Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Correlations Between Stocks and Currencies
Nikkei and USD/JPY
Before the global economic recession that started in 2007, when most economies suffered consecutive quarters of negative GDP growth, the Nikkei and the USD/JPY were inversely correlated.
Investors believed that the performance of the Japanese stock market reflected the status of the country, so a rally in the Nikkei led to a strengthening of the yen.
The opposite also held true. Whenever the Nikkei would drop, USD/JPY would rise as well.
When the financial crisis hit, however, the relationships just went crazy like Lindsay Lohan.
The Nikkei and USD/JPY, which used to move oppositely, now move in the same direction.
Amazing isn't it?
Who would've thought that stocks would have something to do with the foreign exchange market?
Well, we did, and now you know too!
Correlation Between USD/JPY and Dow
Let's take a look at the correlation between the USD/JPY and the Dow. Based on what you read earlier, you might assume that the USD/JPY and Dow would be highly correlated.
However, a look at the chart below would tell you that it isn't quite the case. While the correlation is positive, it isn't as strong.
It peaked at 14,000 late in 2007 before dropping like a hot potato in 2008. At the same time, USD/JPY (orange line) also fell, but not as sharply as the Dow.
This could serve as a reminder that we should always take into account fundamentals, technicals, and market sentiment, so always read up!
Don't take correlations for granted because they aren't a sure fire thing!
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- Forex, Global Equity Markets, and You
- The Relationship Between Stocks and Forex
- Correlations Between Stocks and Currencies
- EUR/JPY: Your Very Own Barometer of Risk
- Intermarket Analysis Cheat Sheet