As a newbie to forex I have a question open to anyone with thoughts on the matter;
I’ve noticed that up until the end of last year EURUSD and GBPUSD shared a fairly close correlation with each other. Since the beginning of this year however they seem to have fallen out like a pair of moody siblings! Is it normal for them to flip in and out of a loose correlation? Is there an increased tendency for corrections towards correlation when they diverge? At the moment I have an open long trade on the Fibre and am considering a short on Cable if it shows signs of resuming its downtrend (both through daily charts) but are simultaneous short and long positions on the Fibre and Cable to be avoided??
Any wisdom, thoughts, musings etc gratefully received.
Technical and fundamental - I see no reason for confidence in GBP strength based on economic news over recent weeks (talk of credit rating downgrade, triple dip rec. etc) plus Euro seems to be gradually posting better news. Greenback has had mixed news recently I know, with more to come - could shift the consensus completely. Technically, the Cable looks like a great retracement entry with a Fibo level coinciding with the 200 SMA, though it’s close to rising support on weekly chart.
I am trying to learn a bit about correlation at the moment (so sorry for noobie response). I am bearish on the cable as well, just started looking into correlation with a few other pairs. Judging by your charts though, the cable is a going through a deep pull back in terms of correlation with the euro. It seems the turning point was Dec/Jan when some of the fundamentals looked poor for the cable. In saying that though, the euro has had a pullback with same amplitude in Jul 12 (eyeballing your charts)
The two pair are correlated in that they both share the US dollar index. Check out the euro/gbp to see what is happening between the two specific currencies. If there is a strong move in this pair it means the pound and fiber may be breaking out of correlation.
PS watch out with any open trades going into tomorrow. NFP can really rock the markets.
There is nothing wrong with trading on simultaneous short and long positions on the Fibre and Cable, just as long as you are following your trading plan.
However, do note that currencies such as EUR, GBP, AUD, NZD and CAD are referred to as risk currencies. They tend to move in similar direction when the market is experiencing a ‘risk on’ effect - that means more risk-taking. But of course the currencies can deviate from each other now and then as there are factors such as the country’s GDP, interest rate etc that can also influence the currency.
