Hi Jeff,

Yes, you are right, it is tough to tell when the trend will end. But that goes for any type of trade. I think that correlation is just another clue as to where price will go. A concrete trading plan needs to be formulated and tested in order to figure out the best way to make it work for each individual trader.

Fundamentals can certainly help, but I believe that it can also be traded technically. Depending on how you like to trade, you will lean on one or the other more.

Yes, your last sentence certainly says it all…there is no simple answer 🙂 My goal for this post was simply to present the opportunity. If I can find a way to provide hard data on a trading strategy, I will show it in a future post.

Cheers,
Hugh

Thanks for the input Rolf. Sorry for any confusion, but all comments have to be approved to be posted.

Thanks for the reply. However I fail to see how you can tell when they are moving together and when they aren’t. Granted looking at what has happened in the past, you of course can see if they are moving together or not, but no one knows for sure when the trend will stop. So it would seem to me, to maximize your chances of predicting if they will continue to be divergent or move together, going FORWARD, you need to have some understanding of the underlying fundamentals that are driving the trend and consider if those fundamentals are changing or likely to about change. This was the reason for my original question. Unfortunately I think there is no simple answer.

the reason why the correlation seems to be broke is the yen. All across the board you will see that the pairs with yen at the end are rising. This is because the yen is VERY weak.

In case of the cad/jpy it is so weak that even a weak oil price cannot comprehend this. But when you look at other ‘oil’ currencies, such as the NOK, you can still see the effect.

cheers
Rolf

The problem here is not the canadian dollar but the yen. The canadian dollar is weak indeed, but the yen is weaker. Just look as usdcad: it has been rising. And other oil currencies such as tge NOK are falling too.
But the yen is currently the weakast of all and thats why cadjpy keeps rising.

Hope it helps 🙂

Rolf

Hi Jeff,

I’m not really sure what is going on between CADJPY and oil right now. However, with any correlation trade, there will be times when price is very divergent and times when they move in sync. You don’t necessarily have to know why it happens, you just have to know when they are moving together and only trade during those times. Sorry, but I can’t offer more insight into the fundamental reasons why they are not highly correlated at the moment.

Cheers,
Hugh

Hi Rolf,

Thanks for the link to her article. Hope your trading is going well 🙂

Btw, I also trade CAD/JPY from time to time and I really enjoyed this article from Kathy Lien (gotta admit, I am a big fan of her 😉 ) http://www.investopedia.com/articles/forex/06/commoditycurrencies.asp
She explains the correlations to oil very nicely and also goes into detail about the CAD/JPY.

However, keep us posted. I’m looking forward to your further discoveries regarding the CAD/JPY!

cheers
rolf