EUR/CHF and EUR/USD follower-leader effect: USD interest rate drop could have killed the effect

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Written by Forex Automaton   
Tuesday, 18 November 2008 14:41
Article Index
EUR/CHF and EUR/USD follower-leader effect: USD interest rate drop could have killed the effect
Correlation of EUR/CHF and EUR/USD
Time history of EUR/CHF, EUR/USD volatilities and correlation
History of LIBOR interest rate differentials. Conclusion.
All Pages

This is a follow-up report on the leader-follower correlation between EUR/USD and CHF/EUR. I say CHF/EUR and not EUR/CHF because the correlation between EUR/USD and EUR/CHF is negative; it is CHF/EUR who is found to follow behind EUR/USD with about an hour lag. To those who are new to this site: the blog focuses on applying quantitative analysis to forex in search for patterns which can be utilized for trading short range, the minimal time scale being one hour. These are postulated not to exist in efficient markets, and as usual, measuring the non-existent and writing about it is a lot of fun, just like doing the "impossible" by beating the markets. This article about EUR/CHF and EUR/USD, discussing the time evolution and time stability of the effect, also extends the time span of the observation up to the fourth quarter of 2008.

By looking at the historical bar charts of EUR/CHF and EUR/USD in Fig.1, it's hard to tell that we are dealing with a pair of exchange rates which are negatively correlated on the hour scale. But there is a lot more information in the data; some of it can be revealed by correlation analysis.

Historical bar chart of EUR/CHF since 2002, hour. Historical bar chart of EUR/USD since 2002, hour.

Fig.1:Historical bar charts of the data used in the analysis. Top: EUR/CHF, bottom: EUR/USD. Time scale is hour. Time axis is labeled in MM-YY format.



Last Updated ( Monday, 14 September 2009 16:50 )