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Forex Flash: Euro Aussie Dollar correlations have broken down - BBH

FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that the correlation between the Euro and the Aussie Dollar have broken down.

He notes that the 60- and 90-day correlations are near their lowest levels since late-2002/early-2003 at 0.19 and 0.26 respectively. Rarely has the 60-day correlation fallen below 0.35 during the past decade, while the 90-day correlation has not been below 0.40 until now. He adds that the Australian dollar rallied in March as the euro sold off and comments from the RBA and somewhat better than expected data saw the Aussie rally from near $1.01 in early March to $1.05 by the end of the month and retested in early April. For its part, Chandler sees that the euro trended lower from early February's test on $1.37 to $1.2750 in late-March and again last week. Te notes that the grab for yield that has greeted the BOJ's announcement and has fueled dramatic rallies in European bonds not gone unnoticed in Australia, where the 10-year yield is off 9 bp today and roughly 20 bp since the BOJ's decision last week.

However, he sees that the Aussie itself is slightly softer with three week lows set earlier today. The euro recovered against the Australian dollar, moving from near A$1.22 in the middle of last week to the A$1.2550 before the weekend and rested it today. He writes, “It is just shy of a retracement objective of the euro's slide that began near A$1.32 in early February, which comes in just below A$1.26. If this area is successfully breached, the next retracement objectives are found near A$1.27 and A$1.2820. The price action is not very inspiring, though we note the 5-day moving average is poised to cross above the 20-day for the first time since February 19. Support is seen near A$1.2400.”

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