Here's How To Trade Forex Using Intermarket Analysis And Market Sentiment

Wall Street markets yesterday plummeted after the International Monetary Fund (IMF) report warned of global financial growth and stability. This leaves the global market in a state of risk-off / risk aversion.

The CBOE VIX chart which measures the SP500 market anxiety index rose by 50% to 23% within a day.

The CNN Fear and Greed chart also shows the market mood in extreme fear. Decreased to a value of 8 out of 23 the previous day.

In the equity market, all major markets such as the Nikkei, ASX 200, Dax, Ftse, SP500, Dow, and Nasdaq are in a negative state. Meaning investors are worried about investing in the stock market. The demand for the stock market is declining.

As the stock market declines, investors will look for a safe market to invest in like bonds. Basically, the bond price is the opposite of the return/dividend/bond yield. If bond demand increases, bond returns will decrease. (You can refer to picture number 4 to see the decrease in bond returns is in red).



So here it can be concluded that the rise of the VIX index, the fall of the Fear and Greed index, the fall of the stock index, and the fall in Bond returns will put the market in a risk-off situation.


What happens to the currency if the market is a risk-off? Currencies with a high return on investment will be sold while currencies with low returns will be in demand.

Why?

Because when the market is stable, investors will seek maximum returns by borrowing low-interest rates and investing in countries with high returns. Refer to picture number 5, New Zealand has a return of 2.648%, Japan has 0.140. If you want to maximize returns, investors borrow Japanese currency and invest in New Zealand.

In the event of a risky market, investors will take profits from the country invested and convert it back to the original currency borrowed. Here there will be a demand for the currency borrowed initially.

In conclusion, in the event of a risk-off, pair audxxx, nzdxxx, xxxjpy and xxxchf will plummet.