EUR/USD Vs AUD/USD correlations from a 1 year perspective currently runs +90%, 50 day at +94% and 20 day at 94%. In August and the same time as last month in exact time frames, EUR/USD to AUD/USD Correlations ran 97%, 93% and Minus 25%. EUR/USD Vs AUD/USD relationship ran by the 20 day average over the past month and went from deeply negative to solidly positive correlations. The relationship is now solid which means longs and shorts are solidly aligned.
EUR/USD to AUD/EUR correlations from a 1 year perspective currently runs minus 97%, 50 day at minus 24% and 20 day at +85%. In August, correlations ran minus 93%, minus 81% and minus 66%. The 20 day average was responsible over the past month as driver to the EUR/USD Vs AUD/EUR relationship and the current association is positive.
AUD/USD Vs AUD/EUR runs 1 year correlations at minus 94%, 50 day at +0.09 and +97% on the 20 day. In August, Correlations at the 1 year ran +48%, 50 day at +54 and +55 at the 20 day. While the 1 year and 20 day relationship strengthened positively, the 50 day correlations experienced a severe drop.
EUR/AUD Vs AUD/EUR correlations from 1 year run perfectly negative at 1.0, 50 day at minus 99% and perfectly negative at the 20 day at minus 1.0. This relationship is absolutely perfect as a long in EUR/AUD is a correspondent short in AUD/EUR. A short in EUR/AUD is a perfect long in AUD/EUR. This relationship has been running negative over many many months and the association runs as its intended purpose historically.
What changes a correlation is a significant break point and for the past month, the break point was the 20 day average. Longer term and to mark a periodic or wholesale market change then the 10 year average must be viewed.
To understand the EUR/AUD and AUD/EUR relationship is to view current prices, positions and ranges. AUD/EUR at high 0.6690’s trades 2.2 to 2.3 times EUR/AUD at 1.4900’s.
EUR/AUD daily range movements based on European interest rates is allowed a traditional wide 75 pip daily movement or 150 pips overall. EUR/AUD is actually the driver pair to AUD/EUR because of this allowable wide movements and because of its higher price at 1.4900’s. The second factor is EUR/USD cross pairs are always traditionally priced in larger daily point range movements to move farther and wider than EUR/USD.
AUD/EUR is quite a different pair as its daily point movements are located at 34 pips or 68 pips overall. AUD/EUR is a contained currency pair purposefully by the RBA to not only restrict its movements but its restriction is accomplished by holding range point movements below AUD/USD. Current daily AUD/USD is running at a whopping 41 pips or 82 pips overall. Traditional AUD/USD for many many months has been running at 38 to 39 daily pips. At 41, AUD/USD broke its range. This is quite rare especially for AUD as the RBA holds AUD/USD in tiny ranges when economic turmoil rules the day. Its how the RBA and AUD/USD is able to weather all economic storms since AUD gained the free float advantage since 1983.
If however the RBA didn’t hold AUD/EUR tight then EUR/AUD prices would fly far and wide on a daily basis. Also note AUD/EUR at 0.6600’s Vs AUD/USD at 7900’s. AUD/EUR is priced below AUD/USD from 1.1 to 1.2 times. The import why the RBA must control AUD/USD to AUD/EUR is because Iron Ore and Wool is priced everyday in AUD/USD terms. The RBA wants AUD/USD priced correctly for purchase and export terms. Iron Ore is most vital because only China and Australia set Iron Ore prices.
Overall AUD/USD is crucial at its vital break points at 0.7877 then 0.7817. Its significantly lower or higher for AUD/USD based on 0.7877.
EUR/AUD is also at a crucial break point just below at 1.4859 and 1.4839. At 1.4859 is most vital as the 10 year average is located at 1.4860. Does it break.
AUD/EUR vital break points are located at 0.6730, 0.6741 and 0.6816. This translates to EUR/AUD at 1.4858, 1.4834 and far below at 1.4671. For the next few days at least, AUD/EUR will stop EUR/AUD from the 1.4859 break.
Brian Twomey, Inside the Currency Market, firstname.lastname@example.org. To go far deeply into the currency market on a broad range of topics, twbrian.wordpress.com. The blog doesn’t nor will ever earn money and its safe.