Forex Learning : All stock / CFD traders are trained to see the company’s sales data and gross domestic product (GDP), this is useful for projecting the next stock / CFD movement.
For stock / CFD investors, foreign currency fluctuations can be profitable and unprofitable, while for currency traders, stock / CFD movements (read about CFD products ) can help determine whether the overall market is looking for risky investments or is risk averse so that the potential will increase the thrust of forex movements.
With this information, traders and investors can get a better understanding of the close relationship between these two markets and also get additional benefits in analyzing market direction.
Currency Impact on Stocks / CFDs
Many ways to find out currency movements (read about currency products ) that have an impact on stock / CFD movements. For multinational companies, currency fluctuations can increase or reduce foreign income. For importers and exporters, the exchange rate can affect profitability and sales. Let’s see how this relationship works.
Currency fluctuations can make out performance or negative performance from the industry. Boeing and Airbus aircraft factories based in France are companies that are aware of differences in profitability between 2006 and 2007 when the Euro was valued at 20% against the US dollar. Boeing, a US-based aircraft manufacturer, received a sharp increase in orders for jet Dreamliners when there was an important shift in interest after the euro rose 1.18-1.42.
While Airbus suffered greatly due to the strengthening of the Euro. In the third quarter of 2007, Airbus announced that it would cut 10,000 workers and accelerate the production of new jumbo super jets to overcome a $ 810 million loss.
Impact of Stocks / CFDs on Currencies
The strong relationship between stocks / CFDs and currencies is the relationship between carry trades and Dow Jones movements (read also about the Dow Jones index ). In 2007, you can see many currency pairs can be categorized as carry trades. The most popular of these are the New Zealand dollar and Australian dollar paired against Japanese Yen. With interest rates in the range of 0.50 basis points in 2007, the Yen is a vehicle for low-cost funds, which is used to obtain profits that are not only for investments in higher-yielding currencies but also for stock / CFD investments. When the Dow Jones index moves, it tends to reflect the growing willingness of traders and investors to take risks.
That is why the Dow Jones index and carry trade are a measure of risk carried out by market participants. In general, if there is a sharp rise in the Dow Jones movement, it reflects that the risk appetite is growing. When the Dow Jones index falls, it will bring transactions in Japanese Yen into a sell-off with a reflection that risk aversion in market participants is increasing.
Carry trades can not correlate directly with the stock market in the short term, so traders should not always assume that if the Dow Jones index rises then the carry trade will rise simultaneously. But in the medium term it will bring currency and stock trading to be highly correlated.
In the end, forex movements will affect stock movements. The importance of this relationship will continue to grow when companies see the global market and competition to make forex movements always fluctuate, which makes market participants take advantage.