Forex Market Relationships with Other Markets
One of the most common places for traders to be able to find future information from currency pairs is a variety of financial markets around the world. This is a common problem experienced by forex traders because they are brought into the world under the assumption that the forex market is a place where they will make money. They are often alluded to by the fact that forex offers the highest leverage and is the simplest market out there. Because of this, traders lose a clearer signal that professionals around the world are doing the same thing.
By knowing some correlations, you can often see signals from other markets before you see them on the forex market. For example, the gold market often predicts more reactive to the Australian dollar. This is simple, because Australia exports gold in large quantities. If you think, this makes sense because companies have to pay gold in Australian dollars. So when the price of gold rises it is clear that the Australian dollar will rise too.
Another market that you can pay attention to is the crude oil market. The crude oil market can often have a massive effect on the Canadian dollar. This is because Canada exports very large quantities of crude oil throughout the world with special markets in the United States. Because of this, if oil prices rise, the value of the USD / CAD pair will fall. This happened because the strength of the Canadian currency strengthened significantly. This is a double whammy fact, because crude oil is valued in dollars. So because the value of the American dollar falls, to buy a few barrels of oil will require even more dollars.
Then the Yen pair is a good proxy to risk: in other words, because the markets in the world are increasing where this is a signal that traders can take risks, the value of the yen is seen falling. The main reason for this is that many large institutions will borrow capital in Japanese yen and invest abroad with higher returns. Some of these institutions feel more anxious about the market, they will often bring back their money to Japan to pay their short-term debt.
By knowing some of these relationships, you can often see anomalies in one market before another. For example, if you see gold breaking resistance then there is a very good opportunity where you will see an increase in the Canadian dollar. Or maybe you are looking at falling crude oil prices. This fall will be indirectly seen in the comparison of US dollars and Canadian dollars. The US dollar will increase in value when compared to the Canadian dollar.
As you can see in this review, there are trading signals in the financial markets themselves and using this signal to improve your trading is the right step. At least with this knowledge, you can find out which currency pairs are suitable for your trading. If you have been trading and determining currency pairs all along because you are following other traders, then change this habit now. Start studying other forex markets in the world and your forex trading will get better.
It’s better to study late than not at all isn’t it?