This article looks at the impact the equities market has on the foreign exchange rate.
It is a regular task for traders to attempt to find a method to forecast the foreign exchange rate movements. Some traders turn to a country’s gross domestic product or its trade relations, but maybe you should look at the equities market. The corporations involved in these markets release thousands of reports on a daily basis and the possibility is there for foreign exchange traders to make use of those reports to try and predict the foreign exchange rate.
The demand and supply of a particular currency will influence its foreign exchange rate and the movements that are experienced. If a currency experiences a high investor demand, the currency will increase in value. If it experiences a decline in the investor demand, its value will decline. There are many other factors that influence this constant price movement.
The foreign exchange market is a large global market and surpasses the securities markets by far. When you consider the effect of the equities market on the forex market, you have to consider the global impact it will have. The corporations that you should be watching are the ones with international links. This type of company has dealings with global consumers and the company stocks are sold globally. Keeping a watchful eye on these companies provides you with a corporate forex market view.
If you are interested in watching the commodities market for an effect on the forex market, you should place your focus on the crude oil market. Oil prices are quoted in US dollars. In the event that the US dollar goes into decline compared to other majors, the oil price could experience a rise. The increase in oil prices is used for the stabilization of price other countries are required to pay in their domestic currency. The other commodity types you should be aware of are corn, wheat and sugar. These commodities offer similar views of the market, however crude oil is the one that impacts most on the foreign exchange rate.
The FX market is often affected by the market movements on the equities market. A weaker currency makes exports cheaper to other countries. This pushes up profits and export companies normally experience growth during these periods. The equities markets are increased by the increase in earnings and growth of the companies. This is usual for equities that have the support of the major currencies.
The Future of the Foreign Exchange Rate
The constant movement in the foreign exchange rates in the FX market creates a lag in industry. Once companies have released and published reports related to earnings, the currency market experiences the impact. You need to discern between soft and hard assets for you to identify the possible movements in the foreign exchange rates. The chief consideration you have to make is how necessary the asset is. Items such as medicines, food and petrol are placed higher on the necessity list than items such as jewellery and clothing. This means that a company that supplies medications globally is more important from a foreign exchange trader’s view than a company that sells clothes.
You should not use the equities market as a standalone method for the prediction of the foreign exchange rate. Government monetary policy, balance of payments and interest rates all play a huge role in currency predictions and you should consider that.
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