Been trading for a few months now and keep hearing about correlations but struggling to understand the actual relationship.
When EUR/USD moves up, does GBP/USD typically follow the same direction or go opposite? Starting to think this might be why some of my trades aren’t working out like expected.
Correlations can vary significantly. EUR/USD and GBP/USD generally trend in the same direction, but this can quickly change with major news events. Pay attention to meetings from the ECB and BOE; if they differ from Fed moves, their relationship may weaken. Regional economic data can disrupt this correlation as well. Trading both pairs isn’t a hedge; it increases your USD exposure without improving your chances. Choose the pair that shows a stronger setup.
EUR/USD and GBP/USD move together about 70-80% of the time. Makes sense - both have USD as the quote currency, so when the dollar tanks, both pairs usually pop.
This correlation hits hardest during big USD news. Fed hints at rate cuts? EUR and GBP both tend to rally against the dollar at once.
Don’t count on it though. The correlation falls apart when eurozone or UK-specific news drops. Brexit used to wreck this relationship constantly.
Made this mistake myself - went long on both EUR/USD and GBP/USD thinking I was diversifying. Just doubled my USD exposure instead and got crushed when the dollar strengthened.
If your platform shows daily correlation coefficients, check them. Anything above 0.7 means they’re basically moving in sync.
Yeah, they usually move together since both have USD as the base currency. UK news can quickly change that pattern though.