What is correlating in FX? - Nomura

Research Team at Nomura, lists down the few important correlations in the FX space.

Key Quotes

“EURGBP continues to correlate strongly with its nominal swap rate differential (2y, 5y and 10y) as well as strongly negatively with the EUR swap 2s10s slope. This latter (negative) correlation has been hovering around 1y highs since August.

A new entrant in the top 10 list is the correlation of GBPCHF with the respective 5y nominal swap rate differential. We like to trade GBP strength against CHF to avoid USD appreciation risk, and expect the SNB to remain dovish. We believe that the CHF’s attractiveness as a funding currency should continue to contribute to gradual CHF depreciation into year-end. The possible announcement of a fiscal stimulus package in the Autumn Statement could provide a boost to GBP, and a supportive package could relieve pressure on the BoE to act (cut); see Five FX trades for the rest of 2016, 12 September 2016.

FX correlations to commodity prices no longer overwhelm the list of top 10 two-week changes. Some notable top changes this week are various FX crosses with their respective nominal rates differentials (2y, 5y, and 10y), the slope of the JPY swap curve (2s10s), and a measure of implied volatility of currency markets (cVIX). Interestingly, the NZD has recently become highly (inversely) correlated to implied FX volatility (both to the crosses own 3M vol and with respect to the broader cVIX measure). AUDNZD, EURNZD, and NZDUSD are key highlights here.”