- A trend that has started to unfold in the FX markets in the past couple of weeks; the JPY is losing its lustre as a “safe haven” in times of equity market weakness. The correlation between the S&P 500 and USD/JPY has dropped significantly since the start of the month, weakening to a more or less equivocal +56% and while the EUR/JPY correlation remains strong at +78%, the trend is clearly weakening (the relationship’s tightness peaked at +97% in early December).
- While EUR/JPY has maintained a generally strong, positive correlation with equities over the past 18 months or so, there have also been two marked episodes of the S&P 500 and EUR/JPY diverging, and the correlation turning negative, if only briefly; those periods (May/Sep 2006 and Jun/Oct 2008) have tended to reflect the cross decoupling from equity market weakness.
- The sliding correlation between the JPY and equities leaves investors a little short of obvious alternative temporary refuges from equity market volatility. We have a relatively limited universe under observation here but the USD is not an obviously strong beneficiary from equity market moves directly; the DXY is showing a weak negative correlation with equities and EUR/USD’s weak and sliding positive correlation may simply be a residual of EUR/JPY’s movement. Neither USD/CHF nor EUR/CHF is an obvious vehicle to exploit equity market volatility either (USD/CHF showing a slight negative correlation with the S&P500 while EUR/CHF is barely positively correlated at the moment).
- The relationships between assets and asset classes ebb and flow over time but the data does suggests that the kneejerk reactions to equity weakness (or strength) that we have become used to in FX are less reliable these days at least. We do detect a strengthening (though still relatively weak) negative correlation between equities and gold at the moment which might suggest if investors are looking for protection from volatility, precious metals may benefit.
JPY correlation with equities weakens
February 18th, 2009 · No Comments
Tags: USDJPY
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