Correlation is a measure of how two financial assets move in relationship with each other. It ranges from being a 100% positive correlation, which means both financial assets move in unison or a 100% negative correlation which means both financial assets move in exact opposites.
In forex, we can seek out correlations between currency pairs and other financial assets to gain insights into possible undertones.
It is time to review the correlation between the EUR/USD and Gold.
Looking at the EUR/USD and GOLD daily charts above, we observe two main phases of correlation.
From Sep to Oct 2019, the EUR/USD threaded higher ( volatility aside ) while GOLD eases to the down side. This is indicative of a period of risk seeking as investors shift funds away from “safer” assets such as the US Dollar and Gold towards riskier assets such as the euro currency.
The period starting Nov 2019 till now suggests a different phase. While the EUR/USD gradually moves towards the upside, Gold gained sizable value too. It is important for us to understand the underlying momentum. The recent geo political developments are mostly of increased risk aversion. We may be seeing investors shifting away from riskier assets and the US dollar and diving in into Gold.
If the latest correlation holds, the continued easing of the price of Gold may add downside pressure to the EUR/USD.