Currency pair correlations exist or Not? Criteria for choosing a pair - Trend or highest volume?

K

kent

1) I have observed some correlations do exist with related to GBP/JPY and DOW, gbp/usd, usd/jpy etc? Does these correlations work all the time or there are other factors that can influence/affect their correlations/influence of one on the other instrument?

For example gbp/jpy may move similar to usd/jpy or dow(futures) during EuroMkt open hours but after US market open they may move opposite or no correlations at all? Similar is gbp/jpy and gbp/usd and there is no certainty one can tell whether one instrument +vely or -vely correlates to other?

2) If One has to choose the currency pair which is on highest volume or good trending? Which pair one could choose. As per Oanda the highest next volume is EUR/USD and USD/JPY and then GBP/USD.

https://www.oanda.com/forex-trading/analysis/open-position-ratios

So from the above charts, if you have to choose the best top 2 pairs to trade, which one you could choose? I trade GBP/JPY for the most part and thinking about trading USD/JPY as it has next highest volume compared to GBP/USD.

TIA for your thoughts/input.
 
Correlations exist, but do not always hold up during high volatility events. They also change frequently. For GBP.JPY AND USD.JPY, these are the current;
1 week - 0.84
1 month - 0.96
3 months - 0.89
6 months - 0.55
1 year - 0.88

For GBP.JPY and YM, they are
1 week - -0.86
1 month - -0.40
3 months - -0.22
6 months - -0.17
1 year - -0.31

For the latter strong negative correlation over the last week, week prior to that.

I have seen correlation tables on one of the websites, can't remember where, maybe Kathy Lien's site, if not OANDA. I maintain my own spreadsheets for convenience.
 
Thanks. I find it very difficult if it is not precise, so I cannot depend on correlation and trade each instrument on its own TA study/chart. Now for the 2nd question, if I am trading GBP/JPY what is the next best pair to trade which should move along with gbpjpy? Is it GBP/USD or USD/JPY? If you are looking for higher volume it is USD/JPY but sync/trending will be GBP/USD? Which is a better choice?
 
I'll give some of the short term #s, all vs GBP.JPY

USD.JPY
1 week - 0.84
1 month - 0.96

AUD.JPY
1 week - 0.89
1 month - 0.94

CAD.JPY
1 week - 0.76
1 month - 0.97

GBP.CHF
1 week - 0.76
1 month - 0.98

As to your question about volume, unless you are using volume to inform your entry and exit decisions, I don't think it is relevant from a liquidity perspective. In any case, taking the volume at OANDA as indicative is probably not terribly accurate. It is only data for their customers and I don't see it influencing rates at any given time, it's what the liquidity providing banks are up to that really matters.

I have to tell you though that my trading approach is probably different from yours. You appear to focus on a couple of pairs, I track 33 pairs and swing trade whichever show momentum.

Perhaps someone will be along who focuses on a pair or two and would better understand the nuance of trading that way.
 
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