Will the Dollar Drag Dow Down Further?

Tomohiro Ohsumi | Bloomberg | Getty Images

While the Dollar/Yen pair broke below its technically significant level of 100 yesterday, in today's session, the Dow Jones dipped below its numerical milestone of 15,000.

Year to date, both assets have moved in tandem and by similar magnitude, each gaining over 14 percent in the same period.

However, with the downside momentum gaining, will the greenback drag down the Dow further?

A three-month rolling correlation between the Dow and Dollar/Yen pair recently crossed above 0.95, its highest level since October 2008.

In the last ten years, such high correlation between Dow Jones and Dollar/Yen has mostly resulted in both assets losing ground a month later, albeit by different magnitude.

In fact, even excluding the historic deleveraging the index saw in 2008 when massive unwinding of carry trade sent US Dollar tumbling down below the 100 mark, the Dow lost on average more than 1 percent while the Dollar/Yen pair dropped more than 3 percent the following month.

Investors may be aware that the Bank of Japan's aggressive monetary easing has pummeled the Japanese currency lately as high liquidity has forced investors to look for higher yields, most of which has flowed into US and Japanese equity markets in the form of yen carry trade.