DB's FX Strategy Weekly (2007/04/27)

DB's FX Strategy Weekly
April 27, 2007

1. 10 FX Carry Seasonal

If we look at the each monthly return's deviation from entire sample average performance carry trade, May is the worst month in last 10 year (1997-2006), August and July are the next two. In the other side, January, November are the best two month.


2. Carry trade has a highly correlation with equities (MSCI World Index)

If we look at the correlation between G10 carry trade and MSCI World Index, there is a interesting appearance. Before Feb 2007, G10 carry trade's 1m correlation with MSCI World is low positive even negative. Since Feb 2007, They become highly positive correlation.

Compared to G10 carry trade, Global carry's correlation with MSCI World remains positive usually. But it is too highly right now.


3. Stephen's thought

The implication is that carry trade is supported by global equities' better than expected performance since Feb 2007. But, this would be not worked well all the time.

In this stage, US economics's housing problem (bad) and S&P 500 performance (good) just offsets each other's effect. Further more, this help to built up the carry trade environment.