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Many participants feel a bit whipsawed by the price action over the last couple of sessions, and understandably so. The Russian military action seemed to have triggered a massive unwind of risk and today, especially since the European morning, the markets have gone nearly gaga for risk again. The S&P 500 is at new record highs. The NADSAQ is at new multi-year highs. Gold has given back the lion's share of yesterday's gain.

What about the currencies? The yen, which was the strongest currency yesterday, gaining about 0.3% against the US dollar, is the weakest off 0.7% today. The Swiss franc has given back all yesterday's gains against the euro and is the second weakest currency against the dollar today.

In order to get a big picture look, we took this opportunity to re-examine the correlation between the euro, yen and S&P 500. These Great Graphics, created on Bloomberg, look a 60-day rolling correlation of the euro and yen (not dollar against the yen, but yen against the dollar!) on a percent change basis since the beginning of 2008.

The top chart looks at the euro and S&P. After being positive correlated since late-2008 (with a brief exception last September and October), the euro has been inversely correlated with the S&P 500 since last January. It is not a statistically significant inverse correlation (-0.05), but the point is that the 5-year pattern has broken down.

That said, as one would expect, the 30-day correlation is more volatile. It too has been positive from late 2008 until more recently . It dipped into inverse territory briefly at the end of May (tapering talk?) and early June last year and then spent August and most of the first half of September inversely correlated and reached almost -0.3. It popped back positive and poked through 0.40 in late November. However, since the tapering announcement in late December, the 30-day correlation has been inverse and by the end of January was back at last year's extreme. It trended higher in February and was actually ever so slightly positive yesterday (0.03) for the first time since the day after Xmas.

(click to enlarge)

The lower chart looks at the yen and the S&P 500. The yen's inverse correlation with the S&P 500 remains intact. When the return (percent change) of the S&P increases, the return (percent change) of the yen tends to fall. While the euro's correlation has changed directions, the yen's inverse correlation has become more pronounced. In fact, last month the correlation was the most inverse since 2008. at almost -0.80. Today it stands near-0.74. The 30-day correlation is near -0.78 indicating this pattern has remained intact.

Some observers look for complicated currency hedges to S&P exposure. Many times they settle on the Aussie-yen cross or the Kiwi-yen cross. Yet, the KISS method (keep it simple stupid) appears superior, especially if one takes into account slippage. Looking at Aussie-yen, both the 30- and 60-day correlation is just shy of 0.70. The Kiwi-yen cross correlation 0.72 for the 60-day and 30-day correlation is just below 0.77.

Source: Euro And Yen And S&P 500