Correlations: 28 pairs vs USD

Brian Twomey Brian's Investment

How much exactly does USD trade between and among the 28 currency pairs and which pairs. The total is 12 pairs with solid correlations in the 70% range and higher. At least 4 pairs are in question due to weak correlations to the universe and to USD/JPY, USD/CHF and USD/CAD.

Those pairs are located in the middle space to the universe as GBP/CAD, AUD/CAD, NZD/CAD and EUR/CAD. The middle space currencies listed above are traditionally neutral currencies and never move very well. Middle space currency purpose is to maintain a counterbalance from the short end to longer end wider range currencies. They remain neutral to allow movements to eiher shorter or wider range currencies.

GBP/CAD +65% is weak to GBP/USD however Vs USD/JPY +0.05%, Vs USD/CHF -0.08% Vs USDCAD -43%. Despite weak correlations, GBP/CAD must include as GBP only.

AUD/CAD Vs AUD/USD +57%. AUD/CAD Vs USD/CAD -0.09%, VS USD/CHF -0.55%, Vs USD/JPY -0.42%. Despite weak correlations, AUD/CAD must include to AUD only.

NZD/CAD Vs NZD/USD +54%, Vs USD/CAD +35%, VS USD/CHF -86%, VS USD/JPY -0.78%. Again, despite weak correlations, NZD/CAD belongs to NZD.

EUR/CAD Vs EUR/USD +77%, EUR/CAD Vs USD/CAD +89%, Vs USD/CHF -0.96%, Vs USD/JPY -0.99%. EUR/CAD sits at perfect neutral to EUR/USD and USD/CAD so not counted as a USD pair.

The 7 anchor currencies must exclude and those as follows: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY, USD/CHF and USD/CAD.

To exclude the 7 anchor currencies and 4 above, 17 currencies remain.

JPY cross pairs are included as solid USD due to weak correlation s to the universe and +90% to USD/JPY. As follows: EUR/JPY, CHF/JPY however weak to USD/JPY +68%, Vs USD/CHF +56%, Vs USD/CAD -94%. AUD/JPY, NZD/JPY and CAD/JPY.

GBP/JPY is solid to GBP/USD at +90 and its tradition since the BOJ pegged USD/JPY to Gold and GBP/JPY in the 1930's Gold Standard. The GBP/USD and GBP/JPY correlation rarely breaks from high +90%.

So far we have 5 pairs as solid USD and 11 pairs remain.

EUR/CHF counts as 6th due to 90% to USD/CHF. GBP/NZD and EUR/NZD count as USD due to GBP/NZD Vs USD/JPY +93%, VS USD/CHF +97%. EUR/NZD Vs USD/CAD +96%. Weak -21% to EUR/USD.

EUR/NZD and GBP/NZD despite weak associations to EUR and GBP and strongly positve to USD, can easily argue as permanent USD if a trade is matched against NZD/USD due to forever negative correlations.

GBP/AUD adds easily as a USD currency. EUR/AUD adds as a USD currency due to +99% to USD/CAD yet weak +58% to EUR/USD. Neutrality is arguable yet +99% dominates.

From 5 currencies, add 5 to now 10 solid USD pairs.

AUD/CHF counts as USD due to +91% to USD/JPY and +84% to USD/CHF. NZD/CHF counts as USD due to +85% to USD/JPY and +84% to USD/CHF.

From 10 pairs, add 2 to 12 currencies.

AUD/NZD counts as USD due to weak Vs AUD/USD at +39% and strong Vs USD/JPY +97%, VS USD/CHF +97% and -77% Vs USD/CAD.

CAD/CHF is clearly a USD pair at +98 V USD/JPY, Vs USD/CHF +95% and - 91% vs USD/CAD.

CAD/CHF is never mentioned and rarely traded on websites however its a vital, vital pair to USD/CAD. Correlations are permanently negative to USD/USD as a rise in USD/CAD represents a fall to CAD/CHF and vice versa.

Currently 14 pairs are USD and 15 to include EUR/GBP.

EUR/GBP adds as the 15th USD currency due to weak +64% to EUR and strong positive +95% to USD/CAD. Easy argument to declare EUR/GBP as permanent USD if counter balanced to GBP/USD.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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