Intermarket Analysis for Forex Traders: The Full Guide

The Desk’s Guide

By Ken Chigbo, Founder, KenMacro, 18+ years across discretionary and systematic strategies, UK macro desk.

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Updated 2026-05-23

What intermarket analysis is and why it matters

Intermarket analysis treats financial markets as an interconnected system rather than a collection of isolated instruments. The approach was popularised by John J. Murphy, whose 1991 book “Intermarket Technical Analysis” formalised what practitioners had observed for decades: the bond, equity, commodity and currency markets send signals to each other continuously.

The core argument is straightforward. Central banks set short-term rates; their forward guidance and inflation expectations shape the yield curve; the yield curve reprices equities via discount rates; commodity prices feed into inflation; and all of it flows into exchange rates through capital flows and trade balances.

Traders who look only at a currency pair’s price action are working from a single input. A desk that reads bond yields, equity volatility, oil, gold and positioning data is working from the full picture. That is the practical value of intermarket analysis.

One critical caveat: these relationships are tendencies, not laws. The correlations shift across economic cycles, break down during systemic shocks, and can run in reverse for extended periods. Murphy himself noted that the 2008 financial crisis flipped several historical relationships. The framework sharpens your read; it does not replace judgment.

Bonds and currencies: yields drive FX

The relationship between bond yields and currencies is one of the most reliable in all of intermarket analysis. Capital seeks the highest risk-adjusted return. When US Treasury yields rise relative to those in Europe or Japan, dollar-denominated assets become more attractive and capital flows into USD, lifting the dollar.

This is the rate-differential framework. Traders watch the spread between, say, US 10-year yields and German Bund yields to frame EUR/USD direction. When the spread widens in favour of the US, the dollar tends to strengthen. When European yields close the gap, the euro tends to recover.

The same logic applies across all major pairs. USD/JPY is particularly sensitive to US 10-year yields because the Bank of Japan has historically anchored domestic rates near zero, meaning the differential almost entirely reflects US yield movements.

A few things interrupt this relationship. If yields are rising because inflation is genuinely out of control and the central bank looks behind the curve, markets may interpret that as a long-run negative for the currency. Always check what is driving yields: growth and productivity expectations are constructive for the currency; runaway inflation expectations can become the opposite. Check current yield data via the economic calendar before building a position.

Commodities and commodity currencies

Certain currencies are structurally linked to commodity prices because the economies behind them depend on commodity exports. Three pairs dominate this discussion at the desk.

USD/CAD and oil. Canada is one of the world’s largest oil exporters, with crude representing a significant share of its export revenue. When oil prices trend higher, Canadian export receipts rise, the trade balance improves and capital flows into CAD. The USD/CAD pair historically shows a negative correlation with WTI crude: rising oil, falling USD/CAD (stronger CAD). The relationship is not tick-for-tick but the directional tendency is well-established.

AUD/USD and gold. Australia is among the world’s largest gold producers. The AUD has historically carried a positive correlation with gold prices, though the correlation is not constant across all regimes. When gold is in a clear uptrend, AUD/USD tends to get a supporting bid. The relationship can weaken when gold is moving purely on USD safe-haven flows, because in that scenario the dollar strengthens at the same time, and the two forces offset.

The broader commodity bloc. AUD, NZD and CAD are collectively described as commodity-linked currencies. They tend to move together during commodity super-cycles and diverge on country-specific news. Watching commodity indices and industrial metals prices, particularly copper, gives a broader picture of commodity-bloc momentum than any single pairing.

The same caveat applies here: correlations drift. There have been extended periods where AUD moved primarily on China growth expectations rather than gold. Know what regime you are in before leaning on the historical link.

Risk sentiment as the connective tissue

Risk appetite is the variable that ties all four asset classes together. The desk uses it as a cross-asset overlay, read daily.

Risk-on: global growth expectations are improving or at least stable. Equity indices rise, credit spreads tighten and investors reach for yield. In FX, this translates into demand for higher-beta currencies: AUD, NZD, CAD, and certain emerging market currencies. Carry trades attract capital. Safe havens soften. JPY and CHF weaken as the yield-differential argument for holding them shrinks.

