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Currency Correlation

This is a discussion on Currency Correlation within the General Discussion forums, part of the Trading Forum category; please any one say me which one currency is most effected to silver ???...

          
   
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    Currency Correlation

    please any one say me which one currency is most effected to silver ???

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    I think - it is USD ... (costs of silver is in dollars)
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    Quote Originally Posted by newdigital View Post
    I think - it is USD ... (costs of silver is in dollars)
    i know that but which one pair is most effected to silver???
    eurusd or gbpusd?????

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    If you are talking about fundamental news events so - there are no any pairs there ... we are having USD news (or US news), EUR news and so on.

    Just an example - this silver/usd price was moved by the following news event :

    ================

    2013-02-03 15:00 GMT | [USD - ISM Manufacturing PMI]


    if actual > forecast = good for currency (for USD in our case)

    ==============

    U.S. Manufacturing Index Indicates Notably Slower Growth In January


    While the Institute for Supply Management released a report on Monday showing modest growth in U.S. manufacturing activity in the month of January, the pace of growth slowed much more than economists had been anticipating.
    The ISM said its purchasing managers index fell to 51.3 in January from a revised 56.5 in December. A reading above 50 indicates continued growth in the manufacturing sector, but economists had expected the index to show a much more modest decrease to a reading of 56.0.
    With the much steeper than expected decrease, the purchasing managers index fell to its lowest level since hitting 50.0 in May of 2013.

    ==============

    So, you can see :

    Currency Correlation-xagusd-m5-metaquotes-software-corp-temp-file-screenshot-41103.png
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    Quote Originally Posted by newdigital View Post
    If you are talking about fundamental news events so - there are no any pairs there ... we are having USD news (or US news), EUR news and so on.

    Just an example - this silver/usd price was moved by the following news event :

    ================

    2013-02-03 15:00 GMT | [USD - ISM Manufacturing PMI]


    if actual > forecast = good for currency (for USD in our case)

    ==============

    U.S. Manufacturing Index Indicates Notably Slower Growth In January


    While the Institute for Supply Management released a report on Monday showing modest growth in U.S. manufacturing activity in the month of January, the pace of growth slowed much more than economists had been anticipating.
    The ISM said its purchasing managers index fell to 51.3 in January from a revised 56.5 in December. A reading above 50 indicates continued growth in the manufacturing sector, but economists had expected the index to show a much more modest decrease to a reading of 56.0.
    With the much steeper than expected decrease, the purchasing managers index fell to its lowest level since hitting 50.0 in May of 2013.

    ==============

    So, you can see :

    Click image for larger version. 

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    thanks for reply but i make rule never listen news

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    May be - you are talking about correlation of the pairs ... example: EURUSD/USDCHF, GBPUSD/EURUSD and so on ...
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    Quote Originally Posted by newdigital View Post
    May be - you are talking about correlation of the pairs ... example: EURUSD/USDCHF, GBPUSD/EURUSD and so on ...
    Well ... I found - look at this article : Gold and the AUDUSD have a positive correlation

    And look at this image (the source is here) (GLD is GOLD, USO is OIL, SLV is SILVER):

    Currency Correlation-correlation.png
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    Currency Pairs Correlation in Forex Market: Cross Currency Pairs

    As a forex trader, if you check several different currency pairs to find the trade setups, you should be aware of the currency pairs correlation, because of two main reasons:

    1- You avoid taking the same position with several correlated currency pairs at the same time and so you do not multiply your risk. Additionally, you avoid taking the positions with the currency pairs that move against each other, at the same time. 2- If you know the currency pairs correlations, it may help you to predict the direction and movement of a currency pair, through the signals that you see on the other correlated currency pairs.

    Now I explain how currency pairs correlation helps. Lets start with the 4 major currency pairs: EURUSD ; GBPUSD ; USDJPY and USDCHF.

