Correlation Trading

Im opening this thread up to discuss correlation in the forex markets. I would like to discuss how certain, indexes, gold, oil, bonds, interest rates, etc can affect the probabilities of certain crosses moving in one direction or the other. I have become successful trading with my method, but would like to understand more about how I can have an edge by studying these correlations. I hear about people watching the dow to gauge what direction the gbp/yen may move, or watching the dollar index to view where eur/usd may move. How do you use these to guage where your favorite pair moves?

Hi Atltrader, yes you've mentioned a lot of things corelated to fx market. You can compare oil price with CAD and EUR, gold price with Aussie, Dow Jones with all carry-trade pairs, also including AUDJPY, AUDUSD, EURJPY, EURUSD, GBPUSD,..etc, and GBPJPY is just one of them. Nikkei, DAX, and major countries stock indexes all have good correlations to the risk appetitle of the overall global market.

Interest rate markets would have even deeper impact on fx market. Other than paying attention to interest rate decisions, further research can be on bond rates and libor rates, which are changing everyday.

Dollar index being highly related to EURUSD is not as useful tool as the ones mentioned above. Because EURUSD already makes up 50+% of dollar index, therefore its high correlation to dollar index is no surprise. Hope the above info helps your research. Cheers!

US Equity indicies in direct correlation with EURUSD and GBPUSD and recently Oil futures have really been moving the EURUSD.

And i think everyone knows the USDCAD/Oil and AUDUSD, NZDUSD/Gold correlations.