Relationship between stocks and forex

Correlation Between Stocks and Forex can be positive or negative.

Most times when the stock market rallies high, so does the currency market.

This is because when more investors get to the stock market, demand for the country’s currency to purchase the stocks increases.

The correlation between stocks and forex is sometimes unpredictable.

It may sometimes be negative but this happens at a smaller extent.

negative correlation

Like we said earlier, it is also possible for the currency market to appreciate when the stock market is fluctuating. The Reverse is true!

Take a look at the Chart below

Dow Jones with US. Dollar Chart

Why negative Correlation

Investors may choose to liquidate their stocks and invest in the currency markets or do the opposite

So it’s not a guarantee that the poor performance of the stock market will lead to the collapse of the general countries performance.

There are still more factors to be considered under this issue.

The stock indexes and the currency pairs may move in the opposite directions (negative correlation) and it is OK.

As a Forex trader,

To use the stock market performances to analyse the currency pair is good.

However, you should not only rely on it without looking at other factors like the fundamentals and technicals.

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