Brian Twomey
Brian's Investment
Normal FX market correlations run for example as EUR/USD, EUR/JPY and EUR/CHF. All are the first 3 and most important currencies within every FX universe. Its vital to maintain positive correlations among the 3 otherwise prices fail to trade correctly.
A correlation is a number to highlight strength of associations among and between currency pairs. Its a unitless and hidden number that flows through currency pairs on a positive and negative basis yet its a powerful number as correlational association informs which pairs to trade and in which direction. Its impossible for a Correlation to leave markets or currency pairs. Correlation informs to problem pairs.
A perfect situation exists when correlations are positive throughout the same universe of currency pairs. A negative condition exists for example as EUR/USD correlations are negative to EUR/CHF and EUR/JPY but the correlation transferred to positive to wider range currencies: EUR/AUD, EUR/CAD, EUR/GBP and barely positive EUR/NZD.
The cause for Correlation changes and / or negative reading is due to a misplaced Moving Average, an MA to low or to high and the position of a currency price in relation to a vital break to a significant average. Correlations are derived from MA's.
Currently, GBP pairs are running the strongest and most positive in relation to EUR, AUD and NZD. EUR/USD contains severe problems while AUD and NZD are trading in +50 correlation ranges.
EUR
EUR/USD Vs EUR/CHF -77%. EUR/CHF Vs USD/CHF +93%. EUR/CHF and USD/CHF are the same trade.
EUR/USD Vs EUR/JPY -68%. EUR/JPY Vs USD/JPY +93%. EUR/JPY and USD/JPY represent the same trade.
EUR/USD Vs EUR/AUD +58%. EUR/AUD Vs AUD/USD -85%. EUR/USD Vs AUD/USD -10%. EUR/AUD and AUD/USD represent opposite trades while EUR/USD and AUD/USD correlations should be positive.
EUR/USD Vs EUR/CAD +77%, EUR/CAD Vs USD/CAD +89%. EUR/USD Vs USD/CAD +41%. EUR/CAD doesn't have a clue to direction and generally remains neutral to no movements under positive correlations, particularly 41% Vs EUR/USD and USD/CAD.
EUR/USD Vs EUR/NZD +21%, EUR/NZD Vs NZD/USD -76%. EUR/USD Vs NZD/USD +46%. EUR/NZD and NZD/USD represent opposite trades.
EUR/USD Vs EUR/GBP +64%, EUR/GBP Vs GBP/USD -89%. EUR/USD Vs GBP/USD -22%. EUR/GBP and GBP/USD represent opposite trades.
GBP
GBP/USD Vs GBP/JPY +90%. Traditional correct and strong.
GBP/USD Vs GBP/CHF +87%. Traditional correct and strong.
GBP/USD Vs GBP/CAD +65%. GBP/CAD Vs USD/CAD -43%. GBP/USD Vs USD/CAD -96%. Perfect opposite.
GBP/USD Vs GBP/NZD +43%, GBP/NZD Vs NZD/USD -27%. GBP/USD Vs NZD/USD +74%. GBP/USD and NZD/USD represent same trades while GBP/NZD correlations to GBP/USD should be much higher. GBP/NZD over last weeks traded erratically.
GBP/USD Vs GBP/AUD +0.07%. GBP/AUD Vs AUD/USD -22%. GBP/USD Vs AUD/USD +51%. GBP/AUD represents a problem currency pair and its untouchable. Trade over last weeks has been erradic.
AUD
AUD/USD Vs AUD/JPY +50%. AUD/JPY Vs USD/JPY +89%. AUD/USD Vs USD/JPY +48%.
AUD/USD Vs AUD/CHF +46%. AUD/CHF Vs USD/CHF +84%. AUD/USD Vs USD/CHF +34%.
AUD/USD Vs AUD/CAD +57%. AUD/CAD Vs USD/CAD -0.09%. AUD/USD Vs USD/CAD -87%.
AUD/USD Vs AUD/NZD +39%. AUD/NZD Vs NZD/USD - 0.02%. AUD/USD Vs NZD/USD +90%.
