Sometimes it is useful to see how correlated a currency pair is to its related commodity. If you understand what is happening with the supply and demand of the commodity, it can help you predict the price movement of the related currency pair.
To see a short list of commodities that are usually highly related to currency pairs (and why), read this post. There are actually more, but those are the major ones.
I provide a list at the end of this post.
Even though a country's economy depends heavily on a commodity, its currency will never move in total unison with that commodity. Obviously, this is because there are so many factors that determine the value of a currency, not just the price of its major exports or imports.
Things like wars, economic health of the country and political climate can also affect Forex prices. In addition, one currency in a pair may be highly correlated, but they other may not be.
But that's not all. It can also be useful to see the correlation between two currency pairs.
For example, if the other EUR pairs are moving up, but the EURUSD hasn't moved yet, that could be a sign that it is a good time to go long the lagging pair. That's just one idea.
So how to you see this Forex correlation?
It is actually quite simple.
In this post, I'll show you how to do it and you can even play around with some live charts yourself.
How to See Forex Correlation Between Markets and Other Pairs
The easiest way that I know to do this is to use TradingView to overlay charts. Watch the video below to see how to do it. If you want the text version, it is provided below the video.
To compare two markets, start by heading over to the TradingView homepage. At the top of the screen type in the currency pair that you want to examine in the search box and hit Enter on your keyboard.
In this example we are looking for the Canadian Dollar vs Japanese Yen, so type in CADJPY and TradingView will pull up the chart automatically.
This will take you to chart of that pair. Next, click the Compare button at the top. If you are on a laptop or a larger screen, you will see the word “Compare.” If you are on a mobile device, you will see the scale icon.
Then the symbol search box will come up. Simply search for USOIL to get the chart for US WTI Crude Oil and make sure that the Overlay the main chart box is checked.
Now you will see the CADJPY chart as a candlestick chart and USDOIL as a bar chart on the same chart. Since the CADJPY chart is the primary chart and the Oil chart is the overlay, the chart scale will be for CADJPY.
Now you can see how closely the price of the CADJPY follows oil. To delete the oil chart, simply click on the bar chart to highlight it, then hit Delete on your keyboard.
Looks pretty correlated to me 🙂
Try it For Yourself
Alright now it's your turn…
Which market correlations do you want to see? This is a live chart, so play with it and see for yourself. If you are on a smaller device and this chart looks weird for some reason, click here to visit the TradingView site and see a full-sized chart.
Conclusion
That is the easiest way that I know of to see Forex correlation between commodities and other currency pairs. Since correlated markets are not always in sync, it is useful to understand how correlated they currently are to get a better idea on how to trade them.
To see an extensive live list of how certain currency pairs are currently related to different markets, take a look at this table.
How do you currently do it? Let us know in the comments below…
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