Forex correlation and History of Trading Patterns of Major Currencies

There is a constant growth in the currency markets due to the expectations of the economic growth. The position of market is not very flourishing as Eurozone is expected to go down in the very first quarter and on other hand, China is aiming this year to reach lowest growth rate for GDP since 1999. As a result, US is recovering from the effects of financial crisis that occurred globally in 2008 as it is now the main countervailing force with the low binary risk in trading patters due to which investors are now representing a distinctive position.

For the USD currency, the result has been that prices are improving in positive way in the direction of the domestic economic activities with the officials of Federal Reserve leaving their dovish rhetorical behavior. If we compare USD to British Pound and Euro, the outcome has been that in price action expectations in interest rate have been the major factor. Therefore, now GBPUSD and EURUSD currency pairs are setting new standards for short term expectations in yield. This shows that declining Europe even if the Fed withdraws, will keep its BOE and ECB policies in action.

In the meantime, the Japanese currency Yen is returning once again to its long lasting relationship with the United States Treasury yields. Now the Treasury yields show that it is very attractive option for Japan to now recycle the access USD it has earned during the trade back to their local currency rather than turning it to USD. This position is the benchmark for USD currency surplus returns. The quick change in USDJPY position is understandable with the background conditions of rebounding of US bonds returns. On the other side, the efforts of BOJ to avoid deflation by introducing third version of Fed QE did not gained much attraction. There can be sharp changes in the risk aversion which will be supportive for Yen.

The rest of the constantly inclined currencies like Canada, New Zealand and Australian dollars will keep following the stock process. These currencies are known to have developed sensitivity against the world business cycle as a connection between the national monetary policy in country and commodity prices. The economic growth of Canada is dependent on the raw materials provided by the US which is the largest economy of the world whereas New Zealand and Australia are more dependent on trade relations with China which is the second largest economy. This means that the critical economic conditions of these Commonwealth countries are similar. This means the “commodity dollars” will be following the MSCI Stock Index with the stock’s trades and long term growth trends of these economies.