As we said before, if a person wants to invest in a particular stock market, then he will need the local currency to buy stocks.
You can imagine what effect the stock market, such as the DAX (German stock market), will have on the currency.
In theory, when DAX rises, we can expect the euro to rise because investors need to handle the euro.
Even if it is not completely related, the data shows that the connection between them is still relatively close.
We conducted some surveys and found that the EUR/JPY has a very close relationship with the world stock market. You should know that the Japanese yen is regarded as a safe haven among the world’s major currencies along with the US dollar.
When confidence in the international economic situation declines and traders are afraid, we usually find that traders will withdraw their funds from the stock market, which will cause the S&P 500 index and the German DAX index to decline.
As funds flee these markets, we will find that as traders all choose to escape to the safe haven, the euro/yen fell. On the contrary, when the economic situation is good and the risk appetite is strong, investors put a lot of money into the stock market, so the euro/yen is bullish.