As previously said, in order to invest in a certain stock market, one would need to purchase equities in the local currency.
You can picture the impact that stock markets, such as the DAX (the German stock exchange), have on currencies.
In theory, anytime the DAX climbs, the euro should rise as well, because investors need to get their hands on some euros.
While the correlation is imperfect, statistics suggest that it maintains rather well.
We at ForexInvestIndo.com conducted our own study and discovered that EUR/JPY appears to be significantly connected with stock markets around the world.
You should be aware that the yen, like the US dollar, is regarded as a safe haven among major currencies.
When confidence in the global economy is low and traders are afraid, we often see traders withdraw their money from the stock markets, causing the DAX and S&P500 to fall in value.
When money is moving out of these markets, the EUR/JPY normally falls as traders flee for cover.
When the sun shines brightly and risk appetite is high, investors pour their money into stock markets, causing the EUR/JPY to soar.
Look at the charts below to discover how the EUR/JPY relates to the DAX and S&P500.
The link appears to have remained well over the last decade, as the EUR/JPY and both indexes increased steadily together until 2008, when the Global Financial Crisis (GFC) struck.
The EUR/JPY had reached its peak in late 2007, as had the stock indices.