    In both of the first two currency pairs (EURUSD and GBPUSD), USD works as the money. As you know, the first currency in currency pairs is known as the commodity and the second one is the money. So when you buy EURUSD, it means you pay USD to buy Euro. In EURUSD and GBPUSD, the currency that works as the money is the same (USD). The commodity of these pairs are both related to two big European economies. These two currencies are highly connected and related to each other and in 99% of the cases they move on the same direction and form the same buy/sell signals. Just recently, because of the economy crisis, they moved a little differently but their main bias is still the same.

    What does it mean? It means if EURUSD shows a buy signal, GBPUSD should also show a buy signal with minor differences in the strength and shape of the signal. If you analyze the market and you come to this conclusion that you should go short with EURUSD and at the same time you decided to go long with GBPUSD, it means something is wrong with your analysis and one of your analysis is wrong. So you should not take any position until you see the same signal in both of these pairs. Of course, when these pairs really show two different direction (which rarely happens), it will be a signal to trade EUR-GBP. I will tell you how.

    Accordingly, USD-CHF and USDJPY behave so similar but not as similar as EURUSD and GBPUSD, because in USD-CHF and USDJPY, money is different. Swiss Franc and Japanese Yen have some similarities because both of them belong to oil consumer countries but the volume of industrial trades in Japan, makes JPY different.

    Generally, when you analyze the four major currency pairs, if you see buy signals in EURUSD and GBPUSD, you should see sell signals in USDJPY. If you also see a sell signal in USD-CHF, then your analysis is more reliable. Otherwise, you have to revise and redo your analysis.

    EURUSD, GBPUSD, AUDUSD, NZDUSD, GBPJPY, EURJPY, AUDJPY and NZDJPY usually have the same direction. Just their movement pattern sometimes becomes more similar to each other and sometimes less.

    What do I prefer?

    If I find a sell signal with EURUSD and GBPUSD and a buy signal with USDJPY, I prefer to take the short position with one of the EURUSD or GBPUSD because downward movements are usually stronger. I will not take the short position with EURUSD or GBPUSD and the long position with USDJPY at the same time, because if any of these positions goes against me, the other one will do the same. So I don’t double my risk by taking two opposite positions with two currency pairs that move against each other.

    How to use the currency pairs correlation to predict the direction of the market?

    When I have a signal with a pair, but I need confirmation to take the position, I refer to the correlated currency pairs or cross currency pairs and look for the confirmation. For example I see a MACD Divergence in USDCAD four hours chart but there is no close support breakout in USDCAD four hours or one hour chart. I want to take a short position but I just need a confirmation. If I wait for the confirmation, it can become too late and I may miss the chance. I check a correlated currency pair like USDSGD and if I see a support breakout in it, I take the short position with USDCAD. Now the question is why I don’t take the short position with USDSGD and I use its support breakout to go short with USDCAD? I do it because USDCAD movements are stronger and more profitable. I use USDSGD just as an indicator to trade USCAD.

    It happens that you take a position with a currency pair, but it doesn’t work properly and you don’t know if it was a good decision or not. On the other hand, you don’t see any sharp signal on that currency pair to help you decide if you want to keep the position or close it. In such cases, you can check a correlated currency pair and look for a continuation or reversal signal. It helps you to decide about the position you have.

    Sometimes, some correlated currency pairs don’t move in the way that they are supposed to move. For example EURUSD and USDJPY go up at the same time, whereas they usually move against each other. It can happen when Euro value goes up and USD value doesn’t have a significant change, but at the same time JPY value goes down, because of some reason. In these cases, you can use the below table to find and trade the currency pair that its movement is intensified by an unusual movement in two other currency pairs. In this example, if EURUSD and USDJPY go up at the same time, EURJPY will go up much stronger (see the below chart).

    Or if EURUSD goes up and AUDUSD goes down at the same time, EUR-AUD goes up strongly.