NZD
NZD/USD Vs NZD/JPY +61%. NZD/JPY Vs USD/JPY +83%. NZD/USD Vs USD/JPY +0.07%.
NZD/USD Vs NZD/CHF +58%. NZD/CHF Vs USD/CHF +76%. NZD/USD Vs USD/CHF -0.07%.
NZD/USD Vs NZD/CAD +54%. NZD/CAD Vs USD/CAD +35%. NZD/USD Vs USD/CAD -59%.
GBP/AUD
GBP/AUD Vs USD/JPY +73%. GBP/AUD Vs USD/CHF +81%. GBP/AUD Vs USD/CAD -0.23%.
GBP/AUD as a problem pair exists only to GBP/USD and AUD/USD correlations however weak correlations between GBP/USD and AUD/USD transferred to GBP/AUD as a USD pair to move in conjunction with USD/JPY and USD/CHF. A correlation must travel somewhere and USD was the answer.
EUR/NZD
EUR/NZD Vs USD/JPY -0.70%. EUR/NZD Vs USD/CHF -58%. EUR/NZD Vs USD/CAD +96%. EUR/NZD is negative to NZD/USD yet strongly positive to USD/CAD. Weak Correlations to EUR/USD transferred to USD as USD/CAD.
GBP/NZD
GBP/NZD Vs USD/JPY +93%. GBP/NZD Vs USD/CHF +97%. GBP/NZD Vs USD/CAD -0.59%. GBP/NZD is a USD pair as weak correlations transferred from GBP/USD and NZD/USD to USD/JPY and USD/CHF.
EUR/AUD
EUR/AUD V USD/JPY -0.86%. EUR/AUD Vs USD/CHF -0.78%. EUR/AUD Vs USD/CAD +99%.
EUR/GBP
EUR/GBP Vs USD/JPY -0.95%. EUR/GBP Vs USD/CHF -89%. EUR/GBP Vs USD/CAD +95%.
Evaluation
Overall Currency prices contain problems to Correlations associated to the same pairs within the universe of pairs. Overall prices are not aligned within the universe nor properly aligned to each other separately. Explains dead movements. Prices require a wider separation between and among present currency pairs.
Of 28 currency pairs, USD is clearly dominant and the overall driver to the 28.
Its not unusual for wide range currencies GBP/NZD, EUR/NZD, GBP/AUD, EUR/AUD to transform as USD pairs. Wider range movements cause the disjunction especially when anchor pairs GBP/USD and EUR/USD range in smaller movements. The wider range currency correlations must travel and they travel to USD when dead price movements dominate markets as they do today. When anchor pairs move again then wide range pairs will properly correlate again. When anchor pairs move again then correlations will properly rectify to reflect strongly positive correlations within the universe of currencies.
Today, market prices remain treacherous. USD/JPY remains embedded to JPY cross pairs except GBP/JPY as GBP/JPY assumes its traditional role as 90% correlated to GBP/USD. USD/CHF exists as an embed to all CHF cross pairs. USD/CAD exists as an embed to AUD/CAD and EUR/CAD.
Traditional is anchor pairs EUR/USD, GBP/USD must at least own by correlations EUR/JPY and EUR/CHF as first 2 currency pairs but none own this most vital section of their own currencies. Until correlation rectify in this short end of currencies then dead movements will prevail.
Traditional Line Up
EUR/USD, EUR/CHF, EUR/JPY, EUR/CAD, EUR/AUD, EUR/NZD.
GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD, GBP/AUD, GBP/NZD
EUR/CAD and GBP/CAD are middle pairs to the universe and traditional neutral pairs and neutral but small movements due to positions as centered or medians to overall prices within the universe.
Wider range pairs require correlational tests constantly to find proper alignments. Short end alignments traditionally hold proper correlations in normal traded markets. Short end as GBP/CHF and JPY cross pairs. AUD/CAD and NZD/CAD are top pairs and contain lower pairs prices. An AUD/CAD and NZD/CAD top or bottom represents a top or bottom to AUD/USD and NZD/USD.
Trading currencies and other financial instruments carries a degree of loss and possible loss of entire investments. Please managed your own risks, stop loss, and margins requirements.
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