Forex Trade Results March 26, 2022

Forex Trade Results March 24, 2022
March 24, 2022
Forex Trade Results March 28, 2022
March 28, 2022

Forex Trade Results March 26, 2022


The Forex Correlation Coefficient

When it comes to trading forex, some currency pairs move in predictable ways with other pairs.  This is the forex correlation coefficient.  And the pairs may also be positively or negatively aligned to other pairs.  Knowing how currency pair correlation works and how you can use fx correlation to make more informed trades.

What is currency pair correlation?

Currency pair correlation is the measure to which the movement of currency pairs in forex are related to each other.  But currency pair correlation can also describe how forex pairs and markets such as stocks and commodities are linked too.  Any relationship between the price of one currency pair with another.  Or with other markets, can help traders make sense of forex movements and assist them in their decision making.

What is the correlation coefficient?

The correlation coefficient is a measure that represents how strongly or weakly two currency pairs are aligned over a certain time period. It is expressed in values from -1.00 to 1.00, with -1.00 representing the weakest correlation and 1.00 the strongest. For example, if a pair has a currency coefficient of 0.9, that is a strongly correlated pair, while a coefficient of -0.9 will be weakly correlated.

To illustrate, here is a correlation coefficient table for EUR/USD, showing how this major pair relates to three other major currency pairs over various time periods. Notice how GBP/USD shows a positive correlation, but the currencies generally recognized as ‘risk off’ – the Swiss Franc and the Japanese Yen – in this example show a negative one.

EUR/USD correlation with other pairs

1 MONTH 0.89 -0.96 -0.15
3 MONTH 0.85 -0.97 -0.3
6 MONTH -0.07 -0.91 -0.61
1 YEAR 0.83 -0.91 -0.61

Data accrued from June 4, 2020 to June 3, 2021. Source: Yahoo Finance

What currency pairs are correlated?

The key currency pairs that are correlated in the strongest way include pairs such as EUR/USD and GBP/USD, as can be seen above. They often move together due to the economic relationships between the areas they represent.

In this case, GBP and EUR have close ties based on the eurozone and the UK sharing geographical proximity, as well as backup reserve currency status. Also, the fact that both these pairs share the USD as a counter currency mean that any change in the dollar is reflected in both currency pairs simultaneously. See below how the price lines tend to move in similar ways to one another.

Other pairs that tend to show a strong correlation are EUR/USD and AUD/USD and EUR/USD and NZD/USD.


Learn How To Successfully Trade Forex

If you’d like to earn extra income trading on the Forex market, consider learning how to currency trade with Forex Smart Trade.   With their super-accurate proprietary trading tools and best-in-the-business, personalized one-on-one training, you’ll be successful.  Check out the Forex Smart Trade webinar.  It shows one of their trader’s trading and how easy, intuitive, and accurate the tools are.  Or try the Forex Smart Trade 14-day introductory trial for just TEN dollars.

Verify Forex Smart Trade LLC