Intermarket Relationships (Gold, Oil, Bonds, Stocks) — Reading the Global Map 🗺️

Intermarket analysis studies how different asset classes (currencies, commodities, bonds, equities) influence each other through global capital flows.

The Four Major Asset Classes

Currencies (Forex): $7.5 trillion daily volume. Driver: Interest rates, growth, risk sentiment.

Commodities (Gold, Oil): $1.5 trillion daily volume. Driver: Supply/demand, inflation, currency valuations.

Bonds (Fixed Income): $130+ trillion market value. Driver: Interest rates, inflation expectations. The "smart money" market—often leads currencies

Equities (Stocks): $100+ trillion market cap. Driver: Corporate earnings, growth expectations, risk appetite. The "risk appetite" barometer

Why Intermarket Analysis Matters

Advantage #1: Early Warning Signals — Bond Market is 17× LARGER than Forex. Institutional money moves through bonds FIRST, then filters into currencies.

Advantage #2: Confirmation & Confluence — Technical setup alone: 60% win rate. Technical + Intermarket confirmation: 72% win rate. +12% from context

Advantage #3: Avoiding Doomed Trades — Perfect technical on EUR/USD but US10Y spiking, Gold collapsing, DXY breaking resistance? CONFLICT. Intermarket veto. SKIP the trade.

Gold vs. USD: The Classic Relationship

The Inverse Correlation: Correlation: -0.85 to -0.95 (strong inverse)

Why They're Inverse:

Pricing Mechanics: Gold is priced IN US dollars. When USD strengthens → Takes FEWER dollars to buy gold → XAU/USD price FALLS

Real Interest Rates: Gold pays NO yield. USD assets PAY yield. When US real rates HIGH → Sell gold → buy USD bonds. Gold FALLS, USD RISES.

Trading Application: Before trading USD pairs, check Gold. Gold ↓ + DXY ↑ = USD strength REAL → trade it. Gold ↑ + DXY ↑ = Crisis mode OR divergence → Proceed with caution.

Oil & CAD: The Direct Correlation

Why CAD = Petrocurrency: Oil & gas exports = 22% of Canada's total exports ($122 billion annually). Oil price +$10/barrel → Canada GDP +0.3%

The Mechanism:

Oil Price RISES ($70 → $85):

1. Canadian export revenue RISES
2. Oil companies convert USD → CAD (CAD demand increases)
3. Trade balance improves
4. Bank of Canada may hike rates
5. Result: Oil ↑ → CAD ↑ → USD/CAD ↓

Historical Correlation: Oil vs. USD/CAD: -0.75 to -0.85 (75-85% inverse correlation). CAD follows oil closely.

Trading Application:

Confirmation: Short USD/CAD (bullish CAD). Check: Oil breaking out ($78 → $83). GREEN LIGHT with high conviction.

Divergence Warning: Short USD/CAD (bullish CAD). Check: Oil collapsing ($82 → $74). RED FLAG—skip or reverse.

Bonds (Yields) and the USD

The bond market is where the "smart money" lives. US Treasury yields are THE most powerful leading indicator for the US Dollar.

The Direct Correlation: Correlation: +0.70 to +0.85. Yields predict USD direction.

The Capital Flow Mechanism:

US 10-Year Treasury Yield RISES (4.0% → 4.5%):

1. Higher Return Attracts Global Capital (Need to buy USD to buy US bonds)
2. Carry Trade Amplifies (Borrow JPY at 0.5%, Buy USD bonds at 4.5%, Net carry: 4.0%)
3. Result: Yields ↑ → USD ↑

Why Bonds LEAD Forex: Bond market ($130 trillion) is 17× larger than daily FX volume. Institutional-dominated. Bond traders are professional, react FAST. Economic data release → Bond market reprices (FAST, within seconds) → Forex market follows (slower, minutes to hours). Bonds react first.

Trading Application: Monday: US10Y breaks 4.50% (major level). EUR/USD still at 1.0895 (hasn't moved yet). Bond market is ahead. Action: "US10Y breakout → USD strength coming. Prepare to short EUR/USD." Tuesday: EUR/USD falls to 1.0750 (-145 pips). Bond market gave 24-hour early warning.

Stocks and Risk Appetite (JPY, CHF)

Stock markets are the global "risk-on/risk-off" barometer. Safe-haven currencies react inversely to equity performance.

JPY: The Ultimate Safe Haven

Why JPY is Special: Japan = world's largest net creditor, Low/zero interest rates (funding currency), Stable economy

During crises: Carry trades unwind (investors REPAY JPY loans), Repatriation flows, Flight to safety. Massive JPY bid

The Carry Trade Unwind:

Normal times (Risk-On): Borrow JPY at 0.1%, Buy high-yielding assets. Requires selling JPY

Crisis times (Risk-Off): CLOSE carry trades (panic), BUY BACK JPY to repay. Massive JPY buying

Result: S&P 500 ↓ -3% → USD/JPY ↓ -200 pips (same day). Violent, reliable reaction.

Historical Correlation: S&P 500 vs. USD/JPY: +0.75 to +0.85. Stocks up = JPY down.

Trading Application:

Risk-On: S&P 500 breaking resistance (+3.3%), VIX falling (12). Analysis: Stocks rallying = risk-on = JPY weakness. USD/JPY long = WITH risk flow. GREEN LIGHT

Risk-Off: S&P 500 breaking support (-3.3%), VIX spiking (25). Analysis: Stocks falling = risk-off = JPY strength. USD/JPY long = AGAINST risk flow. RED LIGHT—skip or reverse

Summary

Intermarket analysis transforms you from a chart reader into a market strategist.

Quiz

Remember: The perfect technical setup is just ONE piece of the puzzle. Gold falling, yields rising, and stocks steady all CONFIRM your USD long. But if they're ALL pointing opposite? That "perfect" setup is doomed. Trade with the global flow, not against it.

Read the map. Follow the money. Trade the context.