Summer correlations

Oil to the dollar and Euro

June through Aug

Now, zooming in on the summer of 2016, I’m moving towards the level of granularity, for making actual trade plans, on a time frame of a few days.

Starting with the spasm on 6-23-16

Dollar Oil comp

dollar oil correlation 6-23 oil leads

This is a $2.50 move in 5 hours, which is very big for someone on my time frame.  $2500 per contract.

The move in oil went from 3 pm to 8 pm.

This was probably news driven.  But I’m not sure what the news was.  3 PM in the US, nearly midnight in Europe.

The interesting thing here is that oil led on this day.  The big pop in the dollar didn’t happen until oil was almost done.

In this case, on a hourly time frame, the dollar might have been playable, for someone willing to take an afternoon position (not my sweet spot.)

So let’s see if the Euro gave any clues.

Euro oil comp

dollar euro oil correlation 6-23

The Euro broke down in almost perfect synchronization with oil.  Oil traders were very alert here, if not prescient.

Both had that confusing hammer candle in the middle, that looked like they might reverse back up.

It would have been a difficult play.  I’m looking more for tells.  So let’s zoom out, and look what happened next.

Dollar oil comp, 6-23-August

dollar oil correlation 6-23 - Aug

Here we can see what happened was, the dollar made a bull flag, and looked like it would go higher.  Oil was bouncing along support.

On 7-19 the dollar made the breakout move to the upside.  A few days later, on 7-21, oil failed through support.  This was more of the lead time type tell that could be helpful.

Next, the dollar failed to continue higher, and on 7-28, the breakout failed.  The dollar started down.

By now, oil was really over-shooting the dollar move.  The little grey box on oil corresponds with the day the dollar failed.  And yet, oil continued down for another week.

So in this case, it looks like an overshoot on the part of oil traders.

Let’s look at the Euro action, to see if there were any clues there

dollar euro oil correlation 6-23-aug blue

The Euro was making a bear flag, while the dollar made a bull flag.  But while the dollar did break out to the upside, on 7-19, the Euro failed to break down.

At noon, on 7-27, the Euro called it a bottom, and spiked up.  The dollar was in sync.

What happened to oil?  It went down on a negative inventory report.

What happened to our prescient oil traders?  Not watching currencies!

Summer summary:

These correlations bear scrutiny.  Particularly when currencies make a sharp move, and either follow through, or fail to follow through.

Also, wouldn’t hurt to keep in mind potential or likely moves by the ECB, Fed, and to some degree, other central banks.


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