Currencies do not exist in isolation from other financial markets. They are one of four interconnected asset classes — alongside equities, bonds, and commodities — that reflect the global flow of capital. When institutional investors shift money from bonds to equities, from commodities to cash, from high-yield currencies to safe havens — these flows create predictable patterns across all four asset classes simultaneously. Intermarket analysis is the study of these relationships. It provides a macro-level context for currency movements that no single-market analysis can replicate. Understanding it transforms your ability to anticipate currency trends rather than just react to them.
What Is Intermarket Analysis?
Intermarket analysis studies the relationships between the four major financial asset classes: equities (stocks), bonds (government debt), commodities (oil, gold, metals), and currencies. These markets are connected through the flow of capital — when conditions change, capital moves between asset classes in predictable patterns that create leading indicators for subsequent moves in other markets.
The framework was popularised by John Murphy in his book Intermarket Technical Analysis (1991) and has remained relevant because the relationships it describes are grounded in the fundamental economics of capital allocation — not in arbitrary correlations that might disappear.
The Four Asset Classes
Each asset class responds to economic conditions in a characteristic way.
EQUITIES: Rise when: economic growth is strong, corporate earnings are growing, interest rates are manageable. Fall when: recession fears increase, earnings disappoint, rates rise sharply. BONDS (Government): Rise (yields fall) when: recession fears increase, inflation falls, safe haven demand rises. Fall (yields rise) when: growth is strong, inflation rises, central banks tighten policy. COMMODITIES: Rise when: global growth is strong (increasing industrial demand), dollar weakens, inflation rises. Fall when: recession fears increase (demand falls), dollar strengthens. CURRENCIES: Determined by: interest rate differentials, economic growth outlook, risk appetite, and all of the above asset class dynamics feeding through.
Equities and Currencies
Rising equity markets generally correspond to risk-on conditions — investor confidence is high, capital is seeking growth. This environment typically weakens safe haven currencies (JPY, CHF) and strengthens commodity currencies (AUD, NZD). The S&P 500 is the most watched global equity barometer for this purpose.
When the S&P 500 is in a sustained uptrend, AUD/JPY typically rises — because AUD benefits from risk-on while JPY weakens. When the S&P 500 falls sharply, AUD/JPY typically falls quickly and severely as carry trades unwind. Watching the S&P 500 alongside your forex charts gives you a real-time read on the equity-currency relationship.
S&P 500 rising (+1% on the day): AUD/JPY: likely rising. NZD/JPY: likely rising. USD/JPY: likely rising (risk-on). EUR/CHF: likely rising (CHF weakening). S&P 500 falling sharply (-2% on the day): AUD/JPY: likely falling significantly. USD/JPY: likely falling (JPY strengthening). Gold: likely rising. CHF pairs: CHF likely strengthening.
Bonds, Yields and Currencies
Bond yields are one of the most important drivers of currency direction over the medium to long term. Higher yields attract capital from around the world — foreign investors must buy the domestic currency to purchase the bonds, creating currency demand. This is the fundamental mechanism behind the interest rate differential and carry trade concept introduced in earlier lessons.
US Treasury yields — specifically the 10-year yield — are the most significant bond market signal for forex traders. When US 10-year yields are rising, it signals that markets expect either stronger US growth or higher US inflation — both of which tend to support the dollar. When yields fall, dollar support weakens.
US 10Y yield rises from 4.0% to 4.5%: Dollar typically strengthens. EUR/USD typically falls. USD/JPY typically rises. (Higher US yields attract global capital into US bonds, requiring USD purchase.) Japanese 10Y yield rises from 0.5% to 1.0%: Yen typically strengthens. USD/JPY typically falls. (Narrowing US-Japan yield differential reduces carry trade appeal of short JPY.)
Commodities and Currencies
Several major currencies are closely tied to commodity prices because the countries they represent are significant commodity exporters. The relationships are well-established and relatively stable.
OIL — Canadian Dollar (CAD): Canada is a major oil exporter. Rising oil prices → CAD strengthens. Falling oil prices → CAD weakens. USD/CAD and oil have a strong inverse relationship. GOLD — Australian Dollar (AUD): Australia is a major gold producer. Rising gold → AUD often strengthens. (Also because gold is priced in USD — gold rising = dollar weakening generally.) IRON ORE — Australian Dollar (AUD): China is Australia's largest export market and buys massive quantities of iron ore. Strong Chinese industrial demand → iron ore up → AUD up. COPPER — Global growth proxy: Copper is widely used in construction and manufacturing. Rising copper signals global industrial growth — risk-on. AUD and NZD often follow copper direction.
Intermarket analysis is not about finding a mechanical formula — it is about building a comprehensive picture of the global capital flow environment before you focus on individual currency pairs. Five minutes spent checking equities, bond yields, gold, and oil before your trading session gives you a macro context that most retail traders completely lack. That context helps you trade with the flow rather than against it.