As we know currencies are positively correlated with equity indices. I look for extreme conditions to put one on against the other and today the Swiss Franc is looking very cheap – both verses its primary anchor and verses all major equity index contracts. The trend in the SF anchors is negative so I must match it up with an equity index that is also in a downtrend. Unfortunately that rules out the richest contract – EMD.
The correlation average is around .4 and we always see drops during those points of divergence where new entries are attractive.
This chart is not deterministic (though it appears to be) – the idea is derived from the individual charts of each component. This “spread” is examined as a final check to see that when the two are matched up, one does look cheap verses the other. (It just helps me sleep a little better.)
If only I could short EMD instead …
