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[Oluti]

Many traders will look at the economic news releases, the currency charts, or both when assessing whether a currency pair is likely to go up or down. However, did you know that the equity markets can also be used to analyse the currency markets? Specifically, the main equity indices can be powerful tools for predicting the movements of currencies.

The stock markets are the most widely covered in the mainstream media. This is possibly because the general public finds the narratives associated with the companies that make the products they buy more interesting than those of other markets.

It’s worth remembering that the forex markets and the stock markets are actually intrinsically linked, because in order to buy stocks from a particular country you need to have the local currency. For example, to buy Japanese stocks, European investors have to first exchange their euros (EUR) into yen (JPY). This will increase demand for JPY, and exert an upwards pressure on the price of the JPY. By the same token, selling euros to buy JPY will increase the supply of euros, driving the value of the euro lower.

When a regional or national stock market is booming, money tends to flow in from all around the world, driving up demand for that country’s currency. However, when a stock market is struggling, international investors will soon take their money out of that market and find a more profitable place to put their money.

Although you might not, as a forex trader, be interested in stocks, you should still keep an eye on the major stock markets. If one country’s stock market is doing better than another, you should know that money will probably be flowing from the country with the weak stockmarket to the one with the strong stockmarket.

This could cause a rise in the value of the country with the strong stockmarket’s currency, and a depreciation in the value of the country with the weaker stockmarket’s currency. As a general rule, strong stock market equals strong currency, while weak stock market equals weak currency.

This provides a profit opportunity, as if you bought the currency from the country with the strong stock market and sold the currency from the country with the weak stock market, then all things being equal you would profit.

In the next installment, we shall be giving you a round-up of all the major stock indices that you, as a forex trader, should be following.

 

[lioralace]

Let’s get real—if you’re only squinting at forex charts all day and ignoring the wild party happening in the stock markets, you’re legit missing out on some spicy inside info.

So picture this: Some traders are stuck obsessing over GDP numbers or chasing deadbeat candlestick patterns, hoping for a revelation. Honestly, it’s like staring at one puzzle piece and wondering what the picture is. The real magic? It happens when you check out what’s going on in equities. Yeah, stocks—those things everyone’s uncle claims to have gotten rich on.

The connection here isn’t just some nerdy trivia. When global investors decide, say, “Whoa, U.S. tech stocks are popping off! Gimme some of that Apple pie,” they can’t just pay in Monopoly money. They’ve got to trade their currency for dollars. So if a bunch of Australians want in, there’s suddenly this rush to ditch Aussie dollars for USD. That’s one big reason a surging stock market can supercharge its currency. The greenback gets juiced, while the other currencies can end up looking like yesterday’s leftovers.

Flip the script—if Japan’s stock market is tanking, people might pull their cash out, swap yen for, I dunno, something shinier, and boom: yen’s having a bad hair day.

It’s honestly kind of wild how the big money just surfs from one booming market to another, dragging exchange rates along for the ride. That’s the sneaky little secret anyone in forex should be watching: where’s the global cash headed?

Look, this isn’t a 1+1=2 situation every time. Sure, currencies dance to lots of different tunes—central banks, inflation, trade drama—you name it. But the flow of capital into or out of stock markets? That’s often a lead indicator. Remember that post-2008 rally? U.S. stocks went nuts and dollars got strong, basically dragging the rest of the FX world along whether they liked it or not.

So, yeah—next time you’re eyeing the EUR/USD or trying to figure out if the yen’s about to faceplant, check what’s going down with the S&P 500, Nikkei 225, or whatever index gets you hyped. If everyone’s stampeding into U.S. stocks, maybe you shouldn’t bet against the dollar. If the Eurozone’s looking like an abandoned party, maybe the euro’s about to get ghosted.

Bottom line? Don’t sleep on the stock markets. Forex and equities are like peanut butter and jelly—better together. Ignore one, and you’re just stuck with dry bread or a spoonful of jam. And honestly, nobody wants that.

Now grab your charts, add some stock indices to your watchlist, and trade like you actually know where the smart money’s moving. Next time, maybe we’ll break down which indices matter most, so you can look even smarter at the (virtual) trading table.