FX Correlations

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Watching for "market moves" where many instruments move in unison is a great way to stay on the right side of the market.  Equities and Oil and EUR/USD often move together and when they are all going up, you should not be shorting the market.  Similarly, two FX pairs can be correlated positively or negatively, and by watching one, you can have a good idea what the other one might be doing.

EUR/USD, GBP/USD, and AUD/USD are often correlated well because they all share the USD as the base currency.  Same thing with the EUR/JPY, GBP/JPY, and the AUD/JPY because of JPY.

But what about other FX pairs?  I just found a great free Currency Correlation tool from Oanda.   (Click on the link and then click on different pairs and click across the top.)  (Red is + and Blue is -)


 FX Correlation


So what to do with it?  You can quickly see what to watch and what not to watch if you want to be the master EUR/USD trader.  Of course you would NOT watch a chart of the USD/CHF, but would probably choose the GBP/USD (1 hr and 1 day)  or the EUR/AUD  (1 hr and 1-12 months)

If you were programming an EA, you could check to make sure that the pair you were trading was "in sync" with another pair that has a consistent correlation.

Please post how YOU have used any types of correlation in your FX trading.

Forex Correlation | Currency Correlation Chart | OANDA
Forex Correlation | Currency Correlation Chart | OANDA
  • www.oanda.com
Each cell of the table shows the correlation coefficient between the two currency pairs (vertical headings) over the corresponding time period (horizontal headings). The following categories indicate a quick way of interpreting the table values. Note that a negative correlation means the two currency pairs correlate in the opposite directions...
 
TT, as always some great pointers, I'm getting limited time of late but would like to contribute more, If I were able to code I would be coding in a monitor on other correlated currencies, something along the lines of a %age move on one and no advancement on another, as you have stated there is a harmony with certain pairs, one good indicator is the AUD/USD, watching this particular movement is, or is intended to reflect in the GPB/USD and the EUR/USD, a big move here, even if cable is on the way down can still have a "whip up" , we may be giving too much up here, secrets, secrets !!!
 

 

Quite ironic, after posting my points just take a look below 

 

 

 

EUR/USD, oh boy!!! 

 

The normal correlations were way off today and I got bit.  

But coding in something like that with EUR/USD and GBP/USD would be ideal.  I have noticed that the AUD/USD is less correlated overall than those two are with each other.  

If there were an easy way to get the Dollar index (DX) futures chart data or the data found on this page into an indicator  (only USD vs many other pairs), then I think you would have the best deal of all.  "How is the USD fairing vs all the other majors?"  That is what I want to know.   Then I can take the weakest or strongest of the USD based majors and head off to FX nirvana (for a few pips anyway).   (see below)



 
TalonTrader:

The normal correlations were way off today and I got bit.  

But coding in something like that with EUR/USD and GBP/USD would be ideal.  I have noticed that the AUD/USD is less correlated overall than those two are with each other.  

If there were an easy way to get the Dollar index (DX) futures chart data or the data found on this page into an indicator  (only USD vs many other pairs), then I think you would have the best deal of all.  "How is the USD fairing vs all the other majors?"  That is what I want to know.   Then I can take the weakest or strongest of the USD based majors and head off to FX nirvana (for a few pips anyway).   (see below)



You have a point on the EUR & GBP but looking at the events on the chart it would come as no suprize if the AUD made a bolt up or the EUR & GBP followed it down, I could hazzard a guess and use the JPY as an indicator but the yen has weakened against most at the mo, they are in opposition for now but I have tracked all three before and not too far off the mark.
 

There is one other method describe in dailyfx website

If trading eur/usd, your look for all eur pair and usd pair

If eur is up, you give one point, if usd is up, you give one point

then you compare the points and trade 

 
doshur:

There is one other method describe in dailyfx website

If trading eur/usd, your look for all eur pair and usd pair

If eur is up, you give one point, if usd is up, you give one point

then you compare the points and trade 

Thanks doshur.  This is exactly how I started swing trading FX.  Great method. 
 

TT, wasn't to far from my prediction about the AUD/USD, since posting the rise has been stellar.

 

 

 
rob:

TT, wasn't to far from my prediction about the AUD/USD, since posting the rise has been stellar.

 

 

I was some time ago looking at correlations between currencies and found the following on forexticket.us on the daily :

 

 
When you are trading currency pairs in the Forex market, there are some  external forces that govern price movements. News,interest rates, market direction, and economic conditions. You have to consider these external factors.. There are two correlations which involves positive and negative correlations.
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