gap since their last meeting at June 10th is 2 months which is the biggest gap they have. - Risks to the RBNZ Rate cut view are that;1) Brexit risks are de-priced due to UK Political skulduggery pushing the likelihood of the brexit into 2017 (if at all) 2) Their Inflation, Employment and GDP data manage to recover and show structural signs that the rate at 2.25% is sufficient for continued economic recovery e.g. NZD May Employment Change print surprised to the upside at 1.2% vs 0.8%, and their June GDP outperformed for Q1 at 0.7% vs 0.5% qoq & 2.8% vs 2.6% yoy. So if the CPI and employment data due to be released before the RBNZ August 10th meeting shows a continued/ structural/ aggressive recovery this will reduce the likelihood of a rate cut. Nonetheless, my money is that this isn't the case (with data continuing to trade subdued) and I therefore expect them to provide reassurance to markets with a strong dovish tone, and a 25bps cut - citing Brexit and non-outstanding economic indicators as the impetus for the changed policy. *It should be noted, in order for me NOT to consider a 25bps cut likely in August we would have to see an outstanding CPI and employment print e.g. CPI 1.0%-0.8% (0.4% last), and unemployment 5.3/4% (5.7% last), given it has been 5 months since the last cut - the RBNZ would be expecting to see such figures to consider the current rate of 2.25% as working/ sufficient.
Short
by QuantumLogicTrading
13
SHORT AUDUSD TP 800PIPS: BREXIT, RBA, FED & USDJPY HEDGEShort AUDUSD is in my top 3 FX Trades for several reasons: 1. AUD is considered a riskier G10 currency cross, so AUD trades weaker in risk-off markets, or when equities/ SPX trade lower (you can see the high correlation with SPX at the bottom of the graph). - With Brexit concurring last week, global risk has increased, this is especially the case for AUD due to commonwealth connections. Therefore AUD is likely to come under pressure in the future as risk-off sentiment continues to dominate, as the US Election nears, Global growth worries continue (Japan, Europe, China) and Brexit/ uncertainty about further Euro Area exits continues to intensify - we can see Gold and US Treasuries continue to gain supporting the risk-off view and thus supporting selling AUD. Also, risk-off encourages $ buying as a safe haven deposit on the Brexit backdrop. - Further, going into earnings season next week, historically risk currencies (AUD) perform poorly as investors seek safer assets to hedge against earning surprises, thus this helps AUD selling and USD buying. Plus, most investors will want to hold some $ cash in order to fulfil their earnings based equity trading, so this also helps the short AU trade by increasing $ demand relative to AUD. 2. The RBA Meeting on Tuesday the 5th is likely to be dovish, as 1) Brexit risks are weighed in on again, after supportive/ dovish statements from RBA members following the Brexit decision and 2) AUD Macro Environment has performed poorly since the last meeting and the May Rate cut e.g. Retail sales 0.2% vs 0.3%, Unemployment flat at 5.7%. - However, I dont expect an RBA rate cut, as they cut last just 2 months ago in May by 25bps to 1.75% and their GDP print was firm at 3.1% v 2.8% yoy and 1.1% v 0.8% with Unemployment also stable (yet to see inflation), so I expect them to provide reassurance to markets with a strong dovish tone, with possible hints to a August rate cut - citing Brexit and looking forward to their end of July Inflation print as a gauge for further rate cuts. Nonetheless the dovish rhetoric should be strong enough to put pressure on AUD and tip the scales south supporting the AU short. 3. From a USD demand point of view, last week we saw USD lose 160pips against the AUD as Brexit Uncertainty negatively hit the Feds Rate hike cycle expectancy, flattening the curve in the front end which ruled out any hikes until Dec or 2017, fewer hikes = less USD strength. - However, since the beginning of the week where brexit risks ruled out hikes in the near term, the end of the week managed to turn rate hike expectations around as Brexit likelihood decreased/ shifted into 2017. This helped the Fed fund futures curve recover/ steepen somewhat in the front end, with the implied probability of a hike increasing from 0% to 5.9% for both September and November, whilst the probability of a hike in December also steepened significantly from 13.3% to 22.3% with the probability of a 50bps hike being priced for the first time at 1.1%. This trend of Fed Hike recovery is likely to continue as long as Brexit risks remain subdued, so we can expect USD to begin to price stronger in the coming days/ weeks. 4. Technically, AUDUSD trades 100pips away from a key handle at 0.76xx which is a double top and may provide the ideal short area. Further, higher than that at 0.78xx is the 12 month high which is also potentially a great level to get short from as a double top 5. Volatility - 1wk, 2wk and 1m (-1.52, -1.57, -1.60) AUDUSD Risk Reversals all trade with a downside bias indicating put/ downside demand is higher than upside, so the option market net expects AUDUSD to come down over the above tenors. - Out through the 5th, 6th, and 7th (post RBA) we see large notional OTM put options and open interest at 0.7365, 0.7440 & 0.7445 which supports the view that the RBA will be dovish and that AUDUSD is likely to hairpin around the 0.76xx double top level.
