Traders with experience in Futures transactions know that there are many correlations between different Futures markets, some of which are valuable guides that can help us determine trends in specific markets, although some may also be somewhat volatile. In this article we are going to discuss some basic correlations that are presented in these markets and that can help little experienced traders.
It is important to emphasize the fact that market correlations are never 100% predictable and therefore on some occasions these correlations can give a 180 degree over a given period of time.
US Dollar-Gold: The gold market and the US dollar usually go in opposite directions in an inverse relationship. In fact, this has been true for many years. During times when the US economy has prospered and had low inflation, the dollar has benefited from the influx of money into the country, which is mainly directed toward the acquisition of stocks and bonds. In these periods, physical assets like gold become less attractive. Conversely, when the US economy is weak, high inflation or affected by economic or political uncertainty, traders and investors tend to get rid of “paper” assets such as bonds and are buying physical assets Like gold.
US Dollar – US Treasury Bonds: Usually, a strong dollar means a strong market for US bonds because of the high demand for this currency (by foreign investors) to buy US T-Bonds . These bonds are also seen as a haven during times of economic or political instability. In the past, the dollar has been benefited by the movements of this type of asset “shelter”. However, since the terrorist attacks of September 11 and the resulting damage to the US economy, the safe haven status of these bonds is less pronounced.
Crude oil – US Treasury bonds: If the price of crude oil rises sharply, it has a negative effect on the price of the US T-Bonds, due to the notion among investors that inflationary pressures can be reactivated and become problematic For the economy. Inflation is the biggest enemy of the bond market. Likewise, a rise in oil prices usually means a rise in the gold market.
CRB-US Treasury Bonds: The CRB Index is a set of commodities merged into a compound price. An increase in the CRB price usually implies a rise in commodity prices and an increase in inflation. Therefore, a rising CRB index is negative for the US Treasury Bond market.
Plata-Soya: This relationship may seem strange and more fiction than reality, especially in these days. However, during the days when the price of precious metals and soybeans rises sharply, it is said that in the event that Soy Futures make a maximum upward price movement, traders who speculate with soy will buy Silver Futures.
US Stock Indexes – US Treasury Bonds: Since the stock market in the United States has virtually run out (at least for now) about 2 years ago, stock market futures prices have an inverse relationship with The prices of US Treasury Bond Futures. When stock prices are up, bonds usually go down. However, during the long bullish period in the market that preceded the current bearish period, stock and bond prices were directly related. In fact, some years ago, before the electronic transactions with Futures were implemented after the end of the market sessions.
Beef meat – Pork: In this case the point here is that if there is a strong upward or downward movement in a Meat Futures market, it is most likely to have a similar side effect in other markets. Meat futures. For example, strong losses in the Beef Futures market may cause a negative effect on the pork Futures market.
Currency futures – US Dollar Index: The majority of currency- based Futures contracts are “crossed” against the US dollar. Therefore, when most currencies are trading high, it is quite likely that the US Dollar Index will be quoted on the downside. A recommendation for currency traders who constantly monitor the US Dollar Index as it is the best overall health barometer of the US dollar against stronger foreign currencies.
American stock indices-Wood: Wood is a very important commodity for the US economy. It is literally a building block for that nation. If the stock market is up, prices for Wood Futures will go up or at least will not fall. However, a markedly bearish stock market will cause sales pressure on Wood Futures.
Granos-US Dollar Index: When the dollar is weak, this usually has a positive impact on the US grain futures markets, as exports of these commodities become more competitive globally because of The cheapest prices. In this way long-term trends in the US dollar can have a greater impact on grain.