Magazine article Modern Trader

FX and Intermarket 2013 Preview

Magazine article Modern Trader

FX and Intermarket 2013 Preview

Article excerpt

One way to understand the currency dynamics of 2013 is to review the intermarket performances of the last four years and grasp the relationships between currencies, equities and commodities.

In assessing a currency's overall strength, we measure its performance against gold, a common denominator. The "Gold vs. FX" column in "Four-year intermarket performance" shows gold increased the most against the Japanese yen (JPY) in 2012, implying that JPY is the weakest currency.

* 2012 proved the best performing year for equities since 2009 via the cumulative annual returns of major global indexes. Aggressive central bank easing around the world helped establish "backstops" against Eurozone woes and fiscal cliff uncertainty.

* There were some glaring similarities between 2012 and 2009 in the currency space--JPY was the year's weakest currency followed by the U.S. dollar. Both the Norwegian kroner and New Zealand dollar ranked among the top currencies (against which gold underperformed). Both years involved aggressive central bank stimulus.

* The JPY-Nikkei inverse relationship remained alive and well with the Nikkei posting its biggest annual gain since 2005, and JPY posting its sharpest loss against gold since 2009.

* Commodities fared better in 2012 than 2011, but underperformed in 2010 and 2009. U.S. crude oil was the only "major" commodity to fall against the dollar. Gold's overall showing against the 11 currencies was weaker than in any of the previous five years. …

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