Intermarket dynamics

A wide range of intermarket factors can impact the U.S. dollar, including action in the stock, gold, and interest rate markets.

While “the U.S. stock market is always important to the U.S. dollar, for now the key issue for both equities and the dollar is what happens in the interest-rate markets,” says Mike Berg, strategist at 4Cast Inc. “That includes the Fed activity and the bond market’s response.”

Barclay’s Kotick warns investors not to place too much importance on stock or gold market activity when making trading decisions in the currency markets. Kotick says these correlations are not reliable.

“Gold and stocks have been strong for three to four years,” Kotick says. “But, in that time, we’ve seen a huge bearish move in the dollar and a huge bullish move.”

However, for those looking for an intermarket “trigger,” Kotick suggests monitoring action in U.S. 10 year T-note yields relative to the U.S. dollar.

“Watch if 10-year yields can climb above 5 percent,” Kotick says. “That would be bullish for the dollar.”