Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Trend Important Signals for Currency Investors

Currencies / Forex Trading Jun 05, 2010 - 05:53 PM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleCurrencies represent the truest reflection of economic fundamentals and market sentiment. Therefore, they continue to be an important segment of the financial markets to watch.

Since the “flash crash” in the U.S. stock market on May 6, most market pundits and financial media have had their eyes glued to the euro for explanations on stock market activity.


Take a look at these headlines to see what I mean …

• Reuters: “Stocks Slide, Euro Falls After Spain Downgrade”

• Associated Press: “Stocks Slide After Euro Falls to New 4-year Low”

• Press TV: “Euro Concerns Pull Down Global Stocks”

So perhaps there’s never been a more important time to keep abreast of the …

Currency Markets and Market Correlations

While the euro is proving a critical catalyst for all global markets, today I’d like to show you other examples of intermarket relationships that can offer important clues for the future direction of currencies.

First, take a look at this chart of the Canadian dollar and the S&P 500.

Chart

The Canadian dollar had been hovering around parity versus the U.S. dollar for much of April, prompting forecasts of much more strength ahead and an uptick in interest in Canadian investments.

But despite the improving economic data in Canada and the associated prospects for the Bank of Canada to start reversing record low interest rates, the Canadian dollar’s fate has been more intimately connected to the performance of the U.S. stock market.

So if you have an interest in the future direction of the Canadian dollar or Canadian dollar denominated investments, you should pay close attention to where U.S. stocks are headed.

Next …

It’s widely believed that emerging market economies are the place to be. “That’s where the growth will come from” experts say. And Brazil is typically on the top of the list. Also keep in mind, when the Brazilian real moves up or down, so do your investments in Brazil.

But is the performance of Brazilian markets truly a representation of the country’s economic fundamentals or is it more of a reflection of prospects for the global economy?

Take a look at this chart.

Chart

Like with the Canadian dollar, it’s clear in the chart above that the real closely tracks the movements of the U.S. stock market. When stocks go up, money flows into Brazil and its currency. When stocks go down, money flows out.

So while Brazil may have the fundamental tools in place to attract global capital, the returns on that capital, in this highly fragile global economic climate, are likely to be more explained by the U.S. stock market.

Global currencies tend to track U.S. stocks.
Global currencies tend to track U.S. stocks.

The bottom line: The S&P 500 is acting as the key proxy of global economic health. And as global risk appetite oscillates, so does the U.S. stock market and, as a result, so do global markets.

Given the stock market declines of the past month and the elevated risk environment, these intermarket relationships suggest the performance in global markets will continue to follow the path carved by U.S. stocks.

My advice: Be aware of the external influences on your investments. A growing sovereign debt crisis and threats of a slowdown in Chinese growth represent big risks to global growth and global markets. And for cues on how global investors are digesting these risks, just watch the U.S. stock market.

Regards,

Bryan

P.S. For more in depth analysis on the currency markets and specific recommendations on how to both profit and protect yourself from the unfolding currency crisis, I’d love for you to join me in my monthly newsletter, World Currency Alert. For more details please click here.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in