Short
by QuantumLogicTrading
4
SHORT CABLE: HISTORICAL GBPUSD v EURUSD CORRELATION CYCLESOn the 1D time frame, a strong positive correlation relationship emerges - where previously on the 4h time-frame the correlation looked relationship-less and "noisy". However, looking back at the Daily correlation over the last 2-3 years for GU and EU one noticeable and significant trend emerges - A steep fall in correlation, either from positive-lower positive, or positive to negative, is historically ALWAYS followed shortly by a plummet/ Sell-off in GBP$. Thus as we see below GU v EU correlation has been descending and has just turned negative - so in my opinion we should consider selling GU as if history holds true an aggressive sell off on the daily is close by. I also like short GU fundamentally over the next 4 weeks especially but also 12months for: FOMC 16th June - hawkish or hike must push GU lower. BREXIT 23rd june - UK Referendum uncertainty will inevitable price GU lower than 1.43 at somepoint before or on the 23rd, even if briefly - just like GU priced lower as Scottish Independce referendum loomed (which is less of a risk but equally as likely to happen) Economic Divergence - Fundamentally the UK economy and financial markets are not as robust as the US due to a lack of innovation and a poor technology sector, which massively will affect productivity, the recovery and future growth (especially as moores law becomes questionable). This economic divergence will be priced in as lower GU as investors in the long run price such economic differentials as speculation in future monetary policy divergence.
Short
by QuantumLogicTrading
TRADING CORRELATION PT 2- GBPUSD: SHORT CABLE ON NEG EUR$ CORR XOn the 1D time frame, a strong positive correlation relationship emerges - where previously on the 4h time-frame the correlation looked relationship-less and "noisy". However, looking back at the Daily correlation over the last 2-3 years for GU and EU one noticeable and significant trend emerges - A steep fall in correlation, either from positive-lower positive, or positive to negative, is historically ALWAYS followed shortly by a plummet/ Sell-off in GBP$. Thus as we see below GU v EU correlation has been descending and has just turned negative - so in my opinion we should consider selling GU as if history holds true an aggressive sell off on the daily is close by . *please see next article where i confirm this trend by looking at the Daily zoomed out*
Short
by QuantumLogicTrading
1
TRADING CORRELATION PT 1- EURUSD: SELL EUR$ ON DXY MOVES HIGHER This 2-part article will look at the practical application of correlations in trading and show how to use correlation inferences to exploit the statistical advantages they offer. On the 4h time frame, the highest day-tradable timeframe imo we see EUR$ has an exclusively negative and almost 1for1 correlation with the dollar index (or dollar "market"), however, despite popular belief EU actually has a mixed and weak correlation with GU (as we see the EU v GU correlation move from positive to negative several times). This relationship is backed up by EU price action currently trading at +2sd of the mean, whilst GU performs the stark opposite at -2sd of the mean. We can use this information in 2 ways to trade the 4h time frame - please bear in mind this is the 4h timeframe only, corrs differ using different time-frames. 1. We know that EU and GU dont hold any confident correlation thus we SHOULDNT make trades based for EU based on GU - despite many people often trading EU based on GU moves. 2. Instead, we know 4h EU is highly correlated with the $ Market, thus we CAN make trades based on $ Index moves - so personally, i will wait for the $index to move/break higher, at which point i will then SHORT EU, since they have a 90%+ negative correlation relationship which is rising atm. - This imo gives us a perfect entry signal, once $ Index moves up we can then short the overweight EU which is trading at highly volatile levels above its average. I also like short EU fundamentally for: FOMC hawkish or hike on the 16th - must push eur$ lower BREXIT 23rd june - UK Referendum imo has NOT yet been priced at all in downside euro's yet (especially compared to GU, this is the main driver for the increase in negative corrs between the two pairs currently) ECB poor econ management - Eurozone is STILL suffering with below 0% inflation and 10%+ unemployment, i think this trend will continue throughout the year and ECB will have to do more printing/ issue more EURO supply side, thus moving EU down - especially if the FOMC hikes and the Monetary policy diverges more. I will shortly release a follow up article, looking at a higher time-frame to illustrate the different tradable inferences we can make.
