Government intervention
Global financial institutions and corporations play an important role in determining the movement of the Forex market. It is they who provide facilities in the World's financial markets. However, in determining the direction of movement of the Forex market, it should always be remembered that the effect of the government's monetary policy is very large. In this case the movement of the stock market is not the initial indicators (leading indicators) for the Forex market.
The value of a currency is determined by the level of demand and supply are heavily influenced by government policy in determining the interest rate and other policies, such as quantitative easing and so forth. Using the movement of the stock market as an early indicator for the forex market is not quite right when the government can affect the Strength of a currency.
In fact, predicting the direction of movement of the currency just by looking at the direction of the stock market, or the stock price index, is not a wise way. The role of the government in this case is more influential. Government's balance of payments, Monetary policy and central bank interest rate is much more involved. We can see examples of that happening in recent years in the United States.
As a result of the Financial crisis in 2007-2009, the United States central bank the Federal Reserve with a very significant increase in the money supply by buying bonds up to trillions of US dollat. The quantitative easing program could prevent the United States economy from the worst recession since the great depression (the great depression) in the 1930s. US dollar weakened significantly against a number of other major currencies, and remained lower even though the stock prices soared between 2009 and 2011.
Expansion of large companies globally
The big investors are always looking for opportunities to be able to expand the Global market. Many large companies are focusing on expansion outside the United States, including companies from the United States itself. Take, for example coffee giant Starbucks beverage company that focuses on its expansion outside the United States. The company had planned to close 800 branches, mostly in the United States.
Focus Starbuck with international expansion makes sales grew rapidly, companies can grow, increase profits, and share price also rose significantly. Starbuck is not the only company to expand globally, many other large companies are competing globally expantion. These companies not only from the United States, and the purpose of their expansion largely to Developing countries whose growth is relatively high.
Growth companies are acquired from outside the United States coincided with the weakening of the US dollar against most major world currencies. There is no guarantee that in the long term strength of a country's currency will support the country's economic growth. Investors always look at the short-term fluctuations, both the stock market and money market. During the financial crisis in the United States, the Japanese yen continued to strengthen against the US dollar despite Japan's economy is in trouble.
When many investors who enter a country then it is an early indicator of improvement in the country's growth, and if growth is strong, the demand for the currency will increase, and in the long run cause the value of the country's currency strengthened. The stock market can indeed be used as an indicator of currency movements, but it is not an accurate predictor.
