Hello,
I have been asked to explain the relationship between the major indices (Dow Jones, S & P 500, etc.) and the Forex. I am probably not the smartest person to explain these things. But since I was asked, I will attempt to impart my limited knowledge.
The major stock indices are aggregates of all the major market movers in the US stock markets, all the blue chip technology stocks as well as retail and telephone and communications stocks, basically all the major companies which move commerce in the US and throughout the world. As such, these companies have a great impact on the forex market, and the forex market has a great impact on them. If you follow COT at all, you will realise the "Commercials" are made up mostly of these companies.
Also all international commerce has a vested interest in the forex since they are all buying and selling product all over the world. So most companies keep healthy reserves of foreign currency.
Also, the value of the US stock indices move counter to the dollar since their value is in dollars. So if an index goes up, its corresponding value in dollars goes up and it takes more dollars to buy that index, hence the value of the dollar goes down. That's why when an index goes up, counter-dollar forex pairs also go up at the same time, and vice versa.
The only exception to this is the USDJPY or the US dollar against the Japanese Yen. Apparently the Yen has a very special place in market mechanics and the Yen tends to weaken with stock index strength, so if the stock market goes up, the USDJPY also goes up along with the corresponding Yen crosses.
During the NY stock session, one can keep an eye on the actual indices, DJIA and SP500 (among others) as well as the dollar index DXY which moves counter to the indices. During off hours, one can keep an eye on the futures indices (ESM0 for SP500 and YMMO for DJIA) since even though the real indices close during NY off hours, their futures are still traded around the world, and have a large impact on the NY open the next day at 9:30am EST.
I hope this helps, I hope I got it right, and anyone who wants to correct me about anything, please do so.
I use Broco Trader to keep an eye on these indices, they have a wonderful selection of stocks, metals, indices and all kinds of amazing securities to chart. I really don't know how they do it! One can also use Netdania finance charts (www.netdania.com (http://www.netdania.com)) and I'm sure there are others out there.
I have been asked to explain the relationship between the major indices (Dow Jones, S & P 500, etc.) and the Forex. I am probably not the smartest person to explain these things. But since I was asked, I will attempt to impart my limited knowledge.
The major stock indices are aggregates of all the major market movers in the US stock markets, all the blue chip technology stocks as well as retail and telephone and communications stocks, basically all the major companies which move commerce in the US and throughout the world. As such, these companies have a great impact on the forex market, and the forex market has a great impact on them. If you follow COT at all, you will realise the "Commercials" are made up mostly of these companies.
Also all international commerce has a vested interest in the forex since they are all buying and selling product all over the world. So most companies keep healthy reserves of foreign currency.
Also, the value of the US stock indices move counter to the dollar since their value is in dollars. So if an index goes up, its corresponding value in dollars goes up and it takes more dollars to buy that index, hence the value of the dollar goes down. That's why when an index goes up, counter-dollar forex pairs also go up at the same time, and vice versa.
The only exception to this is the USDJPY or the US dollar against the Japanese Yen. Apparently the Yen has a very special place in market mechanics and the Yen tends to weaken with stock index strength, so if the stock market goes up, the USDJPY also goes up along with the corresponding Yen crosses.
During the NY stock session, one can keep an eye on the actual indices, DJIA and SP500 (among others) as well as the dollar index DXY which moves counter to the indices. During off hours, one can keep an eye on the futures indices (ESM0 for SP500 and YMMO for DJIA) since even though the real indices close during NY off hours, their futures are still traded around the world, and have a large impact on the NY open the next day at 9:30am EST.
I hope this helps, I hope I got it right, and anyone who wants to correct me about anything, please do so.
I use Broco Trader to keep an eye on these indices, they have a wonderful selection of stocks, metals, indices and all kinds of amazing securities to chart. I really don't know how they do it! One can also use Netdania finance charts (www.netdania.com (http://www.netdania.com)) and I'm sure there are others out there.
"The real genius is knowing when to stop." - Marc Faber
