The relationship between currency and other financial markets

Financial markets price movement prediction is successful trading basis. And Experienced traders know, that trading the currency market requires not only knowledge of the forex area. Currency price movement depends not only on macroeconomic developments and other economic news, but also from other financial instruments movement.
Trader, knowing that the currency with which the market is concerned, can predict some of the forex market movements before they happen. To lead in this game and make more informed trading decisions, you need to carefully monitor the related markets.

Stock indices

Stock indices review can provide lots of information about market sentiment, which is very useful to the trader. Market sentiments shows, how comfortable feels market trader. The more you trust it, the more willing to take risks. In general, stock indices upwards when the market sentiment is positive - or, in other words, risk tolerance - and decreases when the mood is negative - or avoid risk.
Assessing the market sentiment, traders analyze these stock indices: S & P500, Nasdaq100 and Dow Jones Industrial Average the United States, DAX30 Nikkei225 Germany and Japan, FTSE100 the United Kingdom. Rising domestic stock indices trend positively affect the country's economic growth, and encourages the strengthening of the national currency.
It's interesting to note, that the stock exchange forex market operates only within 6 hours of your time, but the most important movements starting when session is opening. Traders usually know, how it intends to open the stock market, as a corporation, for calculating the equity indices, regularly publishes news and public economic data. Positive data increases the company's share price, which increases and the corresponding value of the stock index. Suppose, traders expect the S & P500 during the US trading session opened significantly higher, and if this is confirmed by the actual figures, respectively, in which case the dollar will strengthen hes position in the forex market.


When economic is growing, the traders taking more risks. When market sentiments is positive and stock indexes rise, traders are buying more profitable measures, including the following currencies: GBP, EUR, NZD, AUD, CAD.
These profitable currency demand usually leads to an increase in the value of their less profitable and safer currencies, such as: JPY, USD, CHF.
Positive sentiment and risk tolerance is usually caused USD JPY and CHF currency pairs, such as EUR / USD, GBP / USD, AUD / USD, GBP / JPY, AUD / JPY, EUR / CHF, GBP / CHF AUD / CHF growth trends. Conversely, when market sentiment is negative and the stock indices are falling, more profitable and risky currencies such as the EUR, GBP, AUD, NZD and CAD, usually lose their value. Risk may arise due to the bad economic data, dangerous geopolitical events or anything preventing the traders to take on more risk. That's why traders should watch all the expected news related to the currency pairs, which they trade.


Market instability gold acts as a safe haven against inflation and insurance. Since gold serves as a store of value, that could potentially survive the political and economic upheaval, such periods of this precious metal price usually rises. Australian dollar trade is analogous to trade in gold. Australia one of the world's largest recipients of gold, and since 2000 years by 2012 years, 89% of registered Australian dollar positive correlation was with gold. Simply speaking, when the price of gold rises, the AUD also gain value. Since gold is generally traded against the US dollar, these two measures has the inverse correlation, which means that the increase in the price of gold is usually caused by the weakening of the US dollar and vice versa. When the US dollar loses value, it becomes cheaper when buying gold. So, AUD, which is also connected to the gold, becomes more expensive.
Australia is the main country of New Zealand export, as these countries are neighbors. As a result, New Zealand's economic growth is closely linked to the strengthening of the Australian economy, which explains, why since 1998 years by 2008 years was registered 96% a positive correlation between NZD / USD and AUD / USD pairs. NZD / USD pair correlation with gold is also strong ,during the same period - 78% positive correlation. Swiss Franc is also closely associated with gold. The country's political neutrality and the fact that ensured the gold franc, the currency has made this most desirable periods of political instability in the currency. It should be noted, that the period 2006-2009 years USD / CHF pair and gold correlation - 77%.


Oil, as one important resources of the world's, price, has a significant impact on countries, dependent on oil, the value of the currency. Just as the Australian dollar is affected by the price of gold, as in Canada, which is one of the largest oil exporters, the dollar is dependent on oil prices. Canadian dollar generally increase with oil prices and weakening, when oil prices fall. For US and Canadian neighborhood, as well as political instability in the Middle East, Canada has become one of the main countries, from which, the US, imports oil. The price of oil is the main CAD / USD currency pair movement indicator. Historically proven, that when oil prices rise, bucking the pair - USD / CAD - moving down, and when oil prices fall, the USD / CAD movind up.
At the other end of the spectrum related parties, countries such as Japan, which buys almost all of their oil and they rise in oil prices is directly dangerous. Japan's lack of energy sources, makes this country very sensitive to changes in oil prices. The more expensive are oil imports, more expensive is the general price level in the country, allowing for inflation and depreciation of the yen. According to the opposite scenario, when the oil price decline - the currency to strengthen.
One of the most interesting currency pairs associated with oil, is a CAD / JPY. Examining the movement of oil exporter-importer perspective, it is - the currency pair in pairs, demonstrating the impact of oil price, top of the list. Oil and CAD / JPY correlation is very strong.


Understanding the impact of the forex market to other related markets, it'll be easier to understand and to predict some of the changes in the foreign exchange market, and this could increase your chances of a successful trade.

Good luck, and green pips!
Translate to English Show original