Forex trading is a dynamic and ever-changing market, where currency pairs move in response to various economic events, political developments, and other factors. The release of important news, such as economic indicators, central bank decisions, and geopolitical events, can have a significant impact on the forex market, causing a surge in volatility and triggering sharp price movements. In this article, we will explore which forex pairs tend to move together right after important news and why.
Correlated and Inverse Correlated Pairs
Before we delve into the specific forex pairs that move together after important news, it’s essential to understand the concept of correlation. In forex trading, correlation refers to the degree of similarity between two or more currency pairs. If two currency pairs tend to move in the same direction, they are considered to be positively correlated, while if they tend to move in opposite directions, they are called inversely correlated.
Correlation is measured on a scale from -1 to +1, where -1 indicates a perfect inverse correlation, +1 indicates a perfect positive correlation, and 0 indicates no correlation. Understanding the correlation between different currency pairs is crucial for risk management and portfolio diversification in forex trading.
Forex Pairs that Move Together after Important News
Now let’s take a closer look at which forex pairs tend to move together after important news. The following pairs are known for their high degree of correlation and are likely to move in the same direction after significant economic events.
1. EUR/USD and GBP/USD
EUR/USD and GBP/USD are two of the world’s most widely traded currency pairs, and they tend to move in the same direction most of the time. The Euro and the British Pound are positively correlated because they are both part of the European Union, and their economies are closely intertwined. Therefore, if there is a significant economic event that affects the Euro, such as the release of the European Central Bank’s interest rate decision, both EUR/USD and GBP/USD are likely to move in the same direction.
2. AUD/USD and NZD/USD
AUD/USD and NZD/USD are two currency pairs that are positively correlated because they are both commodity currencies. Australia and New Zealand are major exporters of commodities such as gold, silver, and oil, and their currencies tend to move in tandem with commodity prices. Therefore, if there is a significant event that affects commodity prices, such as an OPEC meeting or a change in the US oil inventory, both AUD/USD and NZD/USD are likely to move in the same direction.
3. USD/JPY and USD/CHF
USD/JPY and USD/CHF are two currency pairs that are inversely correlated because they are both safe-haven currencies. When there is a significant economic event that causes market uncertainty and volatility, investors tend to flock to safe-haven currencies such as the Japanese Yen and the Swiss Franc. Therefore, if there is a major geopolitical event such as a terrorist attack or a political crisis, both USD/JPY and USD/CHF are likely to move in the same direction but in opposite directions to the other currency pairs.
4. USD/CAD and USD/MXN
USD/CAD and USD/MXN are two currency pairs that are positively correlated because they are both linked to the US economy. Canada and Mexico are the two largest trading partners of the United States, and their currencies tend to move in the same direction as the US Dollar. Therefore, if there is a significant economic event that affects the US economy, such as a change in interest rates or a major employment report, both USD/CAD and USD/MXN are likely to move in the same direction.
Conclusion
In conclusion, forex pairs tend to move together after important news due to their correlation, which is a measure of similarity between two or more currency pairs. The degree of correlation varies depending on the underlying economic, political, and other factors that affect each currency pair. Traders should be aware of the correlation between different currency pairs and adjust their trading strategies accordingly to manage their risk and maximize their profits.
