Forex Correlations: How Currency Pairs Move Together

Correlation measures how two currency pairs move relative to each other, on a scale from +1 (they always move in the same direction) to −1 (they always move in opposite directions), with 0 meaning no consistent relationship. Pairs that share a currency are often strongly correlated: EUR/USD and GBP/USD usually rise and fall together, while EUR/USD and USD/CHF usually move opposite. Understanding this stops you from taking what looks like three trades but is really one large bet on the dollar.

Why currency pairs move together

Every pair contains two currencies, and the 28 pairs of the eight majors are built from the same eight currencies. When the US dollar strengthens broadly, all seven dollar pairs move at once: EUR/USD, GBP/USD, AUD/USD and NZD/USD fall, while USD/JPY, USD/CHF and USD/CAD rise. Shared economic links add more structure:

• EUR and GBP: neighbouring European economies, often affected by the same news.
• EUR and CHF: Switzerland's economy is tied closely to the euro area.
• AUD and NZD: commodity-linked, close trading partners, both sensitive to Chinese demand.
• CAD and oil: Canada is a large oil exporter, so the Canadian dollar has often moved with crude prices, though this link has varied a lot over time.
• JPY and CHF: both have tended to act as safe havens in risk-off periods.

Typical relationships

Pair A	Pair B	Usual sign	Why
EUR/USD	GBP/USD	Positive	Both are "other currency vs dollar"; European links
EUR/USD	USD/CHF	Strongly negative	Dollar on opposite sides; CHF tracks EUR
AUD/USD	NZD/USD	Strongly positive	Similar economies and drivers
EUR/USD	USD/JPY	Often negative	Dollar on opposite sides; weaker because the yen has its own drivers
USD/CAD	Crude oil	Often negative	Higher oil tends to support the Canadian dollar

These are tendencies, not laws. The strength of each relationship varies from year to year, and some flip sign for months at a time.

How to measure correlation

Use returns (daily or weekly percentage changes), not price levels. Two pairs that both trended up over a year can show a high correlation in levels even if their daily moves are unrelated.

Use a rolling window (for example the last 60 days, recalculated each day) to see how correlation changes. A correlation that swings between +0.2 and +0.9 over a year is far less reliable than one that stays near +0.8.

Correlation and your risk

This is where correlation matters most.

Rules of thumb many traders use:

• Treat positions with correlation above about +0.7 as one position for risk purposes and split your normal risk between them.
• Count your exposure by currency: three trades that are all "short USD" are a 3x dollar bet. We build a full exposure table in Portfolio Risk and Correlation.
• Opposite trades on strongly negatively correlated pairs (long EUR/USD and long USD/CHF) mostly cancel out. You pay two spreads and two swaps for very little net position. If you want less risk, trade smaller rather than "hedging" this way.

Correlations break, especially in stress

Correlations also shift when central banks diverge. If the Bank of England is raising rates while the ECB is cutting, EUR/USD and GBP/USD can separate for months, even though they usually move together.

Using correlation constructively

• Confirmation: if EUR/USD breaks out but GBP/USD and AUD/USD do not move, the move may be euro-specific, not a dollar trend. That changes how much weight you give it.
• Choosing between pairs: if you want to express a "weak dollar" view, choose one pair (or split the risk), not all of them.
• Diversifying: pairs driven by different forces, such as a yen cross and a commodity-currency cross, can add genuine diversification, as long as you remember stress can link them.

You can compare the daily moves of all 28 major and cross pairs on the forex market page. In the next section we turn knowledge into risk control, starting with Position Sizing.