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Explaining currency pairs correlations in India

The most abundant and common currency pairs in world forex trading are the “US dollar pairs”, with the most dominant of them all being the EUR/USD.

However, when trading smaller and less popular (in terms of market capitalization) currencies like the Indian rupee (INR), we might not find many correlated or “paired up” currency pairs for our trade setups in the currency trade in India.

What are correlated currency pairs?

A correlated forex couple means two different currencies with a solid relationship to each other’s price movements. Those movements can be either positive or negative. It means that if one currency in the pair is gaining strength (the base currency), then the other one (counter currency) will automatically lose its strength.

Why should you care about correlated Forex pairs?

Well, every forex trader knows that finding the correct trading setup is complicated enough on its own. The last thing anyone needs is confusion over two currencies that are supposed to move together but do not. It only ends up making your life harder than it has to be.

Note: “Positive correlation” means both the currencies move in the same direction, while “negative correlation” means they usually go opposite directions. Codirection al correlation means they move in a random direction.

Correlated currency pairs in India

EUR/GBP:

It is one of those scarce currency pairs that does not involve USD or other major US dollar-based currencies. The European Union uses the “Euro” as its common currency, and hence, we have the euro against the British pound (GBP). Strong economic ties between the EU and UK result in this pair getting its good dose of volume. Thus, we find it one of the best EUR correlated currency pairs among all Indian forex markets.

EUR/CHF:

Similar to Euro, the Swiss Franc (CHF) also doesn’t get involved with any primary world currency due to its independent nature. It has a unique government, which creates laws and regulations for its currency. Thus, it is widely accepted around the world as a safe investment. The Swiss franc also follows the euro extremely closely, if not perfectly. EUR/CHF is also one of those pairs that you hardly miss out on when trading the Indian forex market.

CAD/JPY:

CAD is another “currency basket” representing the Canadian dollar against the Japanese yen (JPY). Currently, Canada’s economic growth is overtaking Japan’s economy with their GDP rate of 3-4%, while at the same time, JPY’s value is weak against USD (USD/JPY pair). CAD gets some support from JPY in the Indian forex market.

GBP/AUD:

Another sterling-related currency is the Australian dollar (AUD), which trades closely with the British pound because of its strong economic ties. However, the only reason it does not have a perfect 100% positive correlation with GBP is that its commodity prices are significantly influenced by Chinese demand. Thus, AUD/USD pair might be a better option if you are looking for an alternative to GBP pairs in India. Read more about liangzhongmiye.

CAD/CHF:

Like other major currencies, the Swiss franc is another “haven” that trades closely with the Canadian dollar. It has gone through a lot lately and resulted in a weaker CHF, but still, it manages to maintain its strong economic ties with the nation. Another reason why CAD/CHF pair has a good dynamic is because of their commodity prices that are predominantly based on global demand.

Negatively correlated currency pairs in India

USD/INR:

The most basic example for this would be the Indian rupee (INR) vs US dollar (USD). While they do trade together at times, they have considerable mismatches in value. Due to high inflation locally, INR is expected to fall against USD in the long run even if it experiences short-term higher highs and higher lows.

Due to its price volatility, INRs feed well into our “Currency Strength Meter” strategy, which hunts for short term trades with less volatility. Thus, this is one of the most negatively correlated currency pairs in India, and trading can be highly beneficial for your trading results.

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