Thursday, January 5, 2012

Is the EUR.USD vs SPX telling us something? A long lost kiss never seems to fail

Here is a look at the EURUSD cross vs SPY over different time periods.  In a major crisis, as we had with Lehman, this spread was almost 50% wide, but flat if you held till today.  Since then each Euro mini crisis blip has had an extreme of 25% wide and equities eventually got to an extreme and tumbled to kiss the EUR levels.  The last 3 month time period is sitting at 15% wide (equities over).  Historically, you should buy when equities are under and sell when 25% over

5 years with Divs, you are flat - but in a crisis, it can easily be 50% wide (SPX Under)
2 years with Divs, 20% wide (SPX Over) , and it never got wider until now (26%) , in fact Equities tumbled to kiss it in November/October 2011

1 year, you are flat, they found each to kiss, ~25% wide max (SPX Under)

3m, 15% wide, this is widest observation (SPX Over), a kiss would mean equities could seriously fall, but we could easily rally another 10% before we hit a recent extreme

5 days ago, 3% wide, continuation of widening

But why is this happening now, we described it in our earlier post, but it has become clear now why auctions are bringing these EUR.USD gaps on.  Here are the details. In addition, we can also see that concerns in EUR are much higher then SPX from the Var Swap spreads - de coupling?

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