The term correlation is generally used in statistics, but in the forex market, it helps us understand the mutual relationship between Forex currencies, commodities, and indices.
There can be a positive or negative correlation between trading instruments. Positive Correlation: There is a positive correlation when the prices of both instruments move in the same direction. For instance, the EUR/USD & GBP/USD has a positive correlation.
Negative Correlation: There is a negative correlation when the prices of both instruments move in opposite directions. For instance, the EUR/USD & USD/JPY have a negative correlation.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.