If you think the euro will lose value versus the Australian dollar then you would take a short position by selling CFDs. The euro to AUD currency pair combines the 2nd and 5th most traded currencies, respectively . It is a versatile currency pair that is sometimes considered a barometer for global risk. The pair tends to drift lower in periods of high risk and higher in periods of low risk. Currency correlation tells us whether two currency pairs move in the same, opposite, or totally random direction, over some period of time.
The charts give precise details on the correlation between two parities. They show the history and the distribution of the correlation over a given period. The following tables represents the correlation between the various parities of the foreign exchange market. It has a mandate of ensuring the stability of the AUD and promoting economic prosperity for the people of Australia.
Such knowledge helps traders diversify, hedge, or double up on profits. Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Spot Gold and Silver contracts are not subject to regulation under the U.S. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters.
Sentiment and global economic factors are very dynamic and can even change on a daily basis. Strong correlations today might not be in line with the longer-term correlation between two currency pairs. That is why taking a look at the six-month trailing correlation is also very important. This provides a clearer perspective on the average six-month relationship between the two currency pairs, which tends to be more accurate. EURAUD is the ticker symbol for the euro to Australian dollar exchange rate in the forex markets.
Current Forex Rates
If so, just spend 3 minutes of your time to sign up and start trading CFDs on EUR/AUD with Capital.com. Try our award-winning trading platform or download our mobile app, which will become your smart CFD trading assistant. 84% of retail investor accounts lose money when trading CFDs with this provider. Negative correlation is a relationship between two variables in which one variable increases as the other decreases, and vice versa.
We noted that the cryptocurrency was pulling back from its April 14h highs in what could be considered a corrective manner. At the time, BTC was in the middle of a corrective channel and just above the 38.2% Fibonacci retracement level from the November 26th lows to the April 14th highs, near 46,288. However, we also noted that it was forming a rounding top pattern, which is indicative of a possible reversal. Since then, price continued to move lower to the bottom trendline of the corrective channel, aided by comments from Elon Musk over the weekend and China’s central bank yesterday.
Since the EUR/USD and AUD/USD correlation is traditionally not 100% positive, traders can use these two pairs to diversify their risk somewhat while still maintaining a core directional view. For example, to express a bearish outlook on the USD, the trader, instead of buying two lots of the EUR/USD, may buy one lot of the EUR/USD and one lot of the AUD/USD. In Forex markets, correlation is used to predict which currency pair rates are likely to move in tandem. A modification of the correlation, principally over the long-term, may demonstrate that the market is undergoing a change. EURAUD has been on our radar for some time and with the weekly timeframe forming a significant bearish engulfing candle off the key highs, we could expect some downside to continue.
Bitcoin and EUR/AUD, along with EUR/NZD, have a strong negative correlation on the daily timeframe. With this knowledge of correlations in mind, let’s look at the following tables, each showing correlations between the major currency pairs . We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.
Diversify risk
After hitting that trough, EURAUD entered a period of steady growth and managed to print a high at around 1.80 in March 2022. It has since fallen from those heights and trades around the 1.50-region as of the end of March 2022. Since you know EUR/USD is positively correlated with GBP/USD and negatively correlated with USD/CHF and USD/JPY, you check to see if the other three pairs are moving in the same magnitude as EUR/USD. For example, the EUR/USD appears to be testing a significant support level. You observe the price action and are looking to sell on a breakout to the downside.
With a coefficient of 0.95, they had a strong positive correlation over the past year, but the relationship deteriorated significantly in the previous month, down to .28. The upper table above shows that over one month the EUR/USD and GBP/USD had a very strong positive correlation of 0.95. This implies that when the EUR/USD rallies, the GBP/USD has also rallied 95% of the time. Over the past six months, the correlation was weaker (0.66), but in the long run the two currency pairs still have a strong correlation. The correlation of currencies allows for better evaluation of the risk of a combination of positions. Correlation measures the relationship existing between two currency pairs.
Notice that except for a few weeks in December 2020 and a few days in February, the correlation between EUR/AUD and Bitcoin has been negative . Currently, the correlation coefficient between the 2 assets is -0.90 on a daily timeframe. A correlation coefficient of -1.00 means that EUR/AUD and Bitcoin move perfectly in opposite directions 100% of the time. The current reading is considered a strong, negative correlation.
This is different from traditional trading where a broker would earn commission on every buy and sell that the customer takes part in. This is a question that many people ask when they’re first getting to grips with how the market works. If you’re used to traditional trading you might wonder what exactly is different here.
In our crypto guides, we explore bitcoin and other popular coins and tokens to help you better navigate the crypto jungle. I’d like to view FOREX.com’s products and services that are most suitable to meet my trading needs. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. Covariance is an evaluation of the directional relationship between the returns of two assets. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Correlation, in the financial world, is the statistical measure of the relationship between two securities. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random. To be an effective trader, understanding your entire portfolio’s sensitivity to market volatility is important.
References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options. The imperfect correlation between the two different currency pairs allows for more diversification and marginally lower risk. Furthermore, the central banks of Australia and Europe have different monetary policy biases, so in the event of a dollar rally, the Australian dollar may be less affected than the euro, or vice versa.
Your guide to trading the EUR/AUD pair
However, once you’ve grasped the basics, trading on Forex is actually quite similar to other markets. Obviously, the data available about the economic health of a country is always useful to traders. In Australia, the Reserve Bank of Australia plays the central role in determining the value of the AUD at any given time. Another financial point to consider is the exceptionally low-interest rates on Australian Government debt. All currency pairings are unique and influenced by a variety of factors, which we’ll explore in these next two sub-sections. We’ll begin with a look at what factors can influence the euro, before moving on to the Australian dollar.
History of EUR/AUD
Some of the leading economies within the region include Germany, France, Italy, Spain, and the Netherlands. You notice that GBP/USD is also trading near a significant support level and both the USD/CHF and USD/JPY are trading near key resistance levels. These two pairs have a strong positive correlation with GBP/USD following behind EUR/USD virtually step for step.
This means that at any given time, the price of the EURAUD represents the amount of Australian dollars it would take to exchange for one unit of the euro . You can use currency correlations to confirm your trade entry or exit signals. In this video update, we take a look at our current open positions to give an update of where we are at. EURAUD has moved significantly towards targets as well as AUDJPY. The daily timeframe suggested the AUD was going to weaken and we are seeing that play out at the moment. USDNOK remains bearish and was close to targets before rebounding, looking for the…