Normally, when trading in the forex market, you expect certain currency markets that have similar currencies to behave in the same manner; this is not always the case. An example is Eurusd and Gbpusd markets, both markets have the dollar in their combination so it is generally expected that if Eurusd is going up, then the Gbpusd market should also be going up.
This is what is referred to as positive correlation between two markets. The common factor in both markets is the United States Dollar, so both markets (Gbpusd and Eurusd) are expected to react in the same way to the state of the dollar. A scenario where the dollar is making gains, then both markets would be expected to be heading down, and if the dollar is experiencing losses, both markets would be expected to go upwards.
On most brokers, their correlation tables always show a strong positive correlation between the Gbpusd and Eurusd markets.
Even the charts support this theory, with both markets moving in similar fashion over an extensive period of time.
Does this mean it is a good idea to buy Eurusd, every time we buy Gbpusd? Since they have such a good positive correlation, taking long positions on both markets would …
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