Fundamentals and Intermarket Analysis

Hello. As the title implies, I would like to discuss news as well as various other markets that may help us all make better and more informed forex trades.

There are few good books on the subject of intermarket analysis. One I have in hardcopy is "Currency Trading and Intermarket analysis" by Ashraf Laidi, it is excellent.

I'd like to start the talk on the correlation between usd/jpy and the ten year treasury note future. In the attached, I am using the continuous contract. Heard about the strong inverse correlation on cnbc and decided to see for myself. I believe they meant daily correlation, but it looks to hold up well on 1 hr too. This is using a demo Broco MT acct. I suggest you get one, one of the few MT brokers that give out free futures data.



I've uploaded the pocketbook of economic indicators for your reference.



Update 4/15/12: Uploaded excel 2010 websheet with weekly data. Ultimate aim is to record data to this spreadsheet each week, load the values into mysql then write reports over time that will form a powerful fundamental record, free too all .. published to FF.

Use: Each week copy the current data to a new sheet and refresh the web query it should post the updated values from the forexpros website. Their calendar is more complete than FF.

Yeah I think this could become a great thread. Let me start with asking a question. How can this correlation be used to make profits in the markets? Or is one of them leading the other?

Well, since
I just found out about it, not positive yet but this is what I'm guessing: When the bond markets are trading during NY hrs, I would see that market leading the usdjpy. Especially after the recent Fed meeting we seem to be getting a lot of rebalancing, likely smart money like hedge funds and sovereigns.

Of course, you wouldn't have to trade the UJ to take advantage of this, just use a more volatile pair correlated to it. Hourly GBP/JPY is 95% correlated to UJ -> http://www.forexticket.us/en/tools/0...n#table_correl

So the logical conclusion here: We can correlate the 10YR with GBPJPY and use this information to make trades on it when the bond market is active.

Skimming back through Ashraf's book, found an interesting relationship between the change in employment the the 10Y. Oops, I read the chart wrong, I'm actually not sure what the relationship is based on this, perhaps inverse correlation? Can anyone tell?



not sure of the timeframe, must be weekly

you can do inter market asset class correlation by hand. this is the criteria I use.

historical
yearly
monthly
weekly

you can go to excel paste all closing prices for the assets you want to correlate and use
=correll(x1:x240,y1:y240) where x is asset 1 and y is the 2nd asset

you will get a 1 or -1

A good thing to look at is who leads and to get a general idea
usually by currency market hours like eur/jpy i would expect it to be more active during asia, and eur/usd during london and america overlap.

these are hypothesis, although i think correlations are important I use it more to assess my risk exposure across asset classes. As far as trade triggers, Once I find out how to do some statistical analysis using R or Excel or if anyone can offer a program then i can test it and then trade it demo.

Thanks, good idea. I'll try to put together a spreadsheet (in excel 2010 and open office) with live links, hopefully make it a self updating archive.. throw some charts on it and show it to the group for improvements.

I'm using sigtrader from liteforex to see the true spot USD index. Makes it so much easier to see where the market is going, since as we all know 75% of all fx transactions involve USD.



See this huge volume drop the last few weeks. Declines on weak volume is one thing, but when vol increases and its still inching down.. could end up a huge move. This way you can do analysis on USD based on its own merits and not only use another currency to see it. Some use the USD index futures, but the technical analysys will not always transfer to FX right away i.e. you can get divergences sometimes which may not be desirable if you are strictly a spot forex trader..

All, see zip file in post 1 for live news event data sheet. Each week you can copy it to a new tab then refresh, and have all the week's data in 1 spreadsheet. It is programmed to update every minute.

This is for Excel 2010 not sure if it would work in earlier versions.

I am going to copy it all into a database for reporting and archiving. In fact I'll try to go back at least a year with this data and load it to SQL. From that you can build all kinds of reports either in excel or my preferred tool, crystal reports.

In.