Risk-off: fear enters the market via a shock, whether macro data, geopolitical, or credit event. Equities fall, credit spreads blow out and capital moves to safety. In FX, JPY typically strengthens as Japanese investors repatriate overseas assets and carry trades unwind. CHF benefits from its safe-haven status rooted in Switzerland’s current-account surplus and political neutrality. USD tends to strengthen through its role as the world’s reserve currency and the primary currency of global liquidity. Gold often catches a bid simultaneously.

Two pairs the desk watches as early risk-sentiment indicators: AUD/JPY and NZD/JPY. Both pairs capture the ratio of a risk-on currency to a safe-haven one. A sustained drop in either pair, particularly when equity markets are not yet moving, often signals building risk aversion before it shows up in volatility indices.

Risk sentiment is not binary. Most trading days sit somewhere on a spectrum, and the key skill is identifying when sentiment is genuinely shifting rather than just backing off an extreme.

How the desk builds an intermarket read

The desk runs a structured intermarket check at the start of each London session. Here is the sequence.

First, check overnight bond markets. Where are US 10-year yields relative to yesterday? Are European yields moving in the same direction or diverging? Any meaningful yield move changes the dollar backdrop before price has fully adjusted.

Second, check commodity prices. Where did oil settle and where is it trading? Is gold up or down, and is the move driven by USD weakness or genuine safe-haven demand? These two questions frame CAD and AUD.

Third, check equity futures. S&P 500 and Nasdaq futures give a real-time read on whether overnight sentiment is risk-on or risk-off. A large gap down in US futures at the London open is typically accompanied by JPY and CHF strength and commodity-FX softness within the first hour.

Fourth, check AUD/JPY and NZD/JPY. These pairs function as a composite risk-sentiment thermometer. If both are selling off while US equity futures are only modestly negative, the FX market is telling you something the equity market has not priced yet.

Finally, look for confluence. An intermarket read is strongest when bonds, equities and commodities all point in the same direction for the currency move you are considering. When they diverge, that is a signal to reduce size and wait for clarity rather than force a trade.

The framework is a filter. It narrows the field of plausible trades and increases the probability that a technical setup is aligned with the macro backdrop. It does not predict short-term price action on its own.

Frequently asked

Who popularised intermarket analysis?

John J. Murphy, a former CNBC technical analyst, is widely credited with popularising the framework through his 1991 book ‘Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets’, published by Wiley. He followed it with ‘Intermarket Analysis: Profiting from Global Market Relationships’ and received the International Federation of Technical Analysts award for outstanding contribution to global technical analysis in 1992.

Does intermarket analysis actually work for forex traders?

It works as a directional filter, not a precision signal generator. The approach narrows the field of plausible trades by checking whether the macro backdrop supports a given FX move. A technical setup that is also supported by bond yield direction, commodity trends and risk sentiment has a higher probability of following through than one that contradicts the macro picture. The honest answer is that correlations are tendencies, not laws, so the framework reduces errors rather than eliminating them.

Why does USD/JPY follow US 10-year yields so closely?

Because the yield differential between the two countries is lopsided in a structurally persistent way. The Bank of Japan has historically kept domestic rates near zero or below, so the US-Japan rate spread almost entirely tracks US yields. When US 10-year yields rise, dollar-denominated assets pay more relative to yen assets, attracting capital into USD and lifting USD/JPY. The relationship weakens when the BoJ shifts policy, as it did in 2024 when it began normalising rates.

Can intermarket correlations break down?

Yes, and they do regularly. The 2008 financial crisis is the most cited example: several historical relationships inverted as forced deleveraging and liquidity crises overwhelmed normal capital-flow logic. Correlations also shift across economic cycles. The oil-CAD link weakens when Canada’s trade balance diverges from oil prices due to pipeline constraints or domestic political factors. The gold-AUD link softens when AUD is moving primarily on China credit signals rather than gold. Always confirm what is driving a correlation before trading it.

What is the best way to monitor risk sentiment daily?

The desk uses four inputs: US equity futures (S&P 500 and Nasdaq), AUD/JPY and NZD/JPY as FX-based risk proxies, US high-yield credit spreads where available, and the VIX volatility index direction. No single input is definitive. The weight of evidence across all four gives a reasonable intraday read on whether risk appetite is expanding or contracting.

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