FX · Reading the FX market · lesson 9 of 9 · 5 min read · David Alexander
Why your charts rhyme
Correlated pairs
FX pairs that share a currency move together to the extent that the shared leg drives them: EUR/USD and GBP/USD both fall when the dollar strengthens, whatever the euro and pound do to each other. Two positions on rhyming charts are partly the same position, so what reads as diversification on screen can be one exposure taken twice.
Watch EUR/USD and GBP/USD side by side for an afternoon and the two charts echo: the same lurches at the same minutes, different only in degree. Nothing mystical connects them. Both prices contain the dollar, and when the dollar moves, everything containing it moves together.
Where does the rhyme come from?
From lesson 1 of module 1: every pair is a ratio, so every pair moves when either of its legs does. A dollar-side repricing - a Fed announcement, a calendar release, a wave of dollar flow - enters every dollar pair at once, each chart printing its share of the same event. The rhyme is that shared leg showing through. The differences between the charts are the other legs: EUR/USD and GBP/USD diverge exactly where the euro and pound part company, which is why their cross, EUR/GBP, often sits quiet while both dollar charts thrash.
Reading the rhyme is a screen skill with an account consequence. On screen: when several charts jump in the same second, look for the shared leg before any pair-specific story - one cause, many prints. In the account: two rhyming positions rise and fall partly as one, and the worked example prices what that does to your arithmetic.
Worked example
figures in USDYou hold 0.5 lots of EUR/USD, and consider adding 0.5 lots of GBP/USD - both containing the dollar. A pip on a full lot is worth $10.
- You hold 0.5 lots of EUR/USD - $5 per pip ($10 per full lot). A 25-pip move on the shared leg prints $125 through this one position.
- Add a second 0.5 lots position on another pair sharing the same leg, with a similar pip value, and the same 25-pip repricing arrives twice: about $250 across the pair of them, moving together.
- Two charts, one event, double the arithmetic - in whichever direction the leg moved. The screen showed two instruments; the exposure was substantially one. What that means for sizing is module 4's business; the reading skill is noticing it before the account does.
What this means for you
Before reading any pair's move as its own story, name both legs and ask which one is speaking - a habit that costs seconds and prevents the commonest misreading on the screen. Count exposures by leg, not by chart: three dollar pairs open is closer to one large dollar position than three diversified ones. The rhyme is strongest in the moments this module taught you to watch - shared-leg calendar events, session transitions - and how to size around it belongs to module 4, with the deeper correlation machinery in module 8. This module's work is done when your screen reads as one market wearing many charts.
Try it yourself
Pip value calculator
What one pip is worth to you, in your currency, for your size - JPY pairs and metals included.
Check your understanding
Question 1 of 4
EUR/USD and GBP/USD lurch downward in the same second. What is the first thing to check?