Hey everyone! First, I want to say sorry for being away for a bit. I’ve been dealing with the ups and downs of pregnancy, and it’s taken more energy than I expected. Because of that, I haven’t been as consistent with my blog or trading. But don’t worry, trading is still a big part of my life, and I’m still at it every day, just taking it a little slower for now. Thanks for being patient with me!

Now, let’s talk about something important in forex trading – correlated currency pairs. You may have heard of them before, but what does it actually mean, and why should you care? Let’s break it down in a simple way so you can use it to make smarter trading decisions.

What Are Correlated Currency Pairs?

In simple terms, correlation is how two currency pairs move in relation to each other. Some pairs move in the same direction (positive correlation), while others move in opposite directions (negative correlation). Understanding this can help you make better decisions, manage risk, and spot good trading opportunities.

For example, if you know that EUR/USD and GBP/USD usually move the same way, you can use this information to confirm a trend in either pair.

The 7 Most Correlated Forex Pairs You Should Know

Here are the seven most correlated currency pairs that can help you in your trading. These pairs are closely watched because they often follow similar or opposite movements:

1. EUR/USD and GBP/USD – Strong Positive Correlation

The Euro (EUR) and British Pound (GBP) usually move in the same direction against the US Dollar (USD) because the economies of Europe and the UK are closely tied.

Tip: Be careful if you’re trading both EUR/USD and GBP/USD at the same time. They’re highly correlated, so you might be doubling your exposure to the same risks.

2. AUD/USD and NZD/USD – Strong Positive Correlation

The Australian Dollar (AUD) and New Zealand Dollar (NZD) often move together. Why? Because the economies of both countries are very similar and they rely on exports like metals and oil.

Tip: If you see a trend in one of these pairs, you can check the other for confirmation before making a trade.

3. USD/CHF and EUR/USD – Strong Negative Correlation

The Swiss Franc (CHF) is a safe-haven currency, while the Euro (EUR) is more affected by economic conditions. Because of this, USD/CHF and EUR/USD tend to move in opposite directions.

Tip: If you’re trading EUR/USD, you might want to hedge by opening a position in USD/CHF to protect yourself from any strong moves in the US Dollar.

4. USD/CAD and USD/JPY – Moderate Positive Correlation

Both the Canadian Dollar (CAD) and Japanese Yen (JPY) are influenced by the US economy. When US economic conditions change, both currencies can move in the same direction.

Tip: This correlation isn’t as strong as some of the others, but it can still help confirm trends or diversify your exposure to the US Dollar.

5. GBP/JPY and EUR/JPY – Strong Positive Correlation

GBP/JPY and EUR/JPY are cross-currency pairs that involve the Japanese Yen (JPY). Since both the UK and Eurozone economies are similar, these pairs often move together against the Yen.

Tip: These pairs are good for carry trades (where you borrow in a low-interest currency and invest in a high-interest one).

6. AUD/USD and Gold – Moderate Positive Correlation

Australia is a big exporter of gold, so the Australian Dollar (AUD) often moves in sync with the price of gold. When gold goes up, AUD tends to go up as well.

Tip: If you trade both forex and commodities, understanding this correlation can help you make better trades in both markets.

7. EUR/USD and USD/JPY – Moderate Negative Correlation

EUR/USD and USD/JPY often move in opposite directions because the USD is on opposite sides of these pairs. The Euro is more tied to economic growth, while the Yen is a safe-haven currency.

Tip: If you’re watching these two pairs, it can help you diversify your USD exposure and understand market sentiment.

Knowing how currency pairs are correlated can be a game-changer for your trading. It helps you manage risk, confirm trends, and spot opportunities. But always remember: correlations are just one tool in your trading toolbox. It’s important to also use other forms of analysis and to keep an eye on your overall risk.

Thanks again for being patient with me while I took a break. I’m excited to be back and sharing more trading tips with you! Let’s keep learning and growing together.

Happy trading, everyone! 😊

by Vanessa Vasilache