Currency pairs are formed with Base and Quoted currencies. The first three letters are the base currency and the last three are the quoted currency. For example EURUSD, EUR is the base, and USD is the quoted currency.
​
For currency pairs that are USD quoted, 1 PIP is the movement of the currency pair in either direction by .0001
Currency pairs are formed with Base and Quoted currencies. The first three letters are the base currency and the last three are the quoted currency. For example EURUSD, EUR is the base, and USD is the quoted currency.
​
For currency pairs that are USD quoted, 1 PIP is the movement of the currency pair in either direction by .0001
Currency pairs are formed with Base and Quoted currencies. The first three letters are the base currency and the last three are the quoted currency. For example EURUSD, EUR is the base, and USD is the quoted currency.
​
For currency pairs that are USD quoted, 1 PIP is the movement of the currency pair in either direction by .0001
Currency pairs are formed with Base and Quoted currencies. The first three letters are the base currency and the last three are the quoted currency. For example EURUSD, EUR is the base, and USD is the quoted currency.
​
For currency pairs that are USD quoted, 1 PIP is the movement of the currency pair in either direction by .0001
Forex and Futures Trading
How are the Currency Pairs Correlated?
Check out the interactive chart below. It is the performance of the currency pairs for the past 12 months. The AUDUSD and NZDUSD pairs at the bottom of the graph are moving in correlation. Any dips or spikes by one currency pair is closely followed by the other. When two currency pairs behave this way, they are closely correlated. The movement of AUDUSD and NZDUSD are in-sync. Understanding the currency correlation can provide you an advantage in managing risks and profits for your trade.
​
AUDUSD and NZDUSD and positively correlated currency pairs. Similarly, there are currency pairs that are negatively correlated. Movement of one pair in one direction created a movement in the reverse direction for negatively correlated currencies.
​
USDCAD is negatively correlated with EURUSD and GBPUSD. An upward movement of USDCAD is associated with a downward movement for EURUSd and GBPUSD.
​
USDJPY is plotted in the second chart. USDJPY. USDJPY is treated as a special case. It is a major currency pair but the exchange rates are outside the range from the other five major currency pairs.
How can you use the data from the Currency Correlation?
You can find the correlation coefficients for each currency pair by comparing the price movements with other pairs. The correlation coefficients give you an indication of how connected the movements are for the two pairs. Study the past correlations to see how the two pairs behaved in the past.
​
Correlation coefficients for the past 1-year, 3-months, 1-week, week before last, will give an indication of how connected the two currency pairs have been throughout the year. Any changes to the correlation coefficient in recent weeks and months will give you an indication of how the relationships will change between the two pairs.
​
If the correlation coefficients are in the high positives for two currency pairs, then trading one pair among the two will give you the same amount of risk and benefits. For example, NDZUSD and AUDUSD are positively correlated, then trading two lots of AUDUSD is similar to placing a one lot trade of NZDUSD and a one lot trade of AUDUSD in the same direction. It will be worthwhile to note that if the correlation coefficient is in the high positives then do not place opposing trades on the two pairs. For example: placing a buy trade on AUDUSD and a sell trade on NZDUSD will be counterproductive.
​
Similarly, if the correlation coefficient is in the high negatives, then placing opposing trades will be beneficial. For example, USDCAD is highly negatively correlated to GBPUSD. You can utilize this knowledge in your trades by placing opposing trades on the two currency pairs. If the trade is high on USDCAD then place a buy for USDCAD and a sell on GBPUSD.
​
You can use the correlation coefficients to correctly validate the direction of the currency pair movements before placing a trade. For example, if the indicator is suggesting an upward momentum for two of the negatively correlated currency pairs, then further evaluation is required before placing the trade based on the suggestion from the indicator. Indicators can sometimes give you wrong trends and incorrect trade suggestions. Having the correlation data helps you validate the trading decisions.