US stock market rally can be benefic for the US dollar; higher interest rates can also be benefic for the US dollar.
Theses two components, stock market and interest rates, are correlated to the US dollars.
In fact, when the stock market is rallying, it provides an ideal investment opportunity for traders, theses traders will buy more and more dollars to invested in US stock market; this will make the US dollars increases against others currencies.
When interest rates are higher then more foreign investors will buy dollars to profit from theses interest rates.
Imagine you have 1 000 000 Euros and you want to gain higher return but without too much risk; Interest rates in Euro is 2% and in USA 4.5%; will you convert your money to US dollars ? Of course yes.
To summary, Stock market rally and high, growing interest rates are both benefic to US dollars; the ideal is when they happen at the same time.
But of course this is not always the case, because growing interest rates is usually a bad news to the Stock market.
When for example stock market is rallying, interest rates are decreasing, US dollars are increasing and no others events happen, then forex traders are more focusing on stock market than the interest rates to take their investment decision.
The best way to trade currency I think is to focus on economic events to get a general market sentiment and then use technical analysis for timing. Following the trend in forex like any other market is very important.
Others economic events that you have to look to are us deficit, unemployment Rate, geopolitical events…
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