How to Use EUR/JPY as a Stock Leading Indicator

As earlier said, in order to invest in a particular stock market, one would need the local currency to purchase equities.

You can imagine how stock markets, such as the DAX (the German stock market), affect currencies.

In theory, anytime the DAX climbs, the euro should rise in tandem, as investors need to get their hands on some euros.

Even though the correlation is poor, data demonstrate that it is still very accurate.

We at WikiFX.com conducted our own study and found out that the EUR/JPY seems to be closely linked with stock markets around the world.

You should know that the yen, like the US dollar, is regarded as a safe haven currency among the main currencies.

When traders' trust in the global economy is low and they are afraid, they often pull their money out of the stock markets, causing the DAX and S&P500 to fall in value.

As money flees these markets, the EUR/JPY tends to decrease as traders flee for protection.

On the other hand, when the sun shines brightly and risk appetite is high, investors pour their money into stock markets, causing the EUR/JPY to soar.

Take a look at the charts below to see how the EUR/JPY and the DAX and S&P500 are related.

The link seems to have held up well over the last decade, with the EUR/JPY and both indexes rising consistently until 2008, when the Global Financial Crisis struck (GFC).

The EUR/JPY, and also the stock indexes, had reached their apex in late 2007.