• About
  • Blog
  • Best Brokers Worldwide
  • Contact
  • Home
  • Forex
    EUR/USD Price Analysis: Seems vulnerable near mid-1.0500s amid geopolitical tensions

    EUR/USD Price Analysis: Seems vulnerable near mid-1.0500s amid geopolitical tensions

    Australian Dollar extends gains on higher commodity prices, geopolitical tension in the Middle East

    Australian Dollar extends gains on higher commodity prices, geopolitical tension in the Middle East

    Proof-of-Stake-powered Cryptocurrency COSMOS Launches on 1xBit

    Proof-of-Stake-powered Cryptocurrency COSMOS Launches on 1xBit

    Markets turn cautious as focus shifts to US data, FOMC Minutes

    Markets turn cautious as focus shifts to US data, FOMC Minutes

    Dollar soars on hopes the US could avoid recession despite the aggressive Fed

    Dollar soars on hopes the US could avoid recession despite the aggressive Fed

    Putin allows Russian banks under sanctions to halt some FX operations

    Putin allows Russian banks under sanctions to halt some FX operations

    South Korea probes $3.1bn crypto-linked forex transactions

    South Korea probes $3.1bn crypto-linked forex transactions

    All ‘Ethereum killers’ will fail: Blockdaemon’s Freddy Zwanzger

    All ‘Ethereum killers’ will fail: Blockdaemon’s Freddy Zwanzger

    Paraguay’s crypto framework one step away from becoming law

    Paraguay’s crypto framework one step away from becoming law

  • Education
    Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

    Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

    Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

    Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

    AUD/USD Rises Despite Wall Street Selloff as Chinese Flooding Lifts Coal Prices

    AUD/USD Rises Despite Wall Street Selloff as Chinese Flooding Lifts Coal Prices

    Euro Forecast: EUR/USD Outlook Bleak as Traders Rush for US Dollars

    Euro Forecast: EUR/USD Outlook Bleak as Traders Rush for US Dollars

    RAND UPDATE: ZAR STRENGTH MAY BE SHORT LIVED AHEAD OF BUDGET SPEECH

    RAND UPDATE: ZAR STRENGTH MAY BE SHORT LIVED AHEAD OF BUDGET SPEECH

    CRUDE OIL PRICES MAY RISE ON US STIMULUS HOPES

    CRUDE OIL PRICES MAY RISE ON US STIMULUS HOPES

    IG CLIENT SENTIMENT DATA SENDING BEARISH SIGNALS FOR USD/ JPY, AUD/USD, GBP/ USD

    IG CLIENT SENTIMENT DATA SENDING BEARISH SIGNALS FOR USD/ JPY, AUD/USD, GBP/ USD

    EUR/AUD BREAKOUT COULD GROW LEGS

    EUR/AUD BREAKOUT COULD GROW LEGS

    CHINESE YUAN (CNH) DRIVING CURRENCY MARKETS; HOWEVER, TRUMP RISK REMAINS

    CHINESE YUAN (CNH) DRIVING CURRENCY MARKETS; HOWEVER, TRUMP RISK REMAINS

  • Commodities
    Abu Dhabi’s oil champion ADNOC bets on global expansion

    Abu Dhabi’s oil champion ADNOC bets on global expansion

    Oil prices jump as Middle East violence rattles markets

    Oil prices jump as Middle East violence rattles markets

    Panamanian trade unions reach agreement with government on essential commodities

    Panamanian trade unions reach agreement with government on essential commodities

    Dollar surges and stocks tumble as traders weigh global growth outlook

    Dollar surges and stocks tumble as traders weigh global growth outlook

    Can commodities make a comeback?

    Can commodities make a comeback?

