Yen Euro Nasdaq Correlation

Does Yen Euro Cross Lead Market?

I heard on CNBCW an analyst who stated that the Euro / Yen currency cross rate moved a little bit (about an hour, so he said) before markets turned. Unfortunately I don’t have a source for charts that can be inserted in a posting for the Euro / Yen cross rate. That leaves me with plotting FXE and FXY vs stocks as a sort of proxy. While I’m not seeing a lot of ‘lead time’, it is an interesting correlation. (2 possibles on the lack of lead time: Perhaps the move is happening during European market hours (when FXY and FXE are not trading) or perhaps you really need the actual EUR – YEN cross rate to see it.

These are saved charts, so GIFs, which means they look a bit sketchy in the compressed size. To get a cleaner readable image, click on the graph.

Yen Euro Nasdaq Correlation

Yen Euro Nasdaq Correlation

Clearly the Yen (black line) is moving as the inverse of the Nasdaq. The PSQ has some volatility artifacts in it; so while the drop of the Nasdaq in the “Flash Crash” goes flat on Friday, the PSQ still rises a tiny bit reflecting the increased volatility premium in the options and futures contracts used to make that synthetic short Nasdaq fund.

Comparing the Yen with the Nasdaq, it is a very close mirror image, at times of high market rate of change. I suspect this is an artifact of the Yen being used for “carry trade” transactions by large trading firms. On quieter days, the central banks look to do a better job of keeping the currency fairly flat, thought it still seems to ‘ripple opposite to the market trend.

Looking at the Euro line, I don’t see much in it that would change the “yen inverse” relationship enough to give an early warning. Mostly it looks like it ‘sort of tracks the stock market’ but with a general downward bias ( for now).

If anyone has access to a EUR-YEN cross chart, especially for European markets or market hours, it would be interesting to take a look.

Gold?

In some ways I find this Euro Yen Swiss Franc Gold chart more intersting. Notice that the Yen spikes on the market crash, then we wait the “three day settlement period” for the sales of all those shares to settle and the cash to hit accounts as “Settled” and ready to trade. On THAT day, Gold spikes up. The Swiss Franc moves hardly at all. Either Swiss bankers are better at holding their currency steady, or the “Whales” doing this trade like the Yen and Gold… Oddly, the Euro has a slight inverse relationship to the Yen (though in an overall dropping trend).

Euro Yen Swiss Franc Gold

Euro Yen Swiss Franc Gold

Nice little trade idea to put in the kit for “the next crash day”. Immediately put on a gold or gold options trade then just wait 3 days to sell out…

So, taken together, the set would be:

On a crash day, short yen, long gold, wait 3 – 4 days, close positions.

For ongoing observation, here is a live version of that same chart.

Yen Euro Swiss Franc Gold Live Chart

Yen Euro Swiss Franc Gold Live Chart

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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4 Responses to Yen Euro Nasdaq Correlation

  1. Pingback: Tweets that mention Yen Euro Nasdaq Correlation « Musings from the Chiefio -- Topsy.com

  2. Wes says:

    Chief,

    We’ll be maximum short term oversold on Monday. It is interesting to contrast our styles, as you indicated.

    I’m most interested in making money over the next few days, as opposed to knowing where the market is going. If I don’t know how the market will get there, I have little use of knowing it’s destination.

    For example, I can sometimes find buy points with moving average ratios. Take a look at what you can determine by comparing (dividing) the number of stocks above their 50 day moving average by the number above their 150 day MA.

    http://stockcharts.com/h-sc/ui

    I’m not sure how this link will show up, but it needs to have

    $spxa50r:$spxa150r

    entered as the symbol

    entered as the symbol. Use 2 or more years as a period to get an idea of how this statistic works.

    Anytime this ratio is below 0.5, (and you’re not in a confirmed bear market), it’s safe to buy. Like any oversold indicator, it can always get more oversold, but the odds of a turn in the short term are heavily in your favor.

    Take a look and tell me what you think. Of course both of us have not mentioned money management, which is an integral part of trading.

    One of the reasons I use QLD (the double QQQQ) is that even when I’m 100% invested long, I still have half my cash left for the black swan event. I find this is a great comfort. And, if the black swan appears, the half of the cash I have left actually has a greater purchasing power than the half previously invested because of the cheaper prices.

  3. Pascvaks says:

    There would seem to be a correlation between how big you are and how fast you tend to move. At some point you and others like you tend to lead and a ‘trend’ should be detectable.

  4. E.M.Smith says:

    @Wes: I’m a bit busy now, but I’ll definitely take a look.

    @Pascvaks:

    That is an artifact of the need for “whales” to not cause a market move against their position. So if you are buying a ‘beaten down stock’ it must be done very slowly to not cause a price rise if you are large. A small guy can clip 100 shares as a market order and nobody would even notice….

    However, if you WANT to move the market, like, oh, a ‘short’ wanting to start a stampede for the exits…

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