Why is the usd/chf vs eur/usd inverse correlation?

Discussion in 'Trading' started by Trend Fader, Nov 24, 2005.

  1. The website shows that the euro/usd and usd/chf move in oppsite directions.. what is the fundemental reason behind this?
  2. Pabst


  3. Pabst


    Just is. Yen is quoted like that as well. When the price of JPY goes up it means the value of the Yen is lower.

  4. I understand this.. but why do they move the same amount when the dollar is weak or the dollar is strong.. my question is why is there am almost perfect correlation.. moreso then any other pair ?
  5. Pabst


    I can't answer that, Mike. I'm curious as well. I would've thought with the strength in gold that a gold backed CHF would depreciate less against the dollar this year than EUR. De facto pegging? Hopefully someone can answer your question. I'll try to find some old DM-SF charts and see about pre ECU correlations.
  6. I'll letcha in on a little secret. Have a look at the EURCHF chart on a long time frame. It's a wonderful opportunity for channel trading. Since they're so well correlated, they do tend to move together *but* their values realative to one another do see-saw back and forth.
  7. USDCHF and EURUSD are tightly correlated because of old relationships between the cross rate that existed between the DMK and CHF. That cross was pretty stable if I recall, largely because of the defined bands of the european monetary union, which produced the ecu, which was the predecessor to the euro.

    Since the old CHF/DMK cross was rock stable, and EUR was pegged to the strongest currency in europe at the time, the DMK, it should be no surprise that EUR/USD and CHF/USD trade so similarly.

    I don't think the gold backing of the CHF has any importance whatsoever unless there is some sort of worldwide crisis.
  8. Thanks for that answer.. I was looking for something like this.
  9. UM_manager just yesterday posted a nice chart of daily correlations between euro and swissy, going back ~5 months:


    Also, it's worth noting that there are several other currency pairs which tend to be highly correlated, at least some of the time. AUD/USD and NZD/USD would be one example. Even euro and cable, obviously to a lesser extent than euro and swissy. This bilingual French / English site is great for dynamically tracking daily and hourly correlations over 5, 20 or 100 hours or days, among other useful analytics.
    #10     Nov 24, 2005