"Blow up?" What does that mean?

Are you talking about my C4 robot? If so, it works perfectly and is being used by clients for correlation, carry trade, basket trade, news trade, and directional trading.

Are you talking about the correlation concept? If so, it always has and always will work. Correlation is a measurement of the relationship between two or more things and is simple math. It doesn't blow up.

Are you talking about the correlation between particular pairs? That is subject to change over time.

To explain in terms of our currency pairs - first you MUST understand that a strong positive/negative correlation happens because the common currency between the two pairs dominates the other two. If there is no clear dominance by the COMMON currency in the two pairs, the correlation will be close to zero, and therefore random.

Let's look at the EURUSD/GPBUSD. The common currency is the USD. Previously, the USD dominated the news compared to the EUR and GBP. Both currencies moved in a highly correlated manner in both short and medium terms.

In the last six months that dynamic has changed. News and economic factors in the secondary (non-common) pairs in this correlation example (EUR and GBP) have become a much stronger influence on these currency pairs. As such, the common currency (USD) no longer dominates the movement of these currency pairs. This drives the longer term correlation closer to zero, or random. A secondary issue is that these two economies have had a directional diversion. EUROland continues on some strength while Great Britain is on the decline.

This morning was a perfect example. The USD NFP dominated the news and the EURUSD/GBPUSD showed a high positive correlation for a couple hours. However, the weekly/monthly economic outlook and relative strength of the economic news of these three currencies shows a low correlation with some shades of a negative correlation.

This issue where the common currency in correlated pairs is not clearly dominant has been an issue across the entire market since last summer.

Trade carefully,
Bill