All FX assets move mainly on technical and fundamental events. Most people either do not understand or simply ignore that fact that FX is made of linear or nonlinear waves with deep troughs and high crests. A single move between two pairs effects not only each of them but also a third pair.
If, for example, you are trading EUR/USD and GBP/USD, you can’t do so without having a chart of EUR/GBP, which is a classic spread showing the power of the most traded geographical EU currencies (in comparison with NOK, SEK, HUF, PLN pairs). This also gives you the most “math” correlated pairs.
Positive correlated pairs refers to those that move in the same direction. One recent example is AUDJPY and NZDJPY; despite the AUDNZD spread, these two keep a great correlation, offsetting some fundamentals with Japan, Australia and New Zealand.
Negatively correlated pairs refers to the contrary, with pairs moving in opposite directions. The best example of this is EUR/USD and USD/CHF. These pairs are always moving in different directions with the same force, although that is not as true in recent months.
These positive and negative correlations can be calculated and I show how to interpret them as a part of my trading school.
There is also some correlations between certain FX pairs and commodities like gold and oil, including the Canadian Dollar and Oil, and the Australian Dollar and Gold. I will go into greater detail in a separate article.
In part two, I will talk about geographical correlation and give you some insight into profits.
Stay tuned for part two!