Which Currency Pairs Are Correlated With Other Forex Pairs?
Forex trading involves buying and selling different currency pairs. It is important to understand the correlation between different currency pairs as it can help traders make informed decisions while trading. The correlation between two currency pairs indicates how closely their prices move together. A positive correlation means that when one pair moves up, the other pair also moves up, and vice versa for a negative correlation.
When it comes to forex trading, understanding the correlations between different currency pairs can be beneficial in many ways. For example, if you know that two currency pairs are positively correlated, you can use this information to hedge your trades or diversify your portfolio. Similarly, if you know that two currency pairs are negatively correlated, you can use this information to increase your profits by taking advantage of market movements in opposite directions.
So which currency pairs are correlated with other forex pairs? Let’s take a look at some of the most common correlations in forex trading:
1) EUR/USD and GBP/USD: These two major currencies have a strong positive correlation because they both represent large economies with similar economic policies and outlooks. As such, their prices tend to move together quite closely over time.
2) USD/JPY and USD/CHF: These two currencies have a strong negative correlation because they both represent countries with very different economic policies and outlooks (the US vs Japan). As such, when one pair rises or falls significantly, the other tends to move in the opposite direction.
3) AUD/USD and NZD/USD: These two currencies have a strong positive correlation because they both represent countries with similar economic policies and outlooks (Australia vs New Zealand). As such, their prices tend to move together quite closely over time as well.
4) EUR/GBP and GBP/JPY: These two currencies have a strong negative correlation because they both represent countries with very different economic policies and outlooks (the UK vs Japan). As such, when one pair rises or falls significantly, the other tends to move in the opposite direction as well.
5) USD/CAD and CAD/JPY: These two currencies have a moderate positive correlation because they both represent countries with similar economic policies but slightly different outlooks (the US vs Canada). As such, their prices tend to move together but not always at exactly the same rate or magnitude over time.
6) AUD/NZD and NZD/CAD: These two currencies have a moderate negative correlation because they both represent countries with very different economic policies but slightly similar outlooks (Australia vs New Zealand). As such, when one pair rises or falls significantly, the other tends to move in the opposite direction but not always at exactly the same rate or magnitude over time either way.
Understanding these correlations can be extremely helpful for traders looking for an edge in their trading strategies by taking advantage of market movements across multiple markets simultaneously. It is important for traders to remember though that these correlations may change over time due to changes in macroeconomic conditions, so it is essential for them to keep track of any changes happening around them. Furthermore, it is also important for traders to keep an eye on news events which could potentially cause significant shifts in these correlations overnight.