    CME looks to lure retail traders with daily options frowned on in Europe

    CME looks to lure retail traders with daily options frowned on in Europe

    The traders earning $6m+ outside banks and hedge funds

    The traders earning $6m+ outside banks and hedge funds

    CFTC eyes potential oversight of cryptocurrencies, carbon trading – commissioner

    CFTC eyes potential oversight of cryptocurrencies, carbon trading – commissioner

    Palladium: Completely Reverse The Rumors for a Bubble Burst

    Palladium: Completely Reverse The Rumors for a Bubble Burst

  • Cryptocurrencies
    Crypto’s decentralization problem: The word is used too often to justify bad product decisions

    Crypto’s decentralization problem: The word is used too often to justify bad product decisions

    Bitcoin Is Set to Thrive in October—No Matter Where Rates Go, Analyst Says

    Bitcoin Is Set to Thrive in October—No Matter Where Rates Go, Analyst Says

    Ripple Is Considering Buying Bankrupt Crypto Lender Celsius’ Assets: Report

    Ripple Is Considering Buying Bankrupt Crypto Lender Celsius’ Assets: Report

    Yen shorts crumble as hot FX trade comes to end

    Yen shorts crumble as hot FX trade comes to end

    Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

    Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

    Crypto Is Coming to Esports: The Games and Economics of Tomorrow

    Crypto Is Coming to Esports: The Games and Economics of Tomorrow

    Singapore’s crypto aspirations shaken by Three Arrows collapse

    Singapore’s crypto aspirations shaken by Three Arrows collapse

    Crypto exchange Coinbase looks to expand footprint in Europe

    Crypto exchange Coinbase looks to expand footprint in Europe

    How ETF investors can bet on the crypto crash

    How ETF investors can bet on the crypto crash

FX Access
  • Home
  • Forex
    EUR/USD Price Analysis: Seems vulnerable near mid-1.0500s amid geopolitical tensions

    EUR/USD Price Analysis: Seems vulnerable near mid-1.0500s amid geopolitical tensions

    Australian Dollar extends gains on higher commodity prices, geopolitical tension in the Middle East

    Australian Dollar extends gains on higher commodity prices, geopolitical tension in the Middle East

