SUMMARY 11 - lstinvesting.com


Gold vs. FOREX
Gold has an inherent value, representing a much safer retreat while the risk aversion is high.
USD has a negative correlation with XAU.
Gold price appreciation leads to gold exporting countries’ currencies appreciation and gold importing countries’ currencies depreciation. Also, gold price has a positive correlation with currencies of those countries which have significant reserves of gold (CHF).

Oil vs. USD/CAD
Oil has a significant place in FOREX. Its price strongly influences USD/CAD parity becouse Canada is a major oil exponent to the US. When oil price goes up CAD appreciates against USD.

Bonds vs. FOREX
Bonds are interest-bearing debt securities up to their maturity, being considered a safer investment.
Bonds’ interest rate – also known as the "coupon payment" - determines their yield - inversely proportional to the market interest rate.
Government bonds (have specific names), although have a lower yield, are considered safer, being issued and guaranteed by the government.
For bonds with the same maturity period: their yield can serve as an indicator of the issuing states’ currency appreciation/depreciation in Carry trade – trading a currency with high yield government bond against a currency with low yield government bond.

FOREX vs. Stock Market
Success of a financial centre ↔ appreciation of the national currency.
Thus, we can use Stock indicators to predict currency evolution.

  • for USD - DOW, S&P 500, NASDAQ
  • for JPY and Asian pairs - Nikkei 225, Hang Seng
  • for Euro Zone - Dax, DJ EURO STOXX 50
  • for GBP - FTSE


Currency correlations – on a scale from -1 to 1 – measure to what extent currency pairs move simultaneously in opposite directions, independently of each other, or in the same direction. Knowing currency correlations helps avoiding a double risk by simultaneously trading two strongly correlated pairs and to identify fake breakouts (positive correlated pairs should act in the same way as the one we want to trade and vice versa).

 


STRONG POSITIVE CORRELATION

STRONG NEGATIVE CORRELATION

EUR/USD - GBP/USD

EUR/USD - USD/CHF

AUD/USD - NZD/USD

USD/CAD - AUD/USD

EUR/USD - NZD/USD

GBP/USD - USD/JPY

EUR/USD - AUD/USD

GBP/USD - AUD/USD

USD/CHF - USD/JPY

USD/JPY - AUD/USD
 
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