Top Story

Is the USD/SEK – DXY Correlation Broken?

USD/SEK and DXY often move in the same direction.  USD/SEK is often used as a proxy for the US Dollar Index for those who don’t have access to trade DXY.  As a matter of fact, since mid-June the correlation coefficient on a daily timeframe for the two instruments been positive (meaning the 2 always move in the same direction), and the lowest readying since that date was +.46.   However, today’s price action shows the 2 instruments diverging as the DXY is lower on the day and USD/SEK is higher.

Source: Tradingview, FOREX.COM

If this correlation is to continue, there needs to be some type of mean reversion in order for the USD/SEK to line up again (so they can move together).  Either the USD/SEK has to pull back or the DXY has to move higher, or a little of both. 

On a 240-minute timeframe, USD/SEK has broken out a flag pattern as prices could only pull back to the 38.2% Fibonacci retracement level from the low on September 24th to the highs on October 1st.  The target of a flag pattern is the distance of the flagpole added to the breakout point of the flag.  In this case the target is near 10.1500.  However, price doesn’t always move in a straight line and the current candle is putting in an inverted hammer (reversal indication).  This may mean price could pull back and test the downward sloping trending of the flag which is at 9.8756.

Source: Tradingview, FOREX.COM

As far as DXY is concerned, on a 240-minute timeframe price has pulled back off the recent highs and is currently testing horizontal resistance near 98.74.  Ideally, this price should hold and bounce back above the rising trendline towards 99.20 if USD/SEK is going to continue higher. 

Source: Tradingview, FOREX.COM

If DXY moves below 98.64, there is room for the US Dollar Index to run lower.  If the correlation is to remain intact, USD/SEK would have to pull back into the flag formation  (with a false breakout) and test the bottom trendline of the flag pattern near 9.8115.


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.