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EUR USD USD CHF correlation

  • Post #1
  • Quote
  • First Post: Jun 9, 2010 6:11am Jun 9, 2010 6:11am
Anyone else get the impression that the EUR USD / USD CHF correlation is breaking down lately? The EUR USD has been making new lows lately while the USD CHF looked like it is being pulled down through some kind of intervention (first when it hit 1.17 and then when it looked like another intervention prevented it from going above 1.16). Looking at the 4h chart it looks like it's almost trading in a range.
Can't say I've noticed it, mind you I trade intraday and don't trade both pairs simultaneously so probably wouldn't notice it anyway.....


http://i49.tinypic.com/4fzo81.jpg


http://i46.tinypic.com/oziia.jpg
No idea, but i did read this yesterday...

http://ftalphaville.ft.com/blog/2010...mark/#comments
Quoting hawkman
Anyone else get the impression that the EUR USD / USD CHF correlation is breaking down lately? The EUR USD has been making new lows lately while the USD CHF looked like it is being pulled down through some kind of intervention (first when it hit 1.17 and then when it looked like another intervention prevented it from going above 1.16). Looking at the 4h chart it looks like it's almost trading in a range.
this has been discussed a lot in the trading system board. at the end everyone noticed that the graph changed itself and it doesn't really work. if you zoom it out, you will notice that the chart looks like they are moving in a range but they are not. the chart just zooms in and makes it look like they are gonna meet but they actually not. it can be widened mored and you can blow your account.
When I buy it, it moves down. When I sell it, it moves up.
Quoting pujolshomerun
everyone noticed that the graph changed itself and it doesn't really work.
Huh?

Quoting pujolshomerun
if you zoom it out, you will notice that the chart looks like they are moving in a range but they are not.
Huh?

Quoting pujolshomerun
the chart just zooms in and makes it look like they are gonna meet but they actually not.
Huh?

Quoting pujolshomerun
it can be widened mored and you can blow your account.
Blow your account? Wow, this trading business is dangerously risky......
Quoting hawkman
Anyone else get the impression that the EUR USD / USD CHF correlation is breaking down lately? The EUR USD has been making new lows lately while the USD CHF looked like it is being pulled down through some kind of intervention (first when it hit 1.17 and then when it looked like another intervention prevented it from going above 1.16). Looking at the 4h chart it looks like it's almost trading in a range.
The correlation has been weakened quite a bit. Many times, the corresponding move in USD/CHF in response to a move in EUR/USD is delayed but even when not, the magnitude of the correlation is also less.
Make your losses in demo. Earn your profits live.
These are not normal market conditions.

SNB have been buying and selling in the eur/chf and the usd/chf.

It seems the two pairs move in opposite directions when the dollar is strong or weak. This is not a weak or strong dollar market. This is a market filled with fear and anxiety. I think the yen in the low 90's shows that plus the eur at the levels it is shows that.
Yeah, daniel242 is right on the money. Plus, all of this stress on EUR only peripherally affects CHF, while at the same time CHF is a safety asset.

Rob
Hey genius, look at the EUR/CHF chart to see how the "correlation" is changing.
Quoting Goat
Hey genius, look at the EUR/CHF chart to see how the "correlation" is changing.
Exactly. If you multiply EUR/USD with USD/CHF, you get EUR/CHF so trading this "correlation" is effectively the same as trading EUR/CHF.

So low volatility in EUR/CHF means strong "correlation" and vice versa.

Trading this "correlation" without this insight and without awareness of SNB's activities of late seems a bit less well informed, and a recipe for losing.
Quoting Goat
Hey genius, look at the EUR/CHF chart to see how the "correlation" is changing.

Quoting medici
Exactly. If you multiply EUR/USD with USD/CHF, you get EUR/CHF so trading this "correlation" is effectively the same as trading EUR/CHF.

So low volatility in EUR/CHF means strong "correlation" and vice versa.

Trading this "correlation" without this insight and without awareness of SNB's activities of late seems a bit less well informed, and a recipe for losing.

It looks as though neither of you read the original post before replying. EURCHF is irrelevant to point.
Quoting Rob Mondave
It looks as though neither of you read the original post before replying. EURCHF is irrelevant to point.
Oh, I must have misunderstood things as I cannot understand the irrelevance on a second careful reading. Could you please explain?

Thanks.
Quoting medici
Exactly. If you multiply EUR/USD with USD/CHF, you get EUR/CHF so trading this "correlation" is effectively the same as trading EUR/CHF.

So low volatility in EUR/CHF means strong "correlation" and vice versa.

Trading this "correlation" without this insight and without awareness of SNB's activities of late seems a bit less well informed, and a recipe for losing.
Actually, trading the EURUSD / USDCHF combo is close but not actually the same as trading the EURCHF, unless you scale the size of the entries. Here is the math on why that is:

Buy 1 EURUSD @ 1.236=
+ 100,000 EUR / -123,600 USD

Buy 1 USDCHF @ 1.1104 =
+ 100,000 USD / -111,040 CHF

Net =
+100,000 EUR
-23,600 USD
-111,040 CHF

So it isn't a perfect proxy of the EURCHF unless you buy 1.236 lots of the USDCHF.
  • Post #14
  • Quote
  • Edited 8:10pm Jun 18, 2010 9:48am | Edited 8:10pm
Quoting scattergood
Actually, trading the EURUSD / USDCHF combo is close but not actually the same as trading the EURCHF, unless you scale the size of the entries. Here is the math on why that is:

Buy 1 EURUSD @ 1.236=
+ 100,000 EUR / -123,600 USD

Buy 1 USDCHF @ 1.1104 =
+ 100,000 USD / -111,040 CHF

Net =
+100,000 EUR
-23,600 USD
-111,040 CHF

So it isn't a perfect proxy of the EURCHF unless you buy 1.236 lots of the USDCHF.
Thank you for taking the time to explain. I see now what you mean. A couple of comments:

1) While I understand your point, I still don't see how that makes my post irrelevant to the question originally posed even though some comments perhaps were off the mark.

2) To my understanding one should scale positions when doing pairs trading, such as the one you describe, based on estimated regression parameters. Otherwise the correlation wouldn't be traded optimally. No?
  • Post #15
  • Quote
  • Last Post: Jun 20, 2011 6:56pm Jun 20, 2011 6:56pm
Hello,

excuse me , professeur,how can u make up that? can we make up that in mt4?

Quoting pipmutt
Can't say I've noticed it, mind you I trade intraday and don't trade both pairs simultaneously so probably wouldn't notice it anyway.....


http://i49.tinypic.com/4fzo81.jpg


http://i46.tinypic.com/oziia.jpg
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