Probably a stupid question…
If GBPUSD and EURUSD are positively correlated, which direction would EURGBP move?
Hello ziggy…
Synthetic pairs are a fusion of two pairs, thus, for example,
GBP/JPY is a fusion between GBP/USD and USD/JPY:
Creating Synthetic Pairs | Currency Crosses | High School
Therefore, if GBP/USD went up on GBP strength, EUR/GBP would fall;
if, however, GBP/USD went up on USD weakness alone, but had no drive from the GBP side, then
it is likely that USD weakness would also let the EUR/USD rise… However, in this case, as the GBP
had not strength of its own, EUR/GBP may or may not do much, given that the USD weakness would
not be at play…
At the moment, according to this
Forex Correlation | Currency Correlation Chart | OANDA fxTrade Europe
EUR/GBP has a strong positive correlation to GBP/USD on a daily, weekly, monthly, and yearly scale, and a strong negative correlation to EUR/USD on a daily and three-monthly scale.
I hope this helps?
Happy trading.
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The pair moves depending which currency is stronger the Euro or the Pound. Just a heads up this pair costs more to trade.
If US dollar weakness is in play, both pairs could move upwards. But if GBP/USD has a stronger rally while EUR/USD’s climb is slower, then EUR/GBP will move down.
Thanks you all for the clarification. Makes perfect sense now.
One more thing: I was watching the EUR/GBP and the EUR/USD as well as the GBP/USD during Thursday’s
ECB rate decision, Draghi press conference, and NFPs, and EUR/USD moved in tandem with EUR/GBP,
which in turn (of course) moved in the opposite direction to GBP/USD…
Sometimes watching charts live for related pairs gives you an idea of how they react to events… However,
it is not always the case that the way they interact with each other (moving in parallel or not) on one occasion will
then also be true in all conditions… Currency correlation is a great
field of study, and doubling up on exposure to a currency by trading related pairs can be useful,
depending on the opportunities afforded by that currency when paired up to
different currencies: e.g. trading a EUR/JPY unwinding from its lofty heights could be one opportunity in
parallel with a EUR/GBP bought from a very low level (e.g. 0.75) to the upside… They may have the ‘Euro’
tag in common but they are in very different situations… However, if you wanted to avoid doubling up on
Euro exposure like this, maybe you would, in this case, trade EUR/GBP and a different Yen cross, say,
NZD/JPY which is also ‘overbought’ like the EUR/JPY…
I hope this helps!
The Euro and Sterling are not so much correlated anymore, I recently read an article about this. The UK is on a roll, the Eurozone is still muddling through.
Just be careful about obtaining bias from “articles”.
Articles are media, and media is the lifeblood smart money participants exploit in order to make moves in the FX market.
For every 3 articles you find about the EUR in trouble, you can find 3 more focusing on positive aspects which paint a rosey picture. Just how you can read about a currency analyst at Daily FX who thinks the EURO is going to 1.5 and another currency analyst at MarketWatch who thinks the EURO is going to 1.25.
The major players in the spot market control the majority of the market and simply accumulate and distribute currencies to investors, retailers and other market participants. Regardless of what the news says, their inventories of a currency and where price is currently trading will dictate how they act. The big money players will always be selling into strength and buying into weakness. 90% of retailers will be doing the exact opposite- buying into strength and selling into weakness; exactly what the smart money “needs” to happen.
This is why a high-impact news event may seem to be bullish for a currency pair, but shortly after a bullish spike price quickly retreats and actually sells off hard. This is the major banks selling into strength. They need retailers to be fearful and sell and to be greedy and buy. These two emotions dictate everything.
I applaude you, Jake! Well said…
I agree completely with this but you can check the correlation between pairs yourself. The DAILY correlation between EUR/USD and GBP/USD is at the moment 2.5 which means there is hardly any correlation at all. The daily correlation between EUR/USD and USD/CHF is minus 96.6 which means they are highly correlated (of course in the opposite way for these pairs).
