What is Our EUR/USD Correlation Cheat Sheet Telling Us?

I’ve been working on a new correlation tracker for individual currency pairs (see table). It allows you to see which markets are most correlated with a currency like EUR/USD. I also provide EUR/USD estimates based on that market to see whether a current spot is too high or too low. Here’s the latest:

• Gold, euro bank stocks, oil, and copper are heavily positively correlated with EUR/USD. (That is, higher copper = stronger euro).
• Euro consumer staples stocks, Euro Xover credit spreads and natural gas are heavily negatively correlated with EUR/USD. (That is, higher nat gas = lower euro).
• Rates have a strong correlation too, but not as strong as the above.
• More surprisingly, almost all the markets suggest the euro ‘should’ be stronger. Only natural gas prices point to a lower euro (0.964).
• Overall, this suggests that a bearish risk premium has been built in the euro, and would suggest caution in being short euro. We have a medium-term bearish euro view, but currently we are neutral in the near-term.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)