Intermarket analysis: what do you watch besides forex?
Bonds, equities, commodities and currencies form one system, and the traders who read the cross-currents see moves earlier. The question is which markets deserve your attention for the pairs you trade.
What's your intermarket screen?
- the markets you track and the pairs they inform
- how a bond or equity move becomes a trade
- the intermarket signal that failed you
The bond yields guide and risk-on risk-off guide map the main channels.
Background: Bond yields and exchange rates: why currency traders watch the 2-year yield
Currencies often follow the gap between two countries' government bond yields. How yield differentials work, why 2-year yields track central bank expectations, and when the link breaks down.
Why do currency traders watch bond yields?
Because money tends to flow toward higher returns. The gap between two countries' bond yields, especially 2-year yields that track central bank expectations, often moves in line with their exchange rate.
What is a yield differential?
The difference between the yields on comparable government bonds in two countries, such as US and German 2-year bonds. A gap widening in one country's favour tends to support its currency.
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