Beginner Forex Trading – Understanding Markets That Move the Forex

Indexes, currencies and markets – oh my! If you want to be a successful trader, you need to look at the entire spectrum of global markets, not just the ones you currently trade. In some cases, you may find correlation between the currency and the market, and other times you will not. Here’s a brief look at some of the markets that you want to be aware of if you want to build your skills as a Forex trader.

US Dollar Index (USDI)
Virtually all currency pairs are impacted by the US dollar and the US Dollar Index is by definition a futures contract which is traded on the and NYBOT and the FINEX futures market. The USDI is an average of several currencies, but is weighted largely by European currencies:

Euro – 57.6%
British pound – 11.9%
Swedish Korona – 4.2%
Swiss Franc – 3.6%
Japanese Yen – 13.6%
So the USDI is a comparison of the dollar to a basket of other currencies it’s a good idea to track the USD I can watch the technical indicators – regardless of the direction. Currency traders will watch the USDI and will trade for it or against it, depending on the technicals. Use the USDI as a trend or key indicator.

There’s a lot of interesting news about gold these days as the yellow metal has seen quite an increase in value over the last few years. Gold is commonly viewed as a store of wealth and as an inflation fighter. You could therefore look at it as indication of inflation. Also, you can look at it as trending in the opposite direction of the dollar (inverse relationship). Be careful with gold though as the overall market capitalization is pretty small when compared to the Forex market.

Individual stocks act like their own economies, the value of them increasing or decreasing depending on the companies performance, outlook, or previous financial performance. Stocks can also be moved positively or negatively in a rapid fashion due to news releases. Many people have tried to correlate stock performance with currency movement, however there is little evidence to support this correlation. That is not to say that there will be times when the stock markets experience extreme levels of volatility, which may create upward or downward pressure on the USD.

While individual stocks or the stock market are not easily correlated to the Forex market, bonds can be a different story. Because bonds are tied directly to to to interest rates, there is a natural short term correlation that can be seen. It is a good idea to to keep a close view on key interest rates of all major currency countries for as changes to the interest rates can exert some serious pressure on the Forex markets.

Hopefully this article has given you some insights into the potential interrelationships of markets outside the Forex, with some action on your part to look at some of these items and incorporate them into your information gathering processes. Watching other markets economies can really help you to spot opportunities that can turn into trading successes.

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