Strategy Video: Watching Global Equities to Evaluate Risk Trends
• Over higher time frames, global equity indexes maintain a robust positive correlation
• The waxing and waning of the relationship between regions can be a strong sign of the intensity of risk
• We can also use this relationship to guide short-term session expectations or highlight trouble areas
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Even if you trade only FX markets, it is worth incorporating analysis on global equities to evaluate your trades. Stocks are the favored asset class amongst novices and passive investors (in addition to professionals) and thereby offer both a short and long-term view on the influence of 'risk trends'. For the short-term trader, the transmission of speculative appetite from the Tokyo to London to New York sessions can gauge direction and intensity of a key fundamental driver for the financial system for short-term setups. Long-term correlations can also give a sense of when to pay greater attention to sentiment over a competing theme like relative monetary policy. Differences can also indicate a unique circumstance or opportunity arises for a region - like the extreme rally from Chinese shares headlined by the Shanghai Composite and Hang Seng. We review some of the simple ways monitoring global equities can help our FX trading and market evaluation in general in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.