It is possible to use global equity markets to try to determine the next moves in the Forex market. Some people even look at equity markets as a foreshadowing of what might play out in the Forex market.
The stock or equity market is what is most likely covered in the media in your area.
To purchase stocks in a particular country, you first need to hold the currency of that country in your hands. Therefore, when people start to hear a lot of chatter about the stocks of a particular country, they may get very excited about investing in that country. If that is the case, then they might need to purchase some of the currency in that country. That could drive the price even higher. The exact opposite happens when the stock market of a particular country begins to look less appealing.
It is also important to pay attention to how the stock market in one country is behaving in relation to another. If one stock market appears to be outperforming that of another, then the money may flow away from the currency of one market and into the country with the better-performing market.
It is easy for some Forex traders to skip past the equity markets and think that they don’t relate to what they do. Understandably, some people feel that way. However, it is just not the case. The truth is that Forex markets and equity markets are often closely connected, and people who operate in either should pay attention to both. There is simply no excuse for not paying attention to what each market is doing. They tend to provide information about one another based on their movements. At the very least, you want to know what is happening in each type of market so you aren’t caught flat-footed when it comes to your trading choices. You need as much information as you possibly can gather to make your trades as informed as possible.
Those who trade in the Forex market should pay attention to the equity markets even if they don’t personally trade stocks. You might discover that there are a lot of lessons that you can learn from these markets even if you don’t necessarily actively trade in them yourself. You should pay attention because you don’t want to miss out on the opportunity to learn some lessons from the equity market about how the values of different currencies may rise or fall.
The performance of different stock markets against one another lead to potential opportunities to make money for yourself if you follow those trades closely. This is to say that you need to pay attention to what is happening in the markets because you might be able to spot the difference between the performance of different stock markets and see how this corresponds with the way that the currency for that country operates. If you notice the pattern is strong enough, then you might want to try to pick up on this and place some trades in the Forex markets based on what you see in the equity markets.
Keep in mind that it is all about relative strength. Just because the U.S. stock market is having a down day does not mean that the dollar will fall. Foreign stock markets may have an even worse day than the US market. If that is the case, then you might be able to profit by placing your trades just right in the Forex market. You can still potentially earn profits by purchasing the U.S. Dollar in this scenario. It just might be the case that the USD still rises in relation to other currencies depending on how those foreign markets are doing.
The basic idea boils down like this:
- Strong stock market = strong currency
- Weak stock market = weak currency
It doesn’t always work out just perfectly like that, but there are at least some instances when this is the case. It is often the case that one needs to do a comparative analysis of different countries and their stock markets to figure out where things truly stand.
If you aren’t about the names of the indices in various countries, today is your lucky day. We have that information broken down for you right here:
| INDEX | DESCRIPTION |
|---|---|
| S&P 500 | The S&P 500 is a weighted index of the stock prices of the 500 largest American companies that serves as a general indicator for the U.S. economy. |
| Dow (DJIA) | The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange (NYSE) and Nasdaq — closely watched by global investors and is highly indicative of market sentiment. |
| NASDAQ | NASDAQ is the largest electronic screen-based equity securities trading market in the U.S., comprising over 3,500 corporations. |
| Nikkei | The Nikkei is the most widely quoted average of the Japanese stock market — a price-weighted average of the top 225 Japanese companies and reflective of the overall Japanese economy. |
| DAX | The DAX is the stock market index in Germany that consists of the top 30 blue-chip companies that are traded on the Frankfurt Stock Exchange — bellweather for the Eurozone and EUR. |
| DJ Euro Stoxx 50 | The Dow Jones Euro Stoxx 50 index is the Eurozone’s leading blue-chip index, with over 50 top-sector stocks from 12 Eurozone countries — another bellweather for the Eurozone. |
| FTSE | The "footise" tracks the performance of the most highly capitalized UK companies listed on the London Stock Exchange — a bellweather for the U.K. economy. |
| Hang Seng | The Hang Seng index is a stock market index in Hong Kong, tracking the performance of equities in the Hong Kong market. |
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.
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