    Another important example: If EURUSD goes up and GBPUSD goes down at the same time, EURGBP goes up strongly. Maybe this is the most important case that we can trade based on this rule. It happens many times that EURUSD and GBPUSD move against each other and that is the best time to trade EURGBP. Now you know why EURGBP doesn’t move strongly most of the time. It is because EURUSD and GBPUSD move in the same direction most of the time. For example they go up at the same time and so EURGBP doesn’t show any significant movement because when both of the currencies of a currency pair go up or down at the same time, that currency pair doesn’t show any strong movement and direction (I hope you know why a currency pair goes up or down. It goes up when the first currency value goes up OR the second currency value goes down. For example EURUSD goes up, if Euro value goes up or USD value goes down. If this happens at the same time, then EURUSD goes up much stronger).

    The below chart includes almost all of these unusual movements and their results on the third currency pair.

    if EURUSD and USDJPY then EURJPY means if EURUSD and USDJPY go up at the same time, then EURJPY goes up much stronger.

    Currency Correlation-correlation1.jpg
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    Australian Dollar Strongly Correlated to Gold, Silver, Steel Prices



    The short-term correlations between the Australian Dollar/US Dollar exchange rate against gold and silver prices trade near record strength. Long positions in the Australian Dollar against the US Dollar likewise offer the advantage of interest rate payments. This stands in contrast to holding long positions in Gold, Silver, Crude Oil and other commodities; there are carrying costs with buying.
    The Australian Dollar will likely remain a speculator’s favorite as a strong proxy for Gold, Silver, and broader metals prices through upcoming forex trading.

    Forex
    Correlations Summary

    View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.

    Currency Correlation-correlation.png


    Correlation between Australian Dollar/US Dollar versus SPDR Gold Trust

    The Australian Dollar remains very strongly correlated to precious metals prices, and the very short-term link between the AUDUSD and the SPDR Gold Trust (GLD) trades near records. Fundamentally, this makes sense: gold is a top Australian export and its elevated price means that the total value of exports has risen accordingly.

    Viewed in this light, the AUDUSD seems an attractive proxy to holding positions in gold. Whereas there is a carrying cost associated with holding long positions in Gold, long Australian Dollar/US Dollar positions will actually produce net interest payments.

    The clear caveat is that any sharp sell-offs in the S&P 500 would likely break the AUDUSD’s short-term link to Gold prices, but the S&P 500 Volatility Index (VIX) currently show the lowest volatility expectations since July. Slow stock market moves pose little risk to the AUDUSD-GLD correlation.

    Australian Dollar/US Dollar Exchange Rate
    (lhs)
    Market Vectors Steel Index Fund (SLX) (rhs)

    Correlation between
    Australian Dollar/ Exchange Rate and iShares Silver Trust (SLV)

    The Australian Dollar remains a top choice for those looking to speculate on the direction of broader commodity prices and for good reason. The correlation between the AUDUSD and industrial metals likewise remains very strong, seen primarily through instruments such as the Market Vectors Steel Index Fund (SLX, pictured above) and iShares Silver Trust (SLV).

    We see that the Aussie Dollar remains a strong proxy for speculative positions and hedges in metals prices. The fundamental reasoning is sound: Australia exports a substantial amount of both precious and industrial metals in both volume and monetary value. The fact that long-AUDUSD positions likewise offer net interest rate payments make them especially attractive; those holding Silver and other metals most often incur carrying costs.

    The Australian Dollar should continue to appreciate if Gold, Silver, and broader metals prices remain elevated.
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    There is indicator for Metatrader 5 to check currency correlation - MFCS Currency Correlation Chart

    Just for information (those charts were made using this indicator) -

    XAUUSD/AUDUSD :

    Currency Correlation-usdchf-w1-metaquotes-software-corp-temp-file-screenshot-16227.png



    XAGUSD/EURUSD :

    Currency Correlation-usdchf-h4-metaquotes-software-corp-temp-file-screenshot-1449.png



    XAGUSD/USDCAD :

    Currency Correlation-usdchf-h4-metaquotes-software-corp-temp-file-screenshot-8350.png
    Attached Files Attached Files
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