I can’t place any links because I have not enough posts but take a look at forexticket.com and then “forex correlation”.
Hi Molby, I’m well aware of the correlations 
I was commenting on the “third-party bias” aspect of trading.
The original comment “The UK is on a roll” is a buzz phrase designed by the media to catch the eye of weak traders/investors who employ capital in the markets solely off emotion and ill-guided decision making.
Price and volume are the true indicators of professional sentiment, not any article. 
[B]Be equally as careful about obtaining market theory from “forum participants stating their opinions and questionable concepts as fact”.[/B] Especially regarding “smart money” needing to pick the pockets of “retail traders”.
Because of the structure of the FX market, retail trading sitting at the bottom of the hierarchy of the spot market, “real money” doesn’t much care about “retail traders”.
Does anyone seriously think “The People’s Bank of Panda” and “The Putin National Credit & Loan” are attempting to short squeeze and trap retail traders? :56:
Yo d-pip !
Thanks for commenting
You’re spot on here- One person telling a rookie not to listen to media, whilst trying to inject their own perspective on the rookie doesn’t accomplish much. 
But, it’s my opinion and I’m standing by it.
Professionals do care about retail accounts as a collective.
I’ve read many books which logically illustrate the underlying reasons, such as providing liquidity.
The underlying principles of accumulation and distribution drive every single market on Earth.
Factor in emotions, the ability to control the media (i.e. central bankers making speeches, major brokerages recommending trades, news releases, etc) and you have yourself a system which remains highly unchanged since the earliest days of trading.
Professionals will always be selling to the herd during distribution phases, and buying from the herd during accumulation. They’ll constantly assess market conditions, and unload or amass more inventory as necessary.
The principles of VSA, I feel, pretty much explain the markets as best as I’ve ever seen, and I’d be hard-pressed to find anyone who could intelligently dispute the concept.
Take it easy,
Jake
LOL, you found someone!
What your saying makes sense and seems logical if we were talking about instruments that trade through a centralized exchange but… We don’t have accurate information on what percentage of the FX spot market daily/weekly volume is traded at the retail level, 5% to 12% seems to be the current best guess.
As far as volume on the FXCM platform, as helpful as some seem to find it, all you’re seeing is one broker’s retail volume, not interbank “real money” transactions. A major player could be selling a very large pile of USD/JPY or accumulating a huge GBP/USD position and we would never see it at the retail level.
We also don’t know what percent of the retail orders actually get passed up providing any liquidity at the interbank level, if any. After carefully reading most retail broker’s agreements it’s hard to believe much gets passed on. Some large orders might get passed up to a mid-level liquidity provider, but our retail orders aren’t likely to pop up on the interbank order books.
And perhaps one of the largest unknowns, happens at the interbank level behind closed doors, we don’t know how sovereign banks like “The People’s Bank of Panda” and “The Putin National Credit & Loan” are playing the geo-political game.
Are the Russians slowly & quietly, (under the radar without spiking volume) selling USD and buying EUR, GBP, AUD, CAD, NZD, etc. solely because of political reasons and not for trading profits, and at what volume? Is Panda long or short EUR? As retail traders we don’t know what these and other large major players are really doing, and at what volume they’re doing it, do we?
So, did I intelligently dispute the concept? LOL!
Agreed- my point was that their market share isn’t 0% and on the high end of your provided estimate can actually be significant and relevant. Couple those figures with the remaining groups of investors, hedgers, etc and you have a group of non-professional participants constantly losing money @ rates commonly-accepted upon well near 80-90%.
Agreed! Which is why I use tick volume!
If a major player were selling a very large pile of USDJPY or accumulating a huge GBPUSD position, all the necessary footprints of such actions would be reflected in the tick volume and corresponding price spreads. Whether they were aggressively putting on positions, or slowly building up- they can’t hid from tick volume coupled with price spread (i.e. VSA).
True, hard to really deny any of that!
