It’s rare, but the EURUSD/USDCHF Correlation turned positive on a Daily Chart.
On September 1, the EURUSD/USDCHF Correlation turned positive. This relationship remained this way through September 6. The significance of this occurrence is that the relationship between the Euro-Dollar and Dollar-Swiss Pound almost always negatively correlated on a daily chart. The last time the correlation was positive was January 15, 2015. If this date sounds familiar, it is because this is the day that the Swiss National Bank removed its floor rate against the Euro.
Taking a Correlation between EURUSD and USDCHF over the course of 50 periods (50 days), the correlation is negative for a total of two months over the course of the past four years. The only times it changed to go positive are on the so-called Black Swan event involving the Swiss National Bank and the slow rise in correlation to possibly peak at .08. Note: This is an extremely weak positive correlation that is actually rather indicative of no relationship between the two currency pairs.
On a smaller timeframe, it is far more likely to find these correlations going positive because the price action can have more noise. Seeing this on a one hour chart is not alarming.
What exactly drove the EURUSD/USDCHF correlation on daily chart to rise?
The U.S. Dollar has been losing value against the Euro. The Swiss Franc has strengthened against the U.S. Dollar.
What may explain for this is the Swiss National Bank Chief Thomas Jordan’s desire to weaken the Swiss Franc. Whenever the Swiss National Bank takes action that is counter to what the market expects, the rates and correlations get thrown off significantly. With lower volatility during the Summer (especially August when Europe literally takes a month off) and a surprise from a Central Bank that is notorious for being rather conservative in approach, the end of July saw spikes and August remained rather tame.
When other Central Banks act, the reaction is not as dramatic and Jordan may not realize what the market repercussions would be or simply not care. It’s not his role to guess how market participants will react to any changes he puts in place and the market reacted like it was a micro-Black Swan of sorts taking the Swiss Franc down against the Euro 500 pips in a week. It is definitely not like the events of January 15, 2015, but Thomas Jordan has the power to cause a radical divergence from the norm and European Central Bank President Mario Draghi does not seem to have that sort of a surprising and dramatic effect on the currency markets.