– The Dollar lost its correlation to the SP 500 and ’risk’ in 2013
– It gained a strong correlation to US Treasury Yields
– Treasuries and interest rates point to major Greenback moves in New Year
2013 was a year marked by a significant shift in forex market correlations in dynamics, and major developments give us clear guidance on what we can expect in 2014.
From 2008-2012 we spoke endlessly of “risk on/risk off”—the tendency for currencies like the US Dollar to move with risky markets such as the US SP 500. A strong SP 500 usually meant a weak US Dollar and vice versa. Yet that correlation nearly disappeared in 2013. What does that mean for trading in 2014 and what replaced it?
What’s Driving the US Dollar? Not the SP 500 Volatility Index
Thus we take a look at top Dollar correlations on the year 2013: US Treasury Yields and interest rates.
Why are Treasury yields so important? Put simply, US Federal Reserve policy and expectations remain the major Dollar driver and will likely serve as a key pillar of support in 2014.
Indeed, yesterday we wrote why Federal Reserve policy suggests we could see much larger currency and especially US Dollar moves in the New Year.
Take a look at the report above and follow any updates on the Dollar via this author’s e-mail distribution list.
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX