READING THE CORRELATION TABLE

With this knowledge of correlation, let's look at the following tables, each showing correlations between the major currency pairs during the month of February 2010.

The upper table above shows that over the month of February (one month) EUR/USD and GBP/USD had a very strong positive correlation of 0.95. This implies that when the EUR/USD rallies, the GBP/USD has also rallied 95% of the time. Over the past 6 months though, the correlation was weaker (0.66) but in the long run (1 year) the two currency pairs still have a strong correlation.

CURRENCY CORRELATION EXPLAINED

 Did you see that when a certain currency pair rises, another currency pair falls? Or how about when that same currency pair falls, another currency pair seems to copy it and falls also?
If you reply “yes,” you’ve just witnessed currency correlation in action!
And if you say “no,” you need to stop doing less important things like sleeping, eating, playing Candy Crush or Angry Birds, and instead spend more time watching charts.
But, don’t be worried about. We are going to start with the basics and break it down yo…

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