D.R.E.A.M - Dollar Rules Everything Around Me (Intermarket Analysis) – EURUSD
Intermarket analysis is a powerful tool that gives traders/investors a macro predictive direction of stocks, bonds, commodities and currencies. Intermarket analysis states that all asset classes are interrelated and that you can’t definitively determine the direction of one asset class without examining the other asset classes.
There are several key relationships that bind these four markets together. These relationships include:
The INVERSE relationship between commodities and bonds.
The INVERSE relationship between bonds and stocks.
The POSITIVE relationship between stocks and commodities.
The INVERSE relationship between the US Dollar and commodities.
NOTE:
A rising Dollar puts downward pressure on commodity prices because many commodities are priced in Dollars, such as oil. Bonds benefit from a decline in commodity prices because this reduces inflationary pressures. Stocks can also benefit from a decline in commodity prices because this reduces the costs for raw materials.
Two weeks ago I posted about the EURUSD,
The chart now suggest price will pull back, then head further South to the weekly demand zone at 1.1170.
The trade is working because there were sellers at the daily supply zone at 1.1600. But equally important, the US dollar was bid up which is acting as confluence.
The US Dollar trades against a basket of currencies around the world consisting of primarily the Euro, Pound, Yen, Aussie Dollar and Canadian Dollar. Within that basket, the Euro is about 60% of that basket and thus is the currency that is the most inverse correlated to the US Dollar.
The chart suggests the US Dollar has room to at least move up to $97 which aligns with the pivot high on the weekly chart.
Based on the US Dollar chart, the chart on the EURUSD suggest, price has room to at least move down to 1.1301 which aligns with the pivot low on the weekly chart.
Because the world economy is so intertwined and webbed together, it’s my opinion that one cannot be reach their full potential as a trader/investor until they incorporate Intermarket Analysis as part of the trading world.
Published on
by rollandthomas
Great concept on watching for the relationships among asset classes but remember that the Financial Crisis showed us that when things get rough, investors sell everything to get their money out and that drove massive liquidity crunches around the globe. However, is cash really less risky? I doubt it and that could be the last trouble spot if things go sour but I don’t think that is coming soon but will eventually...
Great comment, which is why I think when it's all said and done, bonds will go down too, but not as much as equity. I think the best asset will be hard assests such as gold, silver and hopefully some crypto.