You do remember that in order to participate in the national stock market one would need to buy national currency of this particular country. Well. Imagine that one of many European stock market – DAX, for example – which is the national stock market of Germany – goes up. What do all the sensible traders do? They try to get in the hype train as soon as possible.
In order to participate in DAX traders are going to have to buy euro.
But that’s not the point. Another important point is the fact that JPY is one of the world’s safe havens. And when things go South traders tend to buy JPY more than other currencies thus supporting national stock market of Japan.
So. EUR/JPY is a perfect indicator that can be used to determine the real state of world economy at any given moment.
- When everything is smooth and risk hunger is high traders are going to buy more EUR sending the chart up.
- When everything is bad is risks are too high as it is traders are going to buy more JPY, sending the EUR/JPY chart lower and lower.
Useful little trick isn’t it?
So, judging by this one month EUR/JPY trading chart, what is the real state of the world economy today?