ADVANCED: COURSE 1 | LESSON 2
Intermarket analysis: DXY, yields, commodities, equities
Learning objectives
Read the DXY, bond yields, commodities and equity indices as a single connected dashboard rather than isolated charts
Use specific, well-documented linkages (real yields → gold, oil → CAD, copper → AUD, yield spreads → FX) to confirm or veto trade ideas
Recognise when a historical correlation has broken and stop leaning on it
No market moves alone
Currency traders who only watch currency charts are trading with one eye closed. The FX market is the plumbing between every other asset class: equity flows, bond flows, commodity invoicing and cross-border hedging all settle through it. Intermarket analysis is the discipline of reading those adjacent markets as leading or confirming evidence for FX moves — not as mystical signals, but because the same macro cause (growth expectations, inflation expectations, risk appetite) hits several markets at once, and some react faster than others.
Two warnings before the linkages. First, correlations are regime-dependent: every relationship below has multi-month periods where it inverts or dies. Second, correlation is not mechanism. You want to understand why two markets move together, because the "why" tells you when the relationship should hold and when it should not.
The dollar complex: DXY and yields
The US Dollar Index (DXY) is a weighted basket: roughly 57.6% EUR, 13.6% JPY, 11.9% GBP, with CAD, SEK and CHF making up the rest. That composition matters — DXY is mostly an inverted EUR/USD chart. A "dollar rally" on DXY may really be a euro-specific selloff; check USD against a broader set (AUD, EM, JPY separately) before concluding the dollar itself is bid. DXY's technical levels are still worth marking because so many participants watch them.
The cleaner driver is yields — specifically differentials and real yields. Three practical reads:
- 2-year yield differentials track policy expectations and anchor pair direction over weeks to months (covered in A1.1).
- 10-year yields encode growth and inflation expectations. USD/JPY has historically tracked the US 10-year (and the US–Japan 10-year spread) unusually tightly, because Japanese institutional flows respond to that spread — one reason USD/JPY often moves during US bond selloffs even without FX-specific news.
- Real yields (nominal minus inflation expectations, visible via TIPS) drive gold. Gold pays no coupon, so its opportunity cost is the real yield: rising real yields are a headwind, falling or negative real yields a tailwind. The gold–real-yield link weakened during 2022–24 as central-bank gold buying became a dominant flow — a live example of a mechanism being overwhelmed by a new one.
Commodity currencies: the invoice channel
Some currencies are tied to a country's export slate, which gives you readable, mechanism-backed pairs:
- Oil → CAD. Canada is a major crude exporter; oil revenue flows through the CAD. WTI strength tends to support CAD (i.e. pressure USD/CAD lower). The link is strongest when oil moves for supply reasons and weakest when oil and USD are both reacting to global growth fears.
- Copper and iron ore → AUD. Australia's export base makes AUD sensitive to industrial-metal prices and, one step upstream, to Chinese growth data. Copper is sometimes a leading indicator here: a copper breakdown while AUD holds up is a divergence worth respecting.
- Dairy → NZD, oil and gas → NOK, and broadly gold → AUD (Australia is also a top gold producer) round out the set.
The trade application is confirmation and veto. If you like a short USD/CAD setup and crude has just broken out upward, the intermarket board agrees. If crude is collapsing, your technical setup is fighting the currency's primary external driver — skip it or size down.
Equities and the risk channel
Equity indices are the fastest, most liquid read on risk appetite, which makes them the natural confirmation layer for the risk-on/risk-off framework from A1.1. Useful specifics:
- JPY crosses and equity futures often move tick-for-tick during risk events; AUD/JPY has long served as an "equities in FX clothing" proxy.
- The Nikkei and USD/JPY historically correlate positively (a weaker yen boosts Japanese exporter earnings), so a Nikkei rout led by yen strength is one connected story, not two.
- Sector detail carries information: an equity selloff led by banks (credit stress) has different FX implications from one led by tech valuations. Credit-stress selloffs produce the sharpest haven bids.
Watch the sequencing. Bonds frequently move first (yields reprice on data), equities react to the discount-rate change, FX follows the flows. When you see yields spike, you have a few minutes-to-hours window to ask which currencies the repricing favours before FX fully catches up — not an arbitrage, but a prioritisation tool for your watchlist.
Building and maintaining your intermarket dashboard
A professional's version of this is boringly systematic. Maintain one screen with: DXY, EUR/USD, USD/JPY, AUD/JPY; US 2y and 10y yields (plus the German 2y for EUR work); WTI, gold, copper; S&P 500 and Nasdaq futures; VIX. Review it at fixed times (your weekly and daily routine, formalised in A1.5), and record a one-line answer to three questions: What is the dominant driver this week? Which relationships are currently tight? Which have broken?
Measure, don't assume. A rolling 20–60 day correlation tells you whether a linkage is currently alive. As a rule of thumb, treat |ρ| above ~0.7 as a usable relationship, 0.4–0.7 as weak support, and below 0.4 as noise — and remember that correlations computed on levels are inflated; use daily returns. When a historically tight pair (say gold and real yields) decorrelates for weeks, that is not a malfunction to ignore: it is information that a new flow has entered the market, and your old playbook needs a footnote until the relationship re-establishes.
The widget below lets you explore exactly this: which linkages are tight right now, over what window, and where they broke historically.
Key takeaways
DXY is ~58% euro — verify "dollar strength" against a broader currency set before trading it as a USD story
Yield differentials (2-year for policy, 10-year for growth/inflation) are the cleanest cross-asset anchor for FX direction; real yields are the key driver for gold
Commodity-export channels give mechanism-backed links: oil→CAD, copper/iron→AUD, oil/gas→NOK — strongest when the commodity moves for supply-side reasons
Equities are the fastest risk-appetite read; JPY crosses often track index futures closely in risk events
Correlations are regime-dependent: measure them on returns over rolling windows, use them as confirmation/veto, and retire them when they break