    Proof-of-Stake-powered Cryptocurrency COSMOS Launches on 1xBit

    Proof-of-Stake-powered Cryptocurrency COSMOS Launches on 1xBit

    Markets turn cautious as focus shifts to US data, FOMC Minutes

    Markets turn cautious as focus shifts to US data, FOMC Minutes

    Dollar soars on hopes the US could avoid recession despite the aggressive Fed

    Dollar soars on hopes the US could avoid recession despite the aggressive Fed

    Putin allows Russian banks under sanctions to halt some FX operations

    Putin allows Russian banks under sanctions to halt some FX operations

    South Korea probes $3.1bn crypto-linked forex transactions

    South Korea probes $3.1bn crypto-linked forex transactions

    All ‘Ethereum killers’ will fail: Blockdaemon’s Freddy Zwanzger

    All ‘Ethereum killers’ will fail: Blockdaemon’s Freddy Zwanzger

    Paraguay’s crypto framework one step away from becoming law

    Paraguay’s crypto framework one step away from becoming law

  • Education
    Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

    Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

    Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

    Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

    AUD/USD Rises Despite Wall Street Selloff as Chinese Flooding Lifts Coal Prices

    AUD/USD Rises Despite Wall Street Selloff as Chinese Flooding Lifts Coal Prices

    Euro Forecast: EUR/USD Outlook Bleak as Traders Rush for US Dollars

    Euro Forecast: EUR/USD Outlook Bleak as Traders Rush for US Dollars

    RAND UPDATE: ZAR STRENGTH MAY BE SHORT LIVED AHEAD OF BUDGET SPEECH

    RAND UPDATE: ZAR STRENGTH MAY BE SHORT LIVED AHEAD OF BUDGET SPEECH

    CRUDE OIL PRICES MAY RISE ON US STIMULUS HOPES

    CRUDE OIL PRICES MAY RISE ON US STIMULUS HOPES

    IG CLIENT SENTIMENT DATA SENDING BEARISH SIGNALS FOR USD/ JPY, AUD/USD, GBP/ USD

    IG CLIENT SENTIMENT DATA SENDING BEARISH SIGNALS FOR USD/ JPY, AUD/USD, GBP/ USD

    EUR/AUD BREAKOUT COULD GROW LEGS

    EUR/AUD BREAKOUT COULD GROW LEGS

    CHINESE YUAN (CNH) DRIVING CURRENCY MARKETS; HOWEVER, TRUMP RISK REMAINS

    CHINESE YUAN (CNH) DRIVING CURRENCY MARKETS; HOWEVER, TRUMP RISK REMAINS

  • Commodities
    Abu Dhabi’s oil champion ADNOC bets on global expansion

    Abu Dhabi’s oil champion ADNOC bets on global expansion

    Oil prices jump as Middle East violence rattles markets

    Oil prices jump as Middle East violence rattles markets

    Panamanian trade unions reach agreement with government on essential commodities

    Panamanian trade unions reach agreement with government on essential commodities

    Dollar surges and stocks tumble as traders weigh global growth outlook

    Dollar surges and stocks tumble as traders weigh global growth outlook

    Can commodities make a comeback?

    Can commodities make a comeback?

    CME looks to lure retail traders with daily options frowned on in Europe

    CME looks to lure retail traders with daily options frowned on in Europe

    The traders earning $6m+ outside banks and hedge funds

    The traders earning $6m+ outside banks and hedge funds

    CFTC eyes potential oversight of cryptocurrencies, carbon trading – commissioner

    CFTC eyes potential oversight of cryptocurrencies, carbon trading – commissioner

    Palladium: Completely Reverse The Rumors for a Bubble Burst

    Palladium: Completely Reverse The Rumors for a Bubble Burst

  • Cryptocurrencies
    Crypto’s decentralization problem: The word is used too often to justify bad product decisions

    Crypto’s decentralization problem: The word is used too often to justify bad product decisions

    Bitcoin Is Set to Thrive in October—No Matter Where Rates Go, Analyst Says

    Bitcoin Is Set to Thrive in October—No Matter Where Rates Go, Analyst Says

    Ripple Is Considering Buying Bankrupt Crypto Lender Celsius’ Assets: Report

    Ripple Is Considering Buying Bankrupt Crypto Lender Celsius’ Assets: Report

    Yen shorts crumble as hot FX trade comes to end

    Yen shorts crumble as hot FX trade comes to end

    Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

    Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

    Crypto Is Coming to Esports: The Games and Economics of Tomorrow

    Crypto Is Coming to Esports: The Games and Economics of Tomorrow

    Singapore’s crypto aspirations shaken by Three Arrows collapse

    Singapore’s crypto aspirations shaken by Three Arrows collapse

    Crypto exchange Coinbase looks to expand footprint in Europe

    Crypto exchange Coinbase looks to expand footprint in Europe

    How ETF investors can bet on the crypto crash

    How ETF investors can bet on the crypto crash

FX Access
No Result
View All Result

Be Careful! Currency Correlations Change!

poweradmin by poweradmin
October 6, 2020
Home Education
Share on FacebookShare on Twitter

The forex market is like a schizophrenic patient suffering from bipolar disorder who constantly eats chocolates, experiences extreme sugar highs, and has volatile mood swings all day long.

We’re not even exaggerating.

Although currency correlations between currency pairs can be strong or weak for days, weeks, months, or even years, they do eventually change and can change when you least expect it.

The strong currency correlations you see this month may be totally different next month.

Have a look at the table below.

USD/JPY EUR/USD USD/CHF GBP/USD USD/CAD AUD/USD NZD/USD EUR/JPY EUR/GBP
1 week -0.23 0.22 -0.21 0.07 -0.22 0.07 0.14 -0.20
1 month 0.63 -0.52 -0.35 -0.58 0.46 0.64 0.89 0.77
3 month -0.62 0.52 -0.62 -0.40 -0.30 0.09 0.24 -0.35
6 month -0.62 0.78 0.14 0.43 -0.70 -0.63 0.58 -0.68
1 year -0.69 0.74 -0.51 0.67 -0.69 -0.69 0.09 -0.20

Compare the coefficients for a given pair across the different time frames.

Do you notice anything?

For the most part (thanks, USD/JPY!), they’re different across the board, changing from one time frame to another. And they change in all directions.

The lesson here is that currency correlations do change, and they change frequently.

And they can change by a drastic measure in a short time frame, as is apparent by looking at EUR/USD at the 1 Month and 3 Month interval.

That’s a big swing!

