Inter-Market Relationships

Regardless of your market of choice, you must be aware of how it interacts with other markets. Being aware of the manner in which certain markets behave relative to others can potentially improve the probability of success. For instance, those looking to find a bullish opportunity in crude oil, or a bearish play in Treasuries, might look to the currency market for guidance in timing. Treasury bond and the U.S. dollar are tied together. In the current environment, bonds have had a propensity to move in the same direction of the greenback. This is in contrast to the aforementioned relationships in which the U.S. currency moves opposite the asset in question. The positive correlation between the greenback and bonds is largely due to the fact that foreign investors must sell their domestic currency to purchase dollars before allocating investment funds into U.S. based assets such as Treasuries. In other words, the safety of U.S. government backed securities lures overseas investors to convert holdings away from the Euro, Yen, or other, into dollars. This puts upward pressure on the greenback, prior to purchasing the desired investment. With this in mind, it isn’t surprising to see a strong positive correlation between the two asset classes. Below is just one example how The GBP is corelated against energy prices which is a leading indicator of the currency’s strength. At 240 Code Premium we uncover Trading Forex with precision on a deeper intermarket level.

 

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