We have been talking about relations between forex and stock market for a while and now the time has come to provide you with example.
So. Let’s look at relations between Nikkei index and USD/JPY currency couple.
Before the financial crisis of 2007 USD/JPY and Nikkei moved in opposite direction. Before the crisis strengthening of Japanese yen was connected with the rally in Japanese stocks market – hence when Nikkei went up, yen would strengthen against the greenback thus sending the chart down.
When Nikkei chart went lower USD/JPY would surge.
But after 2008 their relations changes forever. Although they were opposites, they are moving together now so the shift has changed the outlook on trading in the region.
But. Nikkei is a Japanese index. Let’s see what will happen if we compare the couple to American index.
It seems that there is a correlation between USD/JPY and Dow Jones index but it seems that it is not nearly as strong as the one with Nikkei. Plus, it is clear that both of them are struggling to reach high points.
What does that mean? Well that means that analyzing this intermarket correlation is not that easy and that you are to implement all your trading theory knowledge in order to be successful.
We thank babypips.com for the imagery for this article.
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