In Forex, technical analysis of the correlations of the exchange rates of the currencies in which you intend to trade may increase the probability that the transaction is positive. To succeed on Forex, traders must respect the rule that both entry and exit from the market must always have technical origins.
Technical origins are: the breakage of a resistance or a support, a pattern of candlestick analysis, the signal provided by an indicator.
In Forex market there are strong relationships between the various currency pairs, they are called "related pairs". For example, there is a negative correlation between the euro/dollar (USD/EUR) and the Swiss dollar/franc: when the euro/dollar rises, the dollar/franc tends to fall and vice versa.
There are positively related currencies, i.e. exchange rates that move more or less in parallel: for example euro/dollar and pound sterling/dollar. Currency pairs with the Canadian dollar, Australian dollar and New Zealand dollar tend to be positively correlated.
Correlation measures the relationship between two variables:
They change over the days and months. Although some exchange ratios maintain their own historical coefficient of variability.
It is very interesting to identify situations where a change anticipates the movements of another cross. Here are some examples:
As for the correlations between couples, we can say that it is "renewed" in a constant way because of a phenomenon that takes the name of mean reversion.
The behaviour of the four most important exchange rates (euro/dollar, pound/dollar, dollar/yen, euro/yen) has a direct and immediate impact on both the equity and bond markets. In general, financial markets can be in two different situations:
On Forex, about 4 billion dollars are traded every day. The lion's share of the traded volumes of these exchanges is the Euro-USD (Eur/USD) exchange rate. Daily volatility is very high.
The correlations in Forex with the euro/dollar are increasing and are encouraging an increase in stock markets. While a strengthening of the dollar usually triggers a decline in equity markets. The euro tends to be positively correlated with financial assets, which are in turn negatively correlated with the dollar.
The euro/dollar exchange rate tends to be negatively correlated with the Cross ("currency pairs" or cross, the trader buys one currency and simultaneously sells another, the price is indicated in pairs of currencies, the first is the base currency currency currency, the second is the currency quotation currency - currency quotas), Usd//Chf and positively correlated with the Gbp/Usd.
During the European session, precisely from 8.00 to 18.00, the best time of day is that the euro/dollar exchange offers more trading opportunities.
Not every day is the same, generally:
On a daily basis, the euro/dollar exchange rate tends to be more volatile on Wednesdays. While intraday is more volatile during the European session.
Let us start with one point: the pound is very sensitive to crude oil and energy prices in general. That said, the pound/dollar exchange rate is called "cable", a volatile pair that statistically settles on a slow start on Mondays, and then rises on Tuesdays with major fluctuations. Given the high volatility, when working with this pair it is good to widen the stop losses.
We remind you that London is home to most market makers and bank dealers (precisely because the English capital is the seat of the world's leading banks).
The cable also allows you to split the day at different times:
The dollar/yen exchange rate is the reference pair for all XCs that include the yen. Central banks often intervene at this currency crossroads; Boj (Bank of Japan) often intervenes by buying yen, especially when the exchange rate falls below certain thresholds. Japan, being a major exporter, has every interest in keeping its currency weak.
The exchange rate in question is the least volatile on the market: it tends to take a precise direction during the hours when the European session overlaps with the American session (the hottest moments are therefore those of the early afternoon in Europe).
The importance of this exchange rate has been growing in recent years. Let us start with a very specific concept: we are talking about a relatively volatile pair. Prices move constantly throughout the day even though good movements are also noticed when European traders are not "active". In the European morning the exchange rate behaves reasonably. In the afternoon, when American exchange rates open, even major fluctuations are frequent.
The trading range or lateral trend, is an area of the graph delimited at the bottom by a support line and at the top by a resistance line. If you look at a long-term chart, you can see that price movements alternate periods of trend, bullish or bearish, with others in which they fluctuate in a more or less large area.
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