Do currency pairs affect each other ?

I'm sure there is an obvious answer to this question so please forgive my newbieness. If you are trading, let's say EUR/USD, what currencies are affected directly by, for instance, a strengthening Euro.

Is it possible to predict the movements of other currencies based on one currency pair's price action. Surely if the dollar strengthens against the Euro then it strengthens against other currencies too? If one's risk allows is this a viable way to trade when there is a strong trend at play as on last Friday with the EUR/USD?

You are absolutely correct, there is definitely a relationship between currencies. For example, if EUR/USD strengthens, USD/CHF will essentially weaken to the same degree, and GBP/USD will usually strenthen also.

Check this site out, http://www.mataf.net/en/analysis-correlation.htm.

This will provide you the correlation between currencies. Feel free to email, IM, or PM me if you have any questions.

Pip Daddy,


Thanks for the site link, that looks fascinating. I'm not in a position risk-wise to trade multiple currency pairs yet but it looks like a viable strategy for those with large enough accounts

I've noticed if the majors start to move the USDCAD can be slow to react. 50% of the time it will follow the rest of the market. But sometimes it doesn't. Perhaps it's where it gets the loonie tag? It's a bit of a gamble but it's usually good for some exciting pips.

It's slow to react for a certain reason. You should be aware of the fundamentals for each currency pair. For example, let's say you flip on the news channel and you hear two thing: 1. the French riots 2. oil barrel price rising.

Off the course the French riots is bearish for the EUR, so there's a good chance that the EUR/USD will be falling. But just because the EUR/USD is falling doesn't mean the USD/CAD will rise.

Oil price is up which is extremely good for Canada since they're pretty much North America's version of Saudi Arabia and export a hella lot of oil. If oil price is going up, that's good for Canada, and bad for US (since they import 70% of their oil).

Factor in news and see if its country specific. Now if its US specific such as the Fed saying they're going to hike interest rates to 10% then yes you will probably see EUR/USD drop like a rock and USD/CAD shoot up like a rocket at the same rate.

The most important reason why you should be aware of currency correlations is so you know your actual risk exposure.

Most novice traders will trade several pairs at once like shorting EUR/USD and GBP/USD while going long on USD/CHF not knowing they've basically tripled their risk.

[quote=Pip Daddy It's slow to react for a certain reason. You should be aware of the fundamentals for each currency pair. For example, let's say you flip on the news channel and you hear two thing: 1. the French riots 2. oil barrel price rising. QUOTE]

I base it on all the majors. If there's all round USD strength at an open the CAD can often be found to be sitting idle a there's a good chance it will follow suit. It's not 100% because, as you say, the cad may be strong for which ever reason but it will react and pips can be made. Illustrates that some currencies can be influenced by others...that's all, well, so I thought.

Instead of trading different pairs in a strong move like the one we are living, it is always more profitable to find the weakest link and trade multiple units on that one.

See the thread I tempted to start a while back here:

http://www.forexfactory.com/forexfor...ead.php?t=2940

It contains a great article on this subject.

I am trading (mainly) cable, entries using 1 and 5 min charts.

I have up overlaping 5 min charts on one screen of cable, EUR and CHF. I always watch closely the other 2 pairs, just before entry, especially if they are all at a S/R level. If CHF breaks against my cable entry, I will not take it, at least for a recheck of the situation.

If there is a thrust candle on one pair, the others tend to react in the same direction. If the dollar thrusts suddenly on one pair (+10 pips or more) it is likely the others will move in the same direction, even if just a few pips.

Also, if all 3 pairs thrust at once, I see this as a better signal to prehaps take a break out than if cable goes on its own.