The source of the following content: Wechat public account Huiclassroom
During an avalanche, no snow is innocent! No snow is complete either!
If you are still thinking about buying bottoms, it is only a matter of time before you get caught!
When the economic crisis is approaching, in the face of the stock market crash, some people still want to eat a big one, but it is not sure who will eat it?
And some people have begun to pay attention to opportunities in other investment markets! For example, for foreign exchange investment, how did the foreign exchange market with an average daily trading volume of more than 6.6 trillion U.S. dollars respond to the stock market crisis? Let's take a look together.
01
The relationship between the foreign exchange market and the stock market
Those who invest in foreign exchange generally have played stocks, but those who invest in stocks do not necessarily have done foreign exchange.
On the one hand, because foreign exchange margin trading is not open in China, everyone’s awareness and familiarity with foreign exchange is generally low; on the other hand, foreign exchange generally requires greater risk tolerance, because high leverage is one of the outstanding characteristics of foreign exchange one. In general foreign exchange transactions, you can choose a leverage ratio of 20-400 times, which is usually 50-100 times that of stock trading.
Those who are keen on technical analysis also know that many technical indicators are common in the stock market and foreign exchange market. This also reflects that there is a certain connection between the foreign exchange market and the stock market.
When a country's stock market performs well, we will infer that the country's economic conditions and development prospects are good. Therefore, it is natural to buy stocks in this country, and at the same time, it can increase the purchase volume of this country's currency, resulting in an appreciation of its currency and an increase in the exchange rate. This also reflects market expectations and will lead to capital flows, which directly affect a country's currency exchange rate.
For example, a fall in U.S. stocks generally leads to a depreciation of the U.S. dollar. The U.S. dollar is the currency with the largest trading volume, and most currency pairs are linked to the U.S. dollar (direct trading), so the depreciation of the U.S. dollar will cause the relative appreciation of the euro, British pound, and Japanese yen.
But the above speculation is just a conventional idea. The exchange rate is not only affected by the capital flow in the natural state, but the central bank will also conduct macro-control on it in special periods. For example, during the course of the U.S. stock market crash, the Federal Reserve’s emergency rate cuts and macro-control measures to purchase treasury bonds and mortgage-backed securities caused fluctuations in the dollar.
For example, at the beginning, the U.S. dollar fell under pressure due to the sudden emergency rate cut by the Federal Reserve that exceeded market expectations and was affected by risk aversion. Then, due to the impact of interest rate cuts by various countries and the crisis flow, the U.S. dollar became a safe-haven currency and has an upward trend. As of the afternoon of March 17, the volatility has not stopped.
At this time, we should be vigilant that conventional thinking may not work under market fluctuations , just like gold, which has always been a safe-haven investment object, cannot escape the fate of falling in this crisis.
As far as the impact of the stock market on the foreign exchange market is concerned, it is also necessary to refer to the layout of a country's investment market. Countries with relatively developed stock markets and foreign exchange markets such as the United States, Japan, and Europe can be analyzed in the above way. But for my country, the foreign exchange market mainly relies on the regulation of the central bank and has little to do with the stock market.
To implement the impact of the stock market on the foreign exchange market to specific data, the evaluation of the stock market is mainly through the stock index. For example, the Dow Jones Index, the Nasdaq, and the S&P 500 reflect the general situation of U.S. stocks, the Nikkei 225 reflects the situation of the Japanese stock market, the French CAC40, the German DAX30, and the British FTSE 100 reflect the situation of the European stock market.
At the same time, the change of the stock index also corresponds to the trend of the currency strength of different countries. For example, the general trend of the Dow Jones index and the US dollar is the same, and the Nikkei 225 index can also reflect the trend of the yen.
02
Will Forex Crash?
After understanding the impact of the stock market on the foreign exchange market, the correlation is still very large. Will a stock market crash cause a currency market crash?
Let's first explain the definition of a crash in the investment community: a cumulative decline of more than 20% in a single day or a few days.
Since February 24, the global stock market began to fall. Europe, America, South Korea, and Japan all fell by more than 20% in just 16 trading days. At present, only the Shanghai and Shenzhen stock markets have a cumulative decline of about 10%.
To be precise, the foreign exchange market will not crash as a whole, but there will be some currency crashes. Because foreign exchange transactions are carried out in the form of currency pairs, when an unexpected event occurs, there is always a difference between the strength of the two currencies. When the currency of one country is affected and sold, another currency is bought at the same time.
For example, because the U.S. stock market crashed, which eventually led to the U.S. economic recession and the U.S. dollar collapsed, the corresponding EUR/USD and GBP/USD will be bought in large quantities, and the sales orders of USD/JPY will surge. It will not lead to a market crash in the foreign exchange market, but will only make the market value of the US dollar smaller and smaller. At this time, if you hold a large amount of U.S. dollars, it will lead to account losses and liquidation.
Some people may say that in foreign exchange transactions, the US dollar accounts for more than 43.8% of the transaction volume, followed by the euro and the Japanese yen. If the US dollar collapses, what else can foreign exchange transactions do?
The Federal Reserve can directly intervene in the exchange rate through interest rate cuts and QE policies to support the dollar, so the dollar is not so easy to be shorted. When a black swan event occurs, not only the US dollar will be hit, but the economies of all countries will be affected , and certain central bank intervention measures will be taken. Therefore, the relative value changes of currency pairs mainly depend on whose ability to bear the pressure is greater.
If the dollar is really dead, isn't there still the euro? The world's second largest currency could take its place. Foreign exchange transactions mainly involve the US dollar, euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar, and New Zealand dollar. Some are strong and some are weak. This also shows that the overall foreign exchange market will not collapse.
Currency crashes are further divided into long-term crashes and flash crashes . Long-term crashes can last for months or years, while flash crashes usually occur within seconds, generally not exceeding an hour. The most common is the flash crash, and the long-term crash is mainly affected by the huge economic challenges caused by government coups, malignant inflation or huge black swan events, which generally rarely occur in mainstream currency trading countries.
Of course, there is an unexpected situation, that is, if you encounter a black platform, a liquidation crash is inevitable! The situation mentioned above is based on formal transactions.
This is the end of the introduction about the foreign exchange crash. Finally, let’s look at the current market situation: due to the Fed’s bazooka king bombing operation, it failed to restore the continuous downward trend of US stocks, which caused the market to panic so much that gold, which was once regarded as a safe-haven product It also fell as the stock market was sold off at the same frequency, which instead made the US dollar the current safe-haven product.
Therefore, although foreign exchange will not crash, if you conduct foreign exchange transactions during this period, short-term trading with light positions and stop losses is the premise!
This is the end of today's sharing. Congratulations, you have learned another foreign exchange knowledge! Remember to pay attention to Forex Classroom, and bring you some foreign exchange knowledge every day. Investing and making money is not a dream!
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