Currency managers rejoice as foreign exchange correlation hits lowest level since Lehman collapse
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Thread: Currency managers rejoice as foreign exchange correlation hits lowest level since Lehman collapse

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    Currency managers rejoice as foreign exchange correlation hits lowest level since Lehman collapse

    The foreign exchange market appears to have finally shaken off the tyranny of risk-on/risk-off (RORO), with correlation across dollar currency pairs dropping to their lowest levels since the start of the financial crisis.

    That is good news for currency managers, who have seen the dominance of RORO undermine arguments that FX is an asset class in its own right and weigh on returns, as currency pairs reacted uniformly in swings in global risk appetite.
    John Normand, global head of FX strategy at JPMorgan, says the fact that correlation across dollar pairs has fallen to their lowest level since the collapse of Lehman Brothers five years ago is another way of saying that recent currency moves have had little to do with global issues and everything to do with local ones.
    Indeed, he says that 2013 in FX has been mostly about country specifics, such as money market normalization for the euro, Abenomics for the yen, triple-dip recession plus debate over EU exit for sterling, or a shifting central bank bias for Brazil.

    Stronger returns for currency managers as currency correlation drops


    Normand says for fund managers who bemoaned the RORO tyranny of the past three years, in which diversification was unattainable as global markets and dollar currency pairs rose or fell together in response to global events, 2013 should be refreshing.
    “The ongoing slide in dollar-based correlations reflects as much the fading of systemic risks – such as the US fiscal cliff – as it does the rise of local ones,” he says.
    Such a strong performance cannot be guaranteed to continue. One swallow, or in this case a January, does not make a summer.
    A global theme might yet emerge to drive dollar correlations higher again – Normand cites the possibility that government bonds extend their sell-off and force the unwinding of carry trades.

    Still, for now at least, the world’s currency managers have something for which to be grateful.

    euromoney.com

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    Correlation downfall is a good news for traders. It'll allow to use different strategies on the market as well as strategies or systems diversification.

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    Super Moderator Gamer's Avatar
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    i must say this , it will help a lot to the traders because as you said eveb different terminology are going to be used be the basic plan by this will help a trader to trade more accurately

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    Quote Originally Posted by Gamer View Post
    i must say this , it will help a lot to the traders because as you said eveb different terminology are going to be used be the basic plan by this will help a trader to trade more accurately
    This article can be useful for those who pay attention to the correlation and use it in trading. Many of them noticed the break of correlation between EUR/USD and GBP/USD. This article gives the answer.

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  5. #5
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    Well I don't realtime see how currencies lack of correlation would ne good for traders because I thought thaw currency correlations is meant to b key in identifying the true strength of the dollar versus major pairs,I would still like to know how the drop in currency correlations is a good thing for traders.

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    I have spent some tome in robo forex trading business but i have not more knowledge about business , i am in learning proccess now a days and i want to know about currency managers rejoice as foreign exchange cerrelation hits lowest level since lehman coll ..

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