You have to understand the relationship between commodities, stock markets, and currencies in order to deal with a bear market.
You cannot actually have a bear market in the forex market. Bear markets only exist in the stock and commodities markets. When stock prices fall, there isn’t anything else that is going to be affected. In the foreign exchange market, since currencies are traded in currency pairs, when one currency decreases, the other will increase. Some currencies can be linked to the other markets, though, and therefore, it is important to understand what a bear market is so that traders can profit from opportunities that can present themselves.
Tips for handling a Bear Market:
What do you do when you end up with a bear market in the commodities market and how can you make a profit?
If the commodity and stock markets in a certain country are responding in a certain way, then it’s understandable that currencies would also respond since commodities and stock markets are tied to a country’s economic growth and exports. If you keep this information it mind, it becomes a tool for you to predict what might happen to a certain currency.
Australian, Canadian, and New Zealand currencies all are closely related to the US Dollar and are normally traded as currency pairs. Oil and Gold are also strongly related to these currency pairs. So, let’s assume, for example, that the price of gold has decreased. Since Australia is one of the leading producers of Gold, it’s safe to assume that their currency will decrease to some extent as well. And, if Australia’s currency decreases, New Zealand’s currency will decrease as well. So, a reduction in Gold prices which will create a Bear market will result in those currency pairs decreasing their value.
A more complicated example of what can happen in a Bear market can be seen in the example of what happens when there is a bear market that affects the cost of oil. Canada produces oil, so, therefore, if the price of oil decreases then Canada’s economy, and therefore the value of their currency will also decrease. Those countries who are importing oil will see an increase in their currency’s value because of the decreasing price of oil.
Stocks and currencies are also correlated. For example, sometimes, when a certain stock exchange increases, it can have a direct impact upon a pair of currencies, either by increasing the value of a currency, or an inverse relationship by decreasing the value of certain currencies.
Understanding how bearish stock and commodities markets develop relationships with currencies can allow a trader to take advantage of situations that present themselves.