All the trading markets, let it be commodity or stock or options or anything, work in coorelation with other markets to some extent.

Forex Market is no exception!!

In forex market, not only will you find good coorelation between

1. Different currency pairs.

Such as you'll find a good coorelation between EUR/USD and USD/CHF currency pair. You will find that when EUR/USD is going up, USD/CHF is coming down. Infact, opening abuy trade on EUR/USD and a short on USD/CHF simultaneously would mean having 2 trades open on any of these currency pairs.

Similarly there is good amount of coorelation between AUD/USD and NZD/USD

And often you see the co-relation -

2. Between a currency pair with another completely different market. 

For example, there is strong coorelation between EUR/USD and price of Gold. When price of gold is going up, so does the EUR/USD currency pair.

Similarly, analysts have found that EUR/USD has good enough coorelation with S&P 500 index.

Now why this coorelation exists, it is because of some fundmental reasoning. For example, the coorelation between Euro USD with gold pricebecause people use gold to hedge their investement on USD.

I feel, Many of youmight be wondering how this will help you in trading forex.

Well, this background will allow you to predict the movement of other markets to a large extent, if you are involved in multiple markets or you may think more deeply about decision of opening a trade on USD/CHF if you already have trade on EUR/USD open.

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