The underlying reason is of little concern, as we both know that central banks and professionals will use the media to induce emotions which lead to volatility in the markets. The only thing which matters is being able to read price action and it’s corresponding volume (tick activity). Coupled with Supply/Demand tactics, basic technical analysis, and a simple stochastics indicator- they can’t hide from me!! 
Same thing- the true volume isn’t available to us in the spot market. If I were trading futures, it’d be a different story- but, I’m not. The tick volume is all I’ll need.
Even if the tick data is slightly different than another broker- it doesn’t matter because I’m still comparing apples-to-apples. Volume analysis is comparative- so, as long as the tick data coming across from a major broker is decent, and a trading strategy is profitable given the provided data- there’s no need to fix it if it ain’t broken!
And yes- you did intelligently dispute the concept- respectfully as well!
Which is why I enjoy this community and members like you.
Open debate is essential to the learning process.
Looking forward to any other response,
Jake
There has been some research completed on FX spot volume over this past years.
The phenomenon of ‘portfolio rebalancing’ is recognized as forming a sizable portion of the trillions, or as Lyons(2001) or Klitgaard & Weir (2004) referring to this as the ‘passing of the hot potato’.
Lyons’ example attempts to explain that an initial order of 10m can lead to 90m of volume after portfolio rebalancing.
Klitgaard & Weir argue that the futures market in FX being substantially lower in volume can nevertheless be used for analysis when this rebalancing in spot is taken into account.
Klitgaard & Weir (2004):
Sure they can hide, they do it everyday!
If Honda Motor Company placed an order through a top level interbank bank such as Deutsche Bank, UBS, Citigroup, etc to sell a “BIG” pile of USD/JPY, it wouldn’t show up anywhere on any retail platform’s tick volume. Only Honda and the bank would know the size, rate and spread of the transaction.
PS Honda’s order might show up as a “BIG” price spike, but not on tick volume.
Getting more difficult to hide nowadays.
Honda placed their order with DB, they are exchanging their ‘in stock’ USD’s for Yen at current quote, Honda are removing the risk of those USD’s falling in value against their required Yen.
DB have just assumed that risk - the DB Risk Control Centre in Berlin, newly opened in 2011, are immediately alerted. The Risk Control Manager (who btw gets the blame for the abdication of risk management by front line staff, by none other than DB’s Chairman, Paul Achleitner, last month !!) shouts -
The risk has to be hedged guys… over to the futures please, and call up some swap dealers …Deutsche Bank AG or DB Energy Trading, both registered swap dealers with the CFTC, will do nicely.
Risk Control Centre still not happy - more hedging … now I see what Lyons was on about a hot potato.
Meantime all this hedging is putting up volume and now we see a spike in price, and in comes Dodd-Frank looking for disclosures, and then to cap it all Adam Button has just posted ‘talk of a large corp sell in USD/JPY’ in Forexlive.
BTW just for learner traders, this is Dodd-Frank
Dodd–Frank Wall Street Reform and Consumer Protection Act - Wikipedia, the free encyclopedia
EUR/GBP was in a strong and consistent downtrend during the recent days that sellers were successful in obtaining the lowest price of 0.78879. price with reaching to the supportive level which is shown in the picture below ( made of 2 bottom prices) and the important support level of 161.8 has stopped from more descend ( sellers used this level to exit their trades) and with formation of a bottom price in H4 time frame has prepared a field for ascending of price. Currently in 4H time frame with formation of Morning Star Pattern with 4 stars (the failure of sellers in reaching to the lower prices) price has been stopped from more descending and there is a possibility of formation of a bottom price and finally ascending of the price.
According to the formed movements in the price chart, between the top price of 0.80327 and the bottom price of 0.78879 there is an ideal AB=CD harmonic pattern with the ratios of 61.8 and 127.2 that warns about changing price direction and price reformation. Stoch indicator is in saturation sell area and confirms the D point of this pattern by the next cycle and warns about the potential of ascending of the price during the next days. Generally until the price level of 0.78879 is preserved, the price has the potential for ascending and reformation.
Technical Analysis of EUR/GBP dated 2014.07.17
