Intermarket Analysis: DXY, Yields, Oil, and Gold
Forex doesn't exist in isolation. Bonds, stocks, commodities, and currencies are all connected.
Researched and written by Laurent Everything Is Connected
Currency markets don't move in isolation. They're part of a global financial ecosystem where bonds, equities, commodities, and currencies constantly influence each other. Understanding these connections gives you a macro context that pure chart analysis misses.
DXY: The Dollar Index Composition
Before we dive into relationships, you need to understand DXY (also written as USDX or DX). DXY measures the US dollar against a basket of 6 foreign currencies. The basket dates to 1973; the current weights were set in 1999 when the euro replaced five European currencies:
| Currency | Weight in DXY | Notes |
|---|---|---|
| EUR (Euro) | 57.6% | Dominant component. DXY is largely an inverse EUR/USD chart. |
| JPY (Japanese Yen) | 13.6% | Second-largest weight. |
| GBP (British Pound) | 11.9% | Third-largest. |
| CAD (Canadian Dollar) | 9.1% | Commodity currency exposure. |
| SEK (Swedish Krona) | 4.2% | Smaller European exposure. |
| CHF (Swiss Franc) | 3.6% | Safe-haven currency. |
Two important implications:
- DXY moves are mostly EUR/USD moves inverted. If EUR/USD falls 1%, DXY rises roughly 0.58% (driven by the 57.6% weight).
- DXY ignores major modern currencies. No CNY (China), no AUD or NZD, no any emerging market. So DXY does not measure "global USD strength," only USD against this specific 1970s-era basket.
Key Intermarket Relationships
| If This Moves... | ...This Usually Follows | Why |
|---|---|---|
| DXY rises | EUR/USD falls, commodity currencies weaken | DXY is 57.6% weighted to EUR. Dollar strength = EUR weakness. |
| US 10Y yield rises | USD strengthens | Higher yields attract foreign capital into US Treasuries, requiring USD to buy them. |
| S&P 500 falls sharply | JPY, CHF, USD strengthen; AUD, NZD weaken | Risk-off: capital flows to safety. |
| Oil surges | CAD strengthens (USD/CAD falls) | Oil is Canada's largest export. Higher oil = higher export revenue. |
| Gold rises | USD usually weakens (not always) | Gold is priced in USD. They often move inversely. Also a safe haven. |
| VIX spikes above 30 | JPY, CHF surge. EM currencies crash. | Fear triggers safe-haven demand and carry trade unwinds. |
Daily Pre-Market Check
Before trading each day, spend 2 minutes checking:
- DXY: Dollar up or down today? Week?
- US 10Y yield: Rising (USD bullish) or falling (USD bearish)?
- S&P 500 futures: Up (risk-on) or down (risk-off)?
- VIX: Below 20 (calm), 20-30 (cautious), above 30 (defensive)?
These four data points give you a macro backdrop in under 2 minutes. If they contradict your trade idea, proceed with caution or reduce size.
Key Takeaways
- • DXY (Dollar Index) up = USD strong = EUR/USD typically down.
- • Rising US bond yields = USD bullish (higher rates attract capital).
- • S&P 500 up = risk-on = JPY/CHF weak. S&P 500 down = risk-off = JPY/CHF strong.
- • Oil up = CAD, NOK bullish. Gold up = usually USD bearish or risk-off.