Short
by QuantumLogicTrading
2
LOWER VOL, VOLU AND LOWS. HIGHER CORRS AND HIGHS (GOOG BUY @711)Google C-Class shares i am bullish over the 6-12m, hence I am buying any 5-10% pull backs from highs. Goog has been moving sideways but i think it has just started a cycle higher, in which it is about to make a higher low at 715 before moving up again to 750+ 715-750 is a 5% move hence i am interesting in buying at this price with reward skewed something 1.5:1 with risk. Coming into earnings, Goog has to make at least one bull run to highs at 770 and i believe this will be the set up for the run for several reasons: 1. since april earnings lows at 687 goog has moved in an upward trend of 688-722-700-736, the next cycle i approximate to be down to 710-3 (volume traded price) then up to 750+ (previous support turned resistance). Also the Linear regression for the on graph prices is $723, so prices below this are below this cycles average - encouraging mean reversion upwards. 2. Goog volatility correlation is in its negative cycle - the last bull cycle to 768 began with a turn from positive to negative price-volatility correlation change. - Plus goog's volatility is at yearly lows. Low vols is something that imo is vital for any sustained bull run, as logically, more people want to own a stock that has a greater "normalised" return and risk profile. 3. Volume average divergence - google volume is trading below its 6 month average, lower volume characterises goog's bull runs typically. Since it signifies there are fewer structural sellers that are prepared to sell the stock, thus volume drops and the price is bid up until sell side liquidity is increased sufficiently to meet an equilibrium price. 4. *please see last 3 price bars* - these bars have been highlighted as having a "topside range skew". What is inferred by this is that the candle has more activity at the higher prices e.g. the candle traded at its highs and open more than its close and low - thus this is a bullish signal as the open high and close data stayed in the upper percentiles of the candle. - Even the first candle in question (the first bear candle), opened and closed at apprx the median price.. this is unusual. the first bear candle after a strong bullish run, usually shows heavy open-close downside skew e.g. the price opens and then closes close to the lows (rather than in the middle of prices traded) - indicating that time period closed with the price being driven/held at the lowest possibility. If we were to see the opposite e.g. the candles closing on the lows, this would be bearish and indicate the price is wanting to push lower, since there was no difference between the low and close. Fundamentally i am also long google anyway, hence why i liike buying 5-10% pull backs.
NASDAQ:GOOGLong
by QuantumLogicTrading
IS YEN REALLY RISK-OFF AND CORRELATED TO SPX (RISK-ON)?Though id post as just one example, perhaps the most obvious, that shows how heavily the JPY is considered a risk-off asset and to show the clearly, since the SPX is a risk-on asset, that the JPY is negatively correlated with the SPX. In times of market fear/ uncertainty, YEN is sought out, just like bonds and gold, as a safe heaven asset. The theory behind this is that the JPY offers stability through the nation being one of the only developed nation with a net credit balance sheet. Clearly, in the financial crisis, one with a hypothesis as the above, should see the SPX fall and the YEN risk.. Indeed, the chart shows exacty that, almost 1:1 correlation. Now, the JPY SPX correlation DOES change, in times of extreme fear or extreme exuberance, the YEN will be proportionately more correlated with the SPX and other risk assets. . In "Normal" or non heavily trending markets, the correlation is less obvious - since it is the extremes that cause investors to seek difference assets and change their strategy in masses. In times of fear, investors move their liquidity to risk-off YEN, hence we see USDJPY fall during the crisis. We also see SPX fall in a correlated manner, this is because investors pull their liquidity OUT of SPX and apply it in some proportion to YEN.
