So am new to the forex scene (I’ve just added a post in the “Introduce yourself.”)
Now I am looking at the breaking news in the market and trying to see how the fundamental news can affect the currency. What I have noticed though is the following (and something I am hoping someone can help me understand.)
Yesterday some bad report came in from Japan. I then see a report stating that on the back of the bad news the Asian stocks [B]fell[/B] but the Yen [B]strengthened[/B]? (Why would stocks falling make the yen stronger based on bad news?)
Today - again some news came in from Japan and this time the news said “NIKKEI [B]rises[/B] on a [B]weaker[/B] Yen” so again a stronger NIKKEI causes a weaker Yen.
It seems that if the [B]stock goes up[/B] then the [B]currency weakens[/B] and then visa versa - if the [B]stocks weaken[/B] then the [B]currency strengthens[/B]
Also bad news seems to make the currency stronger if stocks fail. Is this right?
Can someone summarize this please?
Again I am demo trading at the moment and new to this.
I think this has a lot to do with quantitative easing. Japan has been upping the money supply by printing money (actually it’s not even even printed, just created as ones and zeros) and buying assets with it from commercial banks. This newly created money is then used to invest in equities which causes stock markets and indices to soar. Two of the countries currently engaged in big QE programs are both experiencing this, the U.S and Japan.
Now upping the money supply also has some other effects, more money in circulation means lower interest rates, lower interest rates mean less of an incentive for foreign investors to purchase the currency in question because they can get more from their investment if they purchase other higher yielding currencies, so the exchange rate drops, as we have been seeing with Japan.
However the USD is still follow the fundamentals, I’ve just gained some pips on the crude oil stocks report. So for JPY i think there is more of supply/demand question because it is not really world currency and it’s mostly convertible inside the small region. But Forex market usually responds to the worldwide demand.