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Cross Currency Correlations in a Live Market

Cross Currency Correlations in a Live Market

See on a live chart how cross currency correlations work in real time

The best way to understand the concepts that we covered in the first two parts of this course is to actually see what is going on in a live market environment in real time. This  does just that

In part one of this series on forex crosses and cross currency correlations we saw how currency pairs are constructed, the mechanics of what happens when trading an individual pair and finally the importance of understanding the difference between majors and crosses.

In part two we then looked at how pairs acted within triumvirates (pairs grouped in threes) and how this impacts upon your trading, particularly if you are scalping (short term trading). The segment goes over the main symbiotic groupings in the market and shows you when to and when not to trade a particular pair and the reasons for this.

Cross Currency Correlations In Real Time

In the video above we look at the price action from yesterday morning London session. We are concentrate on the three main pairs EUR/USD, EUR/JPY and USD/JPY

The video is particularly interesting as it show three different ways in which the three pairs interact as a triumvirate of pairs. Initially, we have a move up on USD/JPY and a corresponding move down on EUR/USD, yet if we watch EUR/JPY it is stuck in the same place and this is precisely because of the interrelationship between these three pairs. As time moves on EUR/USD stops falling and this releases EUR/JPY , allowing it to move up with  USD/JPY . Finally, EUR/USD starts to move up as well creating a perfect storm situation. This means that EUR/JPY shackels are now of and it moves up at an exponential rate compared to both EUR/USD and USD/JPY.

All of this can be clearly used to your advantage particularly with regard to the time of your trades and which particular pair to take. If you spend time analysing the support and resistance areas of each pair in a particular group then you can pre empt some of the moves particularly the “perfect storm” set ups.

One additional thing to bear in mind is the time of day as this has considerable bearing on moves. In the London session for instance the controlling pair is more likely to be  EUR/GBP. Whereas in the New York session USD/JPY becomes the dominant player. This of course is not a hard and fast rule and news plays a huge roll in deciding the dominant pair. It is always useful to try to identify this as the sessions go on and watch for changes.




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