Euro vs Dollar : Correlation
Currencies and currency pairs such as the euro vs dollar correlate
against a
variety of commodities, markets and economic factors and for the trader
or investor it is important to understand these relationships for two
reasons. Firstly as an investor in other assets, whether these are
commodities such as gold or oil, or market assets such as stocks, bonds or
commodities, the strength or weakness of a currency can dictate the
likely performance of the assets. Secondly, if two assets or currencies
correlate, they offer ideal opportunities for hedging risk.
I have looked at correlation with other assets such as gold and oil on another site about the dollar vs euro. Here I will be looking in detail at how the pair correlate with other currency pairs.
Euro vs Dollar : Correlation With Other Currencies
Below is a table of the eur vs dollar pair correlated with 9 other major currency pairs, on a daily basis. If you would like a more detailed explanation of correlation please follow the link here : currency correlation
| EUR/USD | GBP/USD | USD/CHF | USD/JPY | EUR/GBP | EUR/CHF | EUR/JPY | GBP/CHF | GBP/JPY | |
| EUR/USD | +31.90 | -94.50 | -82.40 | +20.00 | -68.30 | -44.50 | -39.30 | -34.50 | |
| GBP/USD | +31.90 | -22.30 | -07.50 | -86.40 | -04.30 | +14.80 | +71.80 | +70.20 | |
| USD/CHF | -94.50 | -22.30 | +93.80 | -27.00 | +88.50 | +67.10 | +51.80 | +50.00 | |
| USD/JPY | -82.40 | -07.50 | +93.80 | -35.70 | +91.80 | +87.30 | +60.30 | +65.70 | |
| EUR/GBP | +20.00 | -86.40 | -27.00 | -35.70 | -31.70 | -38.60 | -95.00 | -90.70 | |
| EUR/CHF | -68.30 | -04.30 | +88.50 | +91.80 | -31.70 | +86.40 | +59.50 | +62.40 | |
| EUR/JPY | -44.50 | +14.80 | +67.10 | +87.30 | -38.60 | +86.40 | +61.00 | +73.70 | |
| GBP/CHF | -39.30 | +71.80 | +51.80 | +60.30 | -95.00 | +59.50 | +61.00 | +97.30 | |
| GBP/JPY | -34.50 | +70.20 | +50.00 | +65.70 | -90.70 | +62.40 | +73.70 | +97.30 |
If we look at the above chart in more detail we can see that the only currency pairs that correlate with with EUR/USD at the moment are the dollar Swiss, and the dollar yen. I have excluded all other data, as anything below 0.80 ( either negative or positive) correlation has little meaning. As you can see both correlate negatively which means that as the EUR/USD falls the other pairs will rise, and visa versa.
It is important to bear in mind that correlations vary, and over long periods, pairs will move both in and out of correlation. Normally, the GBP/USD correlates positively and strongly with the EUR/USD, but over the last few months this has not been the case as we can see from the above. One pair that remains very constant is the USD/CHF, a synthetic pair, which is derived from the EUR/USD and EUR/CHF. This pair always correlates extremely well with the EUR/USD, and is often used by traders in hedging positions in other currencies, particularly the EUR/USD and the USD/JPY.
For my own trading and investing I base decisions on the daily, weekly, and monthly correlation figures, in order to get a long term view of the likely future correlation between the pairs.
OK, now let's look at some frequently asked questions about the euro vs dollar currency pair.