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Correlation between the Yen and Dow

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  • First Post: Aug 20, 2007 5:33pm Aug 20, 2007 5:33pm
  •  FXrules
  • | Joined Mar 2007 | Status: Member | 3 Posts
Hello,

I am fairly new to currency trading but I have a live account and have at least been demo trading for the past few months. I've made some money and I've lost some money so my feet are wet and I've caught the bug.

A majority of my analysis is technical but I do check out the forex factory calendar for fundamental news events. For longer term trades I consider the COT reports but consider them guide posts for off road type activity. My main workhorse is the moving average cross over. I put a lot of value into trend lines/channels and pivot points and when fib's are positioned correctly I will consider them but I believe it is tough for a trader to tell turns and it's better or easier to try tailing trends. Trouble chasing trends is buying tops or selling bottoms so volume studies and RSI becomes handy too.


I follow the Carry Trade. I like the EUR/JPY and analyze the USD/JPY, GBP/JPY, NZD/JPY etc. In the past few weeks on a daily basis I can't help notice a high correlation between the movement of the Yen, particularly the USD/JPY but also any other pair with the Yen, and the Dow Jones index. After I first noticed this I thought it might just be an odd coincidence. I mean it was immediate if the Dow was up the USD/JPY was up and if the Dow was down the USD/JPY was down. It was responsive enough to be an intraday indicator. Also the Carry Trade, the USD/JPY, was an indication of any other currency that was paired with the Yen. The GBP moves a lot more but it whipsaws too and I favor the EUR with the Yen because of the lower transaction cost with my broker than the pound yen as well as it not whipsawing as much, allowing for the tight stops I prefer to utilize in risk management.

So I wanted to ask the group here about the correlation between the Yen and the Dow.

I did a web search on Google and found a few results:

Kathy Lien from February 27, 2007 talked about a "...correlation between the Dow (Red line) and USD/JPY (black line)" in a nice graph from:

http://www.dailyfx.com/story/special...611317479.html

I hear Kathy Lien quite a bit and take note when she has something to say. In this article she mentions "For the most part, USD/JPY has even been a leading indicator for the moves in the Dow." She says more and I thought this link was a good reference. I'm hoping moderators will allow for it's relevance sake.


I will need to read the article again myself, but she confirms that there is a significant correlation between the Dow and the Yen and that it has been that way for some time (over a decade).

Another article I have read "Does Carry Drive The Dow? Written by DailyFX" states "As we can see in Figure 2 the directional correlation between the carry trade and the Dow was a remarkable 0.95 as both investments rose in near perfect unison." It also has some nice graphs to look at:

http://www.actionforex.com/forex_ana...2007050921365/

It also states that the "carry trade movements do foreshadow movements in equities on an intermediate time scale. The idea makes sense. In its purest form the carry trade is essentially the never ending hunt for yield by global investors."

I have heard other members from the Forex Factory briefly mention this subject. Members like auslanco, fourxtrader and
markam from threads such as:

http://www.forexfactory.com/showthread.php?p=1546670


http://www.forexfactory.com/showthread.php?t=42969

So again, I wanted to ask the group here about the correlation between the Yen and the Dow. If you have any experience utilizing the Dow index as a indicator for a Yen pair trade, please explain the mechanics of the set up. I am still researching this and would appreciate any other articles about the Yen Dow correlation and methods of FX trade set ups with this correlation being utilized as an indicator.
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  • Last Post: Aug 21, 2007 12:57am Aug 21, 2007 12:57am
  •  Forexxx
  • | Joined Aug 2007 | Status: Member | 8 Posts
thank you !
 
 
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