One of the biggest traps in forex is thinking you’re “diversifying” when really, you’re just doubling your risk. Correlations between pairs are the shortcut most traders overlook, and ignoring them can wreck a strategy.
This isn’t about being a math genius; it’s about noticing which pairs tend to move together, and which ones don’t.
Here’s what you need to know:
1. EUR/USD and GBP/USD – The Classic Twins
These two pairs move almost in sync because both are heavily tied to the U.S. dollar. If EUR/USD is climbing, chances are GBP/USD is too. That means going long on both isn’t two trades, it’s basically one trade with double exposure. A win feels bigger, but so does a loss.
2. USD/JPY and U.S. Yields
Unlike the “twins,” USD/JPY dances to the tune of bond yields.
When U.S. Treasury yields climb, USD/JPY usually follows. When yields fall, yen strength often comes back. Watching the 10-year note alongside this pair is a shortcut to understanding its moves.
It’s not just currencies. AUD/USD often tracks iron ore prices, and USD/CAD is tightly linked with oil. If crude is ripping higher, shorting CAD blindly is asking for trouble. These relationships aren’t perfect, but they’re strong enough that traders who ignore them often get blindsided.
4. Why Correlations Save Your Risk
The biggest benefit of tracking correlations is risk control. If you’re long EUR/USD and GBP/USD at the same time, you’re effectively doubling down on a single bet against the dollar. A better play might be splitting exposure, one dollar pair and one cross, so you’re not trapped by the same driver.
My Takeaway
Correlations aren’t a fancy add-on, they’re basic survival. If you ignore them, you’re not diversifying, you’re just multiplying the same risk.
You can actually find tools like correlation matrices on MyFXBook or TradingView. It makes it easy to see the links in real time. The market already gives you these shortcuts, the edge comes from paying attention.