Because of the constant sentiment shifts of the currency market, make sure you’re aware of the current currency correlations.

For example, over a one week period, the correlation between USD/JPY and USD/CHF was 0.22. This is a very low correlation coefficient and would indicate that the pairs have an insignificant correlation.

However, if we look at the three-month data for the same time period, the number increases to 0.52 and then to 0.78 for six months and finally to 0.74 for a year.

In this example, you can see that these two pairs had a “break-up” in their long-term correlation relationship. What was once a strongly positive association in the past has extremely weakened in the short-term.

If they were a real couple and had only dated a month or less, they would’ve thought they were incompatible.

Little do they know, the passion will start heating up later!

If you look at EUR/USD and GBP/USD, here’s an example of the extent to which currency correlations can change and jump around.

The one-week period shows a very strong correlation with a 0.94 coefficient!

…But this relationship severely deteriorates in the one-month period, dropping to 0.13, before improving again for its three-month period to a solid 0.83, then deteriorating again to a weak correlation in its six-month trailing period.

EUR/USD USD/JPY USD/CHF GBP/USD USD/CAD AUD/USD NZD/USD EUR/JPY EUR/GBP
1 week -0.23 -1.00 0.94 -0.98 0.98 0.93 0.93 0.86
1 month 0.63 -0.98 0.13 -0.90 0.90 0.96 0.91 0.86
3 month -0.62 -0.92 0.83 0.14 0.63 0.42 0.61 0.75
6 month -0.62 -0.85 0.31 -0.35 0.61 0.65 0.28 0.71
1 year -0.69 -0.98 0.88 -0.93 0.95 0.96 0.66 0.02

Here’s a crazy example of how dramatic currency correlations can change.

Let’s take a look at USD/JPY and NZD/USD…

USD/JPY EUR/USD USD/CHF GBP/USD USD/CAD AUD/USD NZD/USD EUR/JPY EUR/GBP
1 week -0.23 0.22 -0.21 0.07 -0.22 0.07 0.14 -0.20
1 month 0.63 -0.52 -0.35 -0.58 0.46 0.64 0.89 0.77
3 month -0.62 0.52 -0.62 -0.40 -0.30 0.09 0.24 -0.35
6 month -0.62 0.78 0.14 0.43 -0.70 -0.63 0.58 -0.68
1 year -0.69 0.74 -0.51 0.67 -0.69 -0.69 0.09 -0.20

Their one-year correlation coefficient was -0.69.

This indicates a moderate to strong correlation.

But if you look at their one-month correlation, the correlation coefficient essentially flip-flopped!

So be careful.

Currency correlations change for many different reasons.

These can include anything from a country changing interest rates, to shifting monetary policies, or any collection of economic or political events reshaping traders’ sentiment on a currency.

Tags: Currency Correlations
poweradmin

poweradmin

Next Post
How To Calculate Currency Correlations With Excel

How To Calculate Currency Correlations With Excel

Please login to join discussion

Recommended.

Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

October 9, 2023
Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

October 9, 2023
China-EU relationship is at a crossroads, top official says in Beijing

China-EU relationship is at a crossroads, top official says in Beijing

October 9, 2023
The U.S. is weaker now than when we downgraded in 2011, former S&P ratings chairman says

The U.S. is weaker now than when we downgraded in 2011, former S&P ratings chairman says

October 9, 2023
Abu Dhabi’s oil champion ADNOC bets on global expansion

Abu Dhabi’s oil champion ADNOC bets on global expansion

October 9, 2023
FX Access

FX Access tells you what’s new in politics, investment and economic, why it matters, how it works and what you need.

Follow Us

Categories

  • Commodities
  • Cryptocurrencies
  • Economic
  • Education
  • Forex

Recent News

Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

Q4 Trade Opportunity: EUR/CAD Long-Term Reversal as Oil, Inflation Rise

October 9, 2023
Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

October 9, 2023
  • About
  • Blog
  • Best Brokers Worldwide
  • Contact

© 2022 FX Access | All rights reserved.

No Result
View All Result
  • Home
  • Forex
  • Education
  • Commodities
  • Cryptocurrencies

© 2022 FX Access | All rights reserved.