Imagine currencies as characters in a Netflix drama—some are allies, some are enemies, and their relationships shape the market's plot twists! In this guide, you'll learn how Forex correlations work, why AUD and gold are BFFs, and how to trade these hidden links like a pro. Let’s unravel the web of currency relationships!

Why Forex Correlations Matter

Currencies don't move in isolation. They're influenced by economies, commodities, and geopolitics. Understanding correlations helps you:

• Avoid doubling risks (e.g., trading EUR/USD and GBP/USD blindly).
• Spot hedging opportunities.
• Predict domino effects (e.g., oil prices → CAD → USD).

Types of Forex Correlations

1. Positive Correlation: The "Copycats"

What It Means: Two pairs move in the same direction.

Examples:

• EUR/USD & GBP/USD: Both are USD-based; often rise/fall together.
• AUD/USD & Gold: AUD is tied to gold exports (gold up = AUD up).

2. Negative Correlation: The “Frenemies”

What It Means: Two pairs move in opposite directions.

Examples:

• EUR/USD & USD/CHF: EUR/USD up = USD/CHF down (they invert USD).
• USD Index (DXY) & Gold: Dollar up = Gold down (usually).

3. Commodity-Linked Currencies

Key Pairs:

• AUD/USD: Tied to gold & iron ore.
• USD/CAD: Tied to oil.
• NZD/USD: Tied to dairy exports.

How to Use Correlations in Trading

1. Hedge Your Bets: Go long EUR/USD and short GBP/USD if they're highly correlated.
2. Diversify Smartly: Avoid trading multiple correlated pairs (e.g., EUR/USD + GBP/USD).
3. Watch for Shifts: Correlations change! Monitor them monthly.

Tools to Track Correlations

• Correlation Matrix: Shows real-time relationships (e.g., on TradingView).
• Economic Calendars: Track commodity reports and GDP data.
• Deriv’s Platform: Monitor live pairs with built-in tools.

Interactive Section: Correlation Detective Quiz!

Think you can spot the connections? Let’s find out!

What’s Next?

Now that you've cracked currency connections, let's track your progress!