Lesson 3
Currency as Indicator
Build a currency dashboard: USD/JPY (USDJPY) for risk/carry, EUR/USD for global growth, USD/CNY for China policy. These are leading indicators for their respective markets. Currencies often move first.
📊 Indicators mentioned in this lesson (click for details):
Specific currency pairs contain valuable information about global conditions. Learn to read them as indicators, not just FX levels.
USD/JPY (USDJPY) — The Carry Trade Gauge:
USD/JPY (USDJPY) tells you about:
- Risk appetite (higher = more risk-taking via carry)
- Hidden leverage in the system
- Potential for violent unwinds (rapid drops = forced selling)
Key signals:
- Rising steadily: Carry expanding, hidden liquidity, supportive for risk
- Falling >3% in a week: FIRE ALARM — carry unwind in progress
EUR/USD — Global Growth Gauge:
When EUR/USD rises:
- Global growth expectations often rising
- Capital flowing FROM US to global assets
- Often coincides with commodity strength
USD/CNY — China Policy Signal:
China manages its currency, so USD/CNY movements signal PBoC intentions:
- Yuan weakening (USD/CNY rising): China prioritizing growth over currency stability
- Yuan strengthening: China confident, may be tightening
- Rapid yuan weakness: Can signal capital flight or policy desperation
AUD and CAD — Commodity Proxies:
Australia and Canada are commodity exporters. Their currencies track commodity prices and global growth expectations.
Check your understanding
Lesson Quiz
Quiz Check
USD/CNY is rising (yuan weakening). What does this signal about China's policy priorities?