This is because a basic strategy without further analysis may yield too many false signals in the market. The euro cross can also see movement during economic data releases that occur at 6 am, 12.30 pm, and 2 pm GMT. Relatively lower liquidity and the common periods of high price fluctuations mean EUR/AUD can be costlier to trade. Because the movement of EUR/AUD can sometimes be uncertain, brokers may charge wider spreads on the pair. The EUR/AUD pair denotes how many Australian dollars you need to purchase one euro.
- The AUD/USD is highly correlated with the NZD/USD and negatively correlated with the USD/CAD and USD/JPY.
- Additionally, both the Australian and New Zealand dollars offer the highest yields of the major currencies, making them the focus of carry trades.
- This relationship tends to show as a converse correlation between equities and EUR/AUD.
Whether you’re managing substantial capital or starting small, currency correlation knowledge elevates your trading game. Others are rebellious dancers, deliberately moving in opposite directions. Understanding these relationships helps you predict market movements more accurately. To hedge against the Australian dollar depreciating, you need to have an understanding of other currencies beyond the Australian dollar itself.
The Best Strategies for Trading EUR/AUD
Some currency pairs are perfectly synchronized dancers, moving in harmony. These aren’t random coincidences they’re examples of currency pair correlation, one of forex trading’s most powerful yet overlooked concepts. Use our Currency Correlation tool to find the least or most correlated major currency pairs. Indeed, the curating, sourcing, and organization of this process requires substantial financial investment by Tradersunion.com, which the website earns in the form of advertising payments.
Moreover, we hereby warn you that trading on the Forex and CFD markets is always a high risk. According to the statistics, 75-89% of customers lose the funds invested and only 11-25% of traders earn a profit. Trading in futures and options carries substantial risk of loss and is not suitable for every investor. Since Australia is a huge gold exporter, the Australian dollar is strongly correlated to gold prices.
- Smart traders use correlation to manage risk better, avoid overexposure, and identify high-probability setups that others miss.
- Perhaps the biggest drawback of trading EUR/CAD is that although the pair provides decent liquidity, the liquidity is still limited compared to that of the majors.
- As such, the inverse relationship between EUR/AUD and gold also exists most of the time.
About Euro / Australian Dollar
The Australian economy, on the other hand, relies heavily on gold production and exporting. For beginners learning how to trade Forex with $10, understanding correlation prevents overexposure with limited capital. Understanding what is order block Forex can enhance your correlation-based strategies by providing better entry points across related pairs. Correlation is typically measured on a scale of -1 to +1, known as the correlation coefficient. In nominal terms (GDP), the EU economy is the second-largest economy in the world, after the U.S. economy. However, when measured according to purchasing power parity (PPP), the EU economy is the third-largest after the U.S. and China.
What happens if the Australian dollar falls?
The Euro (EUR) is the second most-traded currency in the Forex market, and any significant changes in the Eurozone’s economic performance can impact the EUR and the AUD in the same way. In this article, we will discuss the currency pairs that are correlated with the AUD/USD and how traders can use this information to make more informed trading decisions. Understanding the currency pairs that move together gives you a significant edge in the markets. It’s the difference between blindly placing trades and making informed decisions backed by statistical relationships. A correlation coefficient of -1 indicates that two currency pairs will move in the opposite direction 100% of the time. The AUD/USD and USD/JPY are two currency pairs that are negatively correlated.
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Similar to the relationship between gold and EUR/AUD prices, iron ore futures generally tend to be inversely correlated to EUR/AUD. Perhaps the biggest drawback of trading EUR/CAD is that although the pair provides decent liquidity, the liquidity is still limited compared to that of the majors. The limited liquidity can make EUR/AUD trades susceptible to market turbulence, causing undue risk. Trading multiple highly correlated pairs doesn’t provide true diversification. Most traders focus solely on individual pair analysis, completely ignoring the interconnected web of currency relationships. If you look at the EUR/AUD chart, you will see that this pair has low volatility and therefore is considered a non-technical one.
Tradersunion.com does not provide any financial services, including investment or financial advisory services. Also, the Traders Union is not a broker and does not get money for trading in the Forex or CFD markets. Our website only provides information on brokers and the markets and helps its users to select the best brokerage company based on detailed information and objective analysis of brokers. A correlation coefficient of +1 shows that two currency pairs will move in the same direction 100% of the time. The AUD/USD and EUR/USD are two currency pairs that are positively correlated.
Additionally, both the Australian and New Zealand dollars offer the highest yields of the major currencies, making them the focus of carry trades. When scalping EUR/AUD, traders usually identify the pair’s general trend and trade this trend. For example, using a moving average to identify a trend, you could buy when the price crosses above the average and sell when the price crosses below the average.
From better risk management to enhanced profit opportunities, correlation analysis provides the edge serious traders need in today’s competitive markets. Currency correlation refers to the relationship between two currency pairs and how they move in relation to each other. Therefore, any significant changes in commodity prices can impact both currencies in the same way. For example, if the price of iron ore (one of Australia’s major exports) increases, it can lead to a rise in the AUD/USD and NZD/USD. Information on the TradersUnion.com website is for informational purposes only and does not constitute any motive or suggestion to visitors to invest money.
The Australian dollar is often considered an indicator of growth and risk in global financial markets. As such, it’s often used as a trading device for taking advantage of short-term changes in market risk and global economic growth. The Australian dollar usually exhibits a positive correlation to the general global market short-term sentiment, and the same trend is usually observed in the EUR/AUD pair. That is why you should only invest money that you are prepared — or can afford — to lose at such high risks.
If the market shifts unfavorably, you could lose money on both trades instead of just one. EUR/AUD has a high degree of predictability and decent market swings that make the pair an attractive choice for many traders. With a good trading strategy, you can leverage the pair’s characteristics to potentially make a good income with minimal risk. Understanding currency pairs that move together transforms your approach to forex trading. Although the correlation between gold prices and the Australian dollar sometimes goes away or totally reverses, the positive correlation tends to exist most of the time. As such, the inverse relationship between EUR/AUD and gold also exists most of the time.
EURAUD Analysis
This relationship tends to show as a converse correlation between equities Euraud correlation and EUR/AUD. In currency carry trading, the euro is one of the popular funding currencies because of its negative interest rates. The funding currency is the currency that gets exchanged in a carry trade transaction and it is characterized by a relatively lower interest rate.
Although you can swing trade EUR/AUD, your average swing trading strategy may not always work well due to the pair’s relatively high volatility. Another big advantage of trading EUR/AUD is the pair’s volatility – EUR/AUD can be quite volatile. While some traders will struggle with this volatility, it can be advantageous to shorter-term traders with a sound strategy for trading volatile markets. Let’s say you go long two currency pairs that move in the same way such as EUR/USD and GBP/USD.
When carry trading EUR/AUD, you would borrow the euro and take a short position in the Australian dollar. Start by monitoring a few highly correlated pairs, practice with demo accounts, and gradually incorporate correlation analysis into your existing trading system. A correlation coefficient of zero indicates that the movement of the currency pairs is random and there’s no predictable relationship between them. Currency correlation measures how closely the price movements of two different currency pairs are connected. It indicates whether currencies tend to move in the same direction, in opposite directions, or with no discernible pattern. The AUD/USD and NZD/USD are two currency pairs that are highly correlated.
