US Dollar Correlation to S&P 500 VIX Near Record; USD to Track Stocks
The S&P 500 Volatility Index (VIX) reflects volatility expectations on the benchmark US equity index, and high values are most often associated with fear of significant declines. The Dow Jones FXCM Dollar Index is, in our opinion, the best metric for the US Dollar’s value against major currency counterparts. View the methodology behind the USDOLLAR.
The extremely strong link between the Dollar Index and the VIX emphasizes that forecasts for the US currency will depend on moves in broader markets. Correlations show that a higher VIX coincides with a higher Dollar; we may need to wait for the next bout of significant financial market risk aversion to see a significant break higher in the US Dollar.
Forex Correlations Summary
View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.
GLD | EURUSD | GBPUSD | USDJPY | AUDUSD | USDCAD | NZDUSD | USDOLLAR |
1 Week | 0.84 | 0.57 | 0.29 | 0.63 | -0.94 | 0.72 | -0.68 |
1 Month | 0.72 | 0.62 | -0.04 | 0.72 | -0.77 | 0.70 | -0.76 |
3 Month | 0.56 | 0.23 | -0.30 | 0.39 | -0.23 | 0.43 | -0.55 |
1 Year | 0.25 | 0.19 | -0.20 | 0.26 | -0.18 | 0.26 | -0.32 |
USO | EURUSD | GBPUSD | USDJPY | AUDUSD | USDCAD | NZDUSD | USDOLLAR |
1 Week | 0.70 | 0.39 | 0.38 | 0.60 | -0.74 | 0.67 | -0.55 |
1 Month | 0.76 | 0.61 | 0.10 | 0.72 | -0.84 | 0.72 | -0.75 |
3 Month | 0.61 | 0.50 | 0.15 | 0.69 | -0.77 | 0.65 | -0.65 |
1 Year | 0.51 | 0.42 | 0.02 | 0.67 | -0.65 | 0.61 | -0.57 |
DIA | EURUSD | GBPUSD | USDJPY | AUDUSD | USDCAD | NZDUSD | USDOLLAR |
1 Week | 0.73 | 0.77 | 0.00 | 0.53 | -0.81 | 0.65 | -0.74 |
1 Month | 0.80 | 0.70 | 0.09 | 0.83 | -0.86 | 0.84 | -0.81 |
3 Month | 0.53 | 0.56 | 0.25 | 0.74 | -0.82 | 0.70 | -0.62 |
1 Year | 0.66 | 0.58 | -0.06 | 0.82 | -0.83 | 0.78 | -0.71 |
FTSE100 | EURUSD | GBPUSD | USDJPY | AUDUSD | USDCAD | NZDUSD | USDOLLAR |
1 Week | 0.25 | 0.77 | 0.18 | 0.67 | -0.18 | 0.71 | -0.66 |
1 Month | 0.47 | 0.45 | 0.20 | 0.65 | -0.52 | 0.64 | -0.52 |
3 Month | 0.39 | 0.37 | 0.41 | 0.54 | -0.56 | 0.51 | -0.36 |
1 Year | 0.45 | 0.39 | 0.02 | 0.69 | -0.66 | 0.66 | -0.55 |
SLV | EURUSD | GBPUSD | USDJPY | AUDUSD | USDCAD | NZDUSD | USDOLLAR |
1 Week | 0.61 | 0.10 | 0.14 | 0.21 | -0.77 | 0.29 | -0.27 |
1 Month | 0.64 | 0.52 | -0.16 | 0.58 | -0.67 | 0.56 | -0.67 |
3 Month | 0.55 | 0.31 | -0.20 | 0.45 | -0.34 | 0.48 | -0.56 |
1 Year | 0.36 | 0.27 | -0.18 | 0.40 | -0.35 | 0.37 | -0.43 |
Perfect Positive Correlation: | 1.00 | ||||||
Perfect Negative Correlation: | -1.00 | ||||||
Correlation between Dow Jones FXCM Dollar Index and the S&P 500 Volatility Index
Dow Jones FXCM Dollar Index (lhs)
S&P 500 Volatility Index (VIX) (rhs)
The correlation between the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) and the S&P 500 Volatility Index (VIX) trades at its strongest since late 2012, and the strong link emphasizes that the US currency remains especially sensitive to broader financial market moves.
The S&P 500 VIX serves as an accurate measure for the prices that options traders are willing to pay for bets on/hedges against major stock market moves. In that sense, the so-called “Fear Index” is a good way to gauge the level of risk aversion in broader financial markets.
Forex traders continue to buy the US Dollar during times of broader financial turbulence as the Greenback retains its status as the world’s foremost safe-haven currency. In fact we believe that the USD stands to gain as European troubles continue to haunt international investors.
It will be nonetheless critical to watch the next moves in the S&P 500 VIX. The Index trades near its lowest levels year-to-date and is comfortably below the psychologically significant 20% mark. It may take a substantial jump in the VIX to force a much larger US Dollar breakout. In the meantime, we might see currencies such as the Australian Dollar continue to outperform as the S&P and Dow Jones trade quietly higher.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.comTo contact David, e-mail drodriguez@dailyfx.com
To be added to David’s e-mail distribution list for this and other reports, e-mail subject line “Distribution List” to drodriguez@dailyfx.com
