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Today's Pair Trade Of Consideration: Short SPY, Long EURJPY
We have long observed the recent tendency for the EURJPY to track the SPY almost identically on an intraday basis. Today, this relationship is no exception.
To be sure, some correlation traders have over the past several months picked up on this trend and use it with a higher R2 than any other corr. The keyword here, however, is recently.
What has caught our attention is a long-term chart of the EURJPY, which today tumbled to levels last seen in February 2009.
Of course, February/March is when the S&P was probing those satanic numbers.
So how has this correlation stood up over the past two years or so? In a word - Not so good.
The relative spread between the two series has diverged materially and even as the EURJPY tracks the regular hours market, the correlation is broken afterhours, when, as we have pointed out, a bulk of the Q3/4 gains in the S&P have occur ed. Which is why we are confident that the spread will compress dramatically over the next several months, if and when that increasingly more fishy buying momentum in the SPY disappears. Furthermore, as the intraday algos track the EURJPY almost with R2=1.000 precision, we feel that in short order the program horizon will be expanded to take advantage of this longer-term discrepancy. Which is why, purely on technicals, with no regard for EUR or JPY relative strength, we are confident that a Short SPY Long EURUSD convergence play bears very little risk as the two time series cease divergening from a mid- to longer-term basis. One notable observation: should this correlation revert and the EURJPY stay flat, the fair value of the SPY is now at around 75, or almost 40% lower from current levels. With computers trading the market with no regard for fundamentals, and should the strength of the EURJPY signal be augmented, we see this SPY retracement as a distinct possibility.
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The currencie market has been the best to watch lately. The Yen's movements are spectacular! and the Euro/Doelarr has me in a trance. Doelarr is SPINNING IT"S WHEELS!!!!
Slight off topic...I recall a GS prognostication =yen @ 115 about 8 months ago. Well we are close, 112 +. ...very interesting.
"augmented" -- ??
Short both. EUR/YEN TO 100 and SPY to 50.
Good stuff.
Isn't this explained by the possible switch to EURUSD as the carry for SPY ?
I realize one day's data is not that meaningful, but EURUSD is flat today while SPY is down.
Using the dollar for a carry isn't as reliable as yen because the long term outlook for interest rates near 0% is much stronger for the yen. We just had our first core cpi deflation since the 1980's, but Japan has been in and out of deflation for 20 years now with no light at the end of the tunnel.
Not if JPM has anything to do with it.
Die, stocks, DIE!
Why the violent move at the first hour of trading and then just sideways? Oh, and of course, the slow melt-up at about 1400. Seems to be reoccuring, regardless if the initial move is up or down. Any ideas?
Why the violent move at the first hour of trading and then just sideways? Oh, and of course, the slow melt-up at about 1400. Seems to be reoccuring, regardless if the initial move is up or down. Any ideas?
Is this an indication of market manipulation?
Euro and Yen moving to upside in tandom. Strong move too....soon, it will be bye bye doelarr.
Most likely scenario is correlation will break down, and neither of those 2 things will happen.
spy will go where the overlords say
eur is dead cause europeans hate it
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