The Top Correlations In The Forex Market?
The strongest cross-asset correlation between equities and currencies has to deal with risk sentiment, getting to know risk sentiment can open up plenty of trading opportunities on a regular basis.
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Just quickly following up on a question from a subscriber asking what are the most significant or important Forex trading currency correlations?
Now, these correlations as we'll talk about is much more significant than just a simple heat map showing cross currency correlations. In this video we'll look at what fundamental, or let's call it macro economic correlations we can observe in the major currencies. Now the first one is a topic that we've talked about many, many times before and that is of course risk sentiment.
Now they are essentially two types of currencies that are sensitive and correlated to changes in the risks, they're namely high beta currencies, and then of course, safe haven currencies. Now the Aussie, the kiwi, the CAD, and normally your emerging market currencies like your ZAR, your Mexican peso, Russian ruble, and Chinese yuan are considered as high beta currencies that are expected to appreciate during risk on sentiment, and they're expected to depreciate during risk off sentiment. And then we also have currencies like the Swiss franc, Japanese yen, and US dollar, which are considered safe haven currency.
So they're expected to appreciate during risk off sentiment, and expected to depreciate during risk on sentiment. Now this is one of the most important currency correlations to understand from both a macro fundamental, but also a very short term sentiment point of view as well. Then we also have currencies that are correlated to certain commodities, or exports.
Now keep in mind, some of the high beta currencies are often referred to as high beta, which alludes to the fact that they have a higher volatility. And the reason for that is mostly due to the dependence or correlation to specific commodities, which themselves are considered as risky and more volatile acids. Now certain currencies can be influenced and correlated to certain commodities due to the export dependency. For example, countries that export large amounts of a specific commodity will usually have a strong dependency on that commodity in terms of the economy, and can obviously thus influence the currency as well. Now, some of the most significant ones are Canada, let's just quickly get an example for you guys on the screen of Canadian exports. And a good example Canada with the dependence on mineral products, which accounts for about 24% of total exports, and oil making up about 14% of total exports on its own.
Now, this will also heavily apply to other oil producing countries. Another example of that would be would be Russia, we can see in terms of Russian exports oil itself contributing 28% of total exports there. Also another example would be Norway. Another big oil producer. You can see for Norway 26% of exports is crude, and another 26 is petroleum gas. So very, very oil rich countries, which is why we normally see the Norwegian kroner, Russian ruble, Canadian dollar all react strongly towards moves in terms of the oil prices.
The important thing to remember about these correlations are that they shouldn't really be traded in a vacuum. So it's never just one thing moving the market or one thing moving a currency.
Yes, correlations are important and can certainly act as a primary driver, but they're always just one part of the bigger story so to speak that we need to keep in mind.
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If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
Just quickly following up on a question from a subscriber asking what are the most significant or important Forex trading currency correlations?
Now, these correlations as we'll talk about is much more significant than just a simple heat map showing cross currency correlations. In this video we'll look at what fundamental, or let's call it macro economic correlations we can observe in the major currencies. Now the first one is a topic that we've talked about many, many times before and that is of course risk sentiment.
Now they are essentially two types of currencies that are sensitive and correlated to changes in the risks, they're namely high beta currencies, and then of course, safe haven currencies. Now the Aussie, the kiwi, the CAD, and normally your emerging market currencies like your ZAR, your Mexican peso, Russian ruble, and Chinese yuan are considered as high beta currencies that are expected to appreciate during risk on sentiment, and they're expected to depreciate during risk off sentiment. And then we also have currencies like the Swiss franc, Japanese yen, and US dollar, which are considered safe haven currency.
So they're expected to appreciate during risk off sentiment, and expected to depreciate during risk on sentiment. Now this is one of the most important currency correlations to understand from both a macro fundamental, but also a very short term sentiment point of view as well. Then we also have currencies that are correlated to certain commodities, or exports.
Now keep in mind, some of the high beta currencies are often referred to as high beta, which alludes to the fact that they have a higher volatility. And the reason for that is mostly due to the dependence or correlation to specific commodities, which themselves are considered as risky and more volatile acids. Now certain currencies can be influenced and correlated to certain commodities due to the export dependency. For example, countries that export large amounts of a specific commodity will usually have a strong dependency on that commodity in terms of the economy, and can obviously thus influence the currency as well. Now, some of the most significant ones are Canada, let's just quickly get an example for you guys on the screen of Canadian exports. And a good example Canada with the dependence on mineral products, which accounts for about 24% of total exports, and oil making up about 14% of total exports on its own.
Now, this will also heavily apply to other oil producing countries. Another example of that would be would be Russia, we can see in terms of Russian exports oil itself contributing 28% of total exports there. Also another example would be Norway. Another big oil producer. You can see for Norway 26% of exports is crude, and another 26 is petroleum gas. So very, very oil rich countries, which is why we normally see the Norwegian kroner, Russian ruble, Canadian dollar all react strongly towards moves in terms of the oil prices.
The important thing to remember about these correlations are that they shouldn't really be traded in a vacuum. So it's never just one thing moving the market or one thing moving a currency.
Yes, correlations are important and can certainly act as a primary driver, but they're always just one part of the bigger story so to speak that we need to keep in mind.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
