Forex correlations to gold and crude oil

Key points

• EUR, GBP and CHF are highly correlated with each other due to their geographic proximity and economic dependence
• Canadian dollar stands out as the most correlated currency to crude oil while British pound leads in correlation with gold
• Australian dollar has the highest correlation to stocks, both US and Chinese, among major currencies

Currency correlations

Among currency to currency correlations, EUR, GBP and CHF have the highest positive relationships. This can be explained by their geographic proximity within Europe, as well as close trading relationships and tourism. Forex correlations with the same base or quote currency will also share a strong correlation as both pairs are exposed to half of the same risks and movements, in theory.

Commodity correlations

Though often not as strong, forex pairs can be correlated to other asset classes like commodities. The Canadian dollar has the highest correlation with crude oil due to the significant proportion of Canada's GDP reliant on oil. While historically AUD has a strong relationship with gold, GBP currently has the highest correlation at 0.55.

Stock correlations

While stocks and currencies are not known to move in tandem with each other, Australian dollar has close to a +0.5 correlation with the S&P 500. The currency's correlation with FXI, Chinese large cap stocks, is even higher given their geographic proximity and AUD's liquidity compared to CNH.

How to trade correlations

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on forex pairs

Trading forex markets using correlations requires an account with a forex provider like tastyfx. Many traders watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on client sentiment. Contrarians might go against the prevailing sentiment in a forex pair, while trend followers might go with it.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.