Market segments do not exist in isolation and learn FX well you must understand that stocks & stocks and shares, bonds, futures, indices, goods, and FOREX are all interrelated. The world is starting to become more and more linked. It is very simple for individual traders and large trading institutions to move money between different tradeable items. The economies of the world are also tightly bound as was demonstrated very effectively in the recent crash from 2008. negócio proprio
There is a whole subset of trading called inter-market analysis where traders study the associations between different trading tools. The intention is to find correlations which will help anticipate the future movement in the markets and make money. Lots of the correlations are related to the notion of risk and where money is moved at any one time. The top players can transfer their investments very quickly to where they believe they will get higher earnings or safer.
What varieties of correlations exist and why do they work?
Well let’s take some examples.
Inflation & Precious metal
If there is a perception in the market that price inflation is increasing then the value of traders’ money is decreasing unless they do something. One of the favored instruments to commit in at this time is Gold. You can see this presently (April 2011) where the price of Gold is increasing steadily because it is seen as a hedge against inflation. In other words investors are buying Gold to be able to offset the value of their money as it decreases over time.
Oil versus ALL OF US Dollar
There exists an inverse relationship involving the value of the US dollar and oil, or at least there will be. For what reason would this happen? Well there are numerous concepts such as:
a) Seeing as the value of the dollar drops, the price of dollar denominated products has been boosted.
b) If the price of oil goes up, and a rustic is a net importer of olive oil including the US, the this will worsen their balance of trade deficit, and this weaken the importance of their currency.
c) The dollars is coming pressurized as the reserve currency for purchasing oil, with other alternatives including the euro becoming more prominent. This has started to undermine the importance of the dollar.
I think is could be a mixture of all of these cases and others. The important point is that as a trader we can take good thing about this even as trade. There is also a correlation between Canadian CAD and the olive oil price as well thanks to the fact that Canada is a significant essential oil exporter.
AUD (Australian Dollar) and GOLD
The AUD has a relationship with the price of YELLOW METAL because Australia is a major exporter of Rare metal. Therefore the more the country can sell the better its trade debt will be and the value of its foreign currency will rise. Since the Fresh Zealand economy is so inter-related with the Foreign there is also a strong correlation between the value of the NZD with the price of Gold.