Did you know that the stock market can also be used to measure currency movements? To a certain extent, you can use the stock price index to divide the direction of foreign exchange.
Based on what you see on TV, what you hear on the radio and what you read in the newspaper, you will find that the stock market is the most reported financial market. Companies that can buy and produce the goods that are essential to their lives are really exciting.
One thing to keep in mind, if you want to buy stocks in a particular country, you must have the currency of that country.
To invest in Japanese stocks, European investors have to convert the euro (EUR) into Japanese yen (JPY). The increase in demand for the yen has led to the appreciation of the yen, while the increase in the supply of the euro has led to the depreciation of the euro.
When a stock market situation is good, international hot money will flow into that market. When the stock market is difficult, international investors will withdraw their funds to find a better place to invest.
As a foreign exchange trader, even if you don’t play stocks, you should also pay attention to the changes in major international stock markets.
If the stock market of one country performs better than the stock market of another country, you should realize that money may be transferred from countries with weak stock markets to countries with strong stock markets.
This may lead to currency appreciation in countries with stronger stock markets, while devaluing currencies in countries with weaker stock markets. In general: the stock market is strong and the currency is strong; the stock market is weak and the currency is weak.
If you buy currency from a country with a strong stock market and sell it in a country with a weak stock market, you may make a big profit.
The problem with using global stock markets to determine foreign exchange transactions is that you have to know who guides who.
It’s like answering an old question, “What comes first, chicken or egg?” or “Who is your dad?!”
Is it controlled by the stock market? Or is it led by the foreign exchange market?
The basic idea is that when a country’s stock market rises, confidence in the country’s prospects will certainly increase, and foreign investors’ funds will flow into the country’s market. This will increase the demand for the country’s currency, so that the currency is bullish compared to other currencies.
Conversely, when a country’s stock market performs poorly, investment confidence is frustrated, and investors tend to convert the money invested into their own currency.
However, in the past few years, this principle is exactly the opposite of the situation in the United States and Japan.
The upward trend of the US and Japan’s economies will depress the prices of their national currencies, namely the US dollar and the Japanese yen.
First, let’s take a look at the relationship between the Dow Jones Industrial Average and the Nikkei Index, and thus understand how the world’s stock markets are related.
Since the beginning of this century, the Dow Jones Industrial Average and Nikkei 225 have acted like lovers on Valentine’s Day, moving in the same direction. At the same time, you can also see that sometimes one index leads the way, rebounding or declining first, while another index changes immediately afterwards. It can also be said that the world stock market basically changes in the same direction.