by QuantumLogicTrading
Correlation Trading - How to Trade Forex With Little to No Risk!Tonight we did a live stream on YouTube offering an in-depth explanation of correlation trading. You can watch the stream back in its entirety here www.youtube.com Below will be a written explanation of correlation trading utilizing the AUDJPY vs. NZDJPY as the example: Correlation trading is an amazing way to add diversification to your trading portfolio and in your trade plan. You can continue your trading plan and strategy but take advantage of correlation trading opportunities as they arise to increase your ability to profit from the forex market. In correlation trading the objective is to find currency pairs that are highly correlated, meaning that when one pair moves in any given direction the other pair also moves in that same direction. A great example of this would be the AUDJPY vs. the NZDJPY. Over the past year the correlation between the two pairs has been very positive, 92% of the time over the past year the two pairs have been moving in sync with one another. This correlation can be confirmed by using the Oanda correlation chart: Once you have confirmed that you are looking at two pairs that are highly correlated to one another, you will want to then look into the charts and compare the price action over the past year. TradingView makes this very convenient with the ability to overlay charts. When we overlay the NZDJPY chart on the AUDJPY chart (candlesticks=AUDJPY, bars=NZDJPY) we can clearly see the times of the year when the two pairs were moving very much in sync and the times where the correlation cracked a bit and the two pairs moved oddly in opposing directions. It is during these times when the correlation cracks that provides us with the immensely profitable and essentially risk free trading opportunities. If you notice on the chart throughout the past year you will see highlighted in yellow boxes all of the times when the correlation has cracked and a gap has formed. We can look at these moments and estimate the average maximum gap in correlation and use this information to gauge when to take a correlation trade on this pair. You will notice every time the correlation has cracked and a gap in price action has formed, price inevitably moved back in correlation narrowing and even closing the gap You will also notice if you look back at the widest portion of the gap from every time there was a crack in correlation that it has been roughly anywhere between 400-500 pips . If we look at the second to most recent gap in correlation that we have labeled on the chart you will notice that at its widest point the gap in price was roughly 600 pips; the high being at 85.500 and the low being at 80.700. If we were watching this occur as it was happening and we noticed the gap in correlation approaching 400 pips and then 500 pips and then 600 pips, forming the widest gap in correlation all year, we could then look to take a correlation trade between these pairs. In this given example around 3/11/16 we would look to take equal positions of long NZDJPY and short AUDJPY banking on the fact that the gap in correlation should statistically, with 92% likelihood, narrow and potentially even close completely so that the two pairs are moving back in correlation with one another. You will see that if we did this we covered on 3/30/16 we would have netted ourselves a fruitful profit of 300 pips. Our short position in AUDJPY would have been down about 20 pips or so but our long in NZDJPY would have been up about 340 pips. This profit came with little to no direction risk because as one position goes against you the other statistically should go in your favor and if you are not netting a profit at any given moment your loss should be simnifically reduced as compared to what it would be if you were only holding the losing position.
Education
by UnknownUnicorn261897
13
Bitcoin and Gold - The connectionHello everyone! This is my first chart, so I hope you like it. There might have been other people that have already seen this, but I would like to give my view on this. If someone takes a look on the last 1 year, he will notice that the bitcoin price followed a similar pattern to the one that gold had, with delay of 20-30days. Also, in 2014 for about 215 days, they were almost entangled. In 2015, they had 5 opposite peaks and troughs. I put vertical lines close to places where the prices of the two were either 'bottoming or topping' simultaneously, on either the same or different direction. As some might have already noticed, these are probably due to major events in Cyprus, Greece etc. If someone has any ideas on how to connect the two in a better way, in order to make better predictions, please let me know :)
BITFINEX:BTCUSD
by btcfunk
A Solid Correlation Setup Between NZDUSD & AUDUSDWe have entered a correlation trade between AUDUSD and NZDUSD this evening. The weaker than expected inflation numbers in New Zealand is causing the Kiwi to selloff while the Aussie hangs strong against the US Dollar. This news has given us an opportunity to go Long NZDUSD while Shorting AUDUSD. The current spread is approximately 120 Pips on the hourly chart. In the past week any time we've seen a spread widen to 100 or more pips it eventually narrows back to 0 pips as the pairs come back into correlation with each other. The pairs have been 70% - 90% correlated during the past year, depending on the timeframe you analyze. Our algorithm is currently an 82% chance AUDUSD pulls in while giving us an 65% chance that NZDUSD rebounds in price. Please keep in mind this is not the same as entering into a Short AUDNZD position as one must account for the third economy introduced in this correlation position, the US Dollar. The US economy (therefore the US Dollar) may react to the New Zealand inflation numbers differently than the Australian economy. Also keep in mind, a correlation trade greatly reduces our DIRECTIONAL RISK. To us it really doesn't matter if we are right or wrong, which way the pairs move, because ounce the correlation narrows and gets back on track close to 70% - 90% we will have a nice profit on our hands. Here at Unique Forex we combine our team's 40+ years of trading experience with our proprietary algorithm to significantly enhance the trading experience. Utilizing the two, we are able to offer some of the most powerful research on an array of currency pairs. Here you will get all of our research on some of the more popular majors like the EURUSD, but if you would like to get access to the rest of our research head over to www.unique4xpro.com
Long
by unique4x