International Equities Signaling a Pause on the USD/JPY
08/12/2008 12:00 am EST
I received a great question from a trader the other day about the impact that international equity markets have on the US equity market and the forex. The answer depends on the equity market in question. Developed economies like the Eurozone or the UK will typically correlate on a day-to-day basis with US equities but developing economy's equity markets have a life of their own. They are typically very volatile and subject to fairly large price shocks. The Chinese equity market is a classic example of this kind of situation. The Chinese equity market can be monitored through a variety of indexes but I find it most convenient to use an ETF like GXC managed by S&P that can be brought up in any charting package and represents a broad cross-section of Chinese companies. In the video I will walk through the impact that price shocks on GXC have on other markets including the USD/JPY. In many ways the affects of this market on the forex are similar to US equity markets but because Chinese equities are much higher risk they can be early warning of weakness in the trend. When looked at from this perspective, I would conclude that the trend on the USD/JPY may be in danger in the intermediate term. That doesn't necessarily mean USD/JPY shorts are a good idea but it does mean that additional risk control is appropriate.