Currency correlation defines the relationship between forex pairs and how they move in relation to one another. The document provides an example correlation table showing the correlation between EURUSD and other major currency pairs, with EURUSD as the base currency. It explains that EURUSD and USDCHF have a very strong negative correlation near -1, meaning they typically move in opposite directions, while EURUSD and GBPUSD have a very strong positive correlation near +1, meaning they typically move in the same direction. Understanding correlation is important for correctly managing risk when trading multiple currency pairs.

1. Forex Currency Correlation
Currency Correlation defines the relationship
between Forex pairs
This is how it works, be aware and use it to better
manage your trades and your risk...

2. EURUSD
(Base)
Rises
GBPUSD
0.91
USDCHF
-0.97
USDJPY
0.82
AUDUSD
0.33
Correlation is measured as a range from +1 to -1
+1 = Perfect Positive Correlation
(Currency pairs move in the exact same direction)
-1 = Perfect Negative Correlation
(Currency pairs move in the exact opposite direction)
Currency Correlation Measurement
Example with EURUSD as the base instrument

3. AUDUSD EURUSD GBPUSD USDCHF USDJPY
AUDUSD 1.00 0.33 0.41 -0.29 0.21
EURUSD 0.33 1.00 0.91 -0.97 0.82
GBPUSD 0.41 0.91 1.00 -0.89 0.69
USDCHF -0.29 -0.97 -0.89 1.00 -0.83
USDJPY 0.21 0.82 0.69 -0.83 1.00
Key
Currency Correlation Table
Example with EURUSD as the base instrument
0.80+ = Very Strong +ve correlation
0.60+ = Strong +ve correlation
0.40+ = +ve correlation
0.20+ = +ve but weak correlation
-0.80 = Very Strong -ve correlation
-0.60 = Strong -ve correlation
-0.40 = -ve correlation
-0.20 = -ve but weak correlation
-0.20 to 0.20+ = Little or No correlation

4. From the above example it can be seen that
EURUSD and USDCHF
have a very strong negative correlation
(almost perfect at -0.97)
In simple terms it means that when EURUSD rises
there is currently a 97% chance that USDCHF will fall
and vice versa
By contrast, EURUSD and GBPUSD have a very strong
positive correlation at 0.91 so when one rises expect the
other to rise too
Currency Correlation Table Explained
Example with EURUSD as the base instrument

5. Let’s say you are currently long EURUSD
and you are considering going long USDCHF...
With a -0.97 negative correlation you are
effectively taking a neutral position in the market
Conversely, if you are currently long EURUSD
and you are considering going long GBPUSD...
With a 0.91 positive correlation you are
effectively doubling your current risk in the market
Why Currency Correlation Is Important
It is important because it is the only way
you can correctly manage your risk if
trading more than 1 instrument

6. Produced by
Always be aware of Currency correlation
when trading more than 1 instrument!
Our MT4 Correlation Indicator is available as a
FREE bonus to all members
Forex Currency Correlation