SyntheticIndices

The indicator compares quotes of a given symbol and a synthetic quote calculated from two specified referential symbols. The indicator is useful for checking Forex symbol behavior via corresponding stock indices and detecting their convergence/divergence which can forecast future price movements.

The main idea is that all stock indices are quoted in particular currencies and therefore demonstrate correlation with Forex pairs where these currencies are used. When market makers decide to "buy" one or another stock index, they sell currency the index is quoted in. For example the S&P500 upward trend is usually confirmed by the USD downward trend. And likewise, USD usually grows when S&P500 and other American indices fall (people may be said to go into cash). This is illustrated in the first chart below with DAX and EUR superposition (note that this is EUR, not EURUSD or any other pair which contains EUR).