Foreign exchange (forex) traders are always trying to find trends and economic outlooks to predict the potential movement of a currency. Some check out economic reports, GDP, or trade relations, but you would possibly be ready to predict these reports using the equity markets. Equity markets have thousands of firms round the world producing many reports a day which will be a useful source of data for currency traders.
Currencies fluctuate based on their supply and demand. When investors demand more of a currency, it’ll strengthen relative to other currencies.
When there’s an excess supply of a currency, it’ll weaken relative to other currencies.
Focusing on certain equity stocks can provide insight into the exchange market because these companies are large, deal on a worldwide scale, and transact in various currencies.
When a domestic currency is weak, exports are cheaper abroad, which helps fuel the expansion and profits of these exporters. When earnings are growing, equity markets tend to try to to well.
The hedging strategies that companies mention in their quarterly earnings reports are an indicator of the longer term outlook of currency fluctuations.
Where global companies invest is usually a number one sign that those companies see strong economic process. Where there’s strong economic process, there’s usually greater demand for the currency.
Equities alone aren’t a prudent way to predict the direction of currencies. Government balance sheets, monetary policy, and interest rates play a serious role in forex markets.