Intermarket Analysis: Bonds, Stocks, and Forex—The Trinity of Financial Pain

Listen, I’ve been trading for twenty years, and I’ve watched thousands of retail traders blow up their accounts while staring at a single chart. They’re obsessed. Completely obsessed. Some muppet’s looking at the 5-minute EUR/USD chart, convinced they’ve spotted a “golden cross reversal pattern,” utterly oblivious that the US 10-year bond yield just spiked 50 basis points.

They get liquidated. Margin call. Game over.

Here’s the uncomfortable truth nobody wants to hear: Forex doesn’t exist in a vacuum. It’s part of an ecosystem—a messy, interconnected, sometimes schizophrenic ecosystem where bonds, stocks, and currencies all dance together in ways that would make a choreographer weep.

Welcome to intermarket analysis. It’s not sexy. It won’t make you rich tomorrow. But it might, just might, prevent you from losing everything.

The Big Picture: What Actually Moves Currency Markets

Everyone thinks it’s the central banks. It’s not. Well, not entirely.

Central banks matter, sure. But what really drives currency flows is capital allocation. Money—billions of dollars—sloshing around the world looking for yield, stability, and growth. That money lives in three primary buckets:

1. Bonds (fixed income)
2. Stocks (equities)
3. Currencies (foreign exchange)

These aren’t separate universes, mate. They’re connected like a three-legged stool. Kick one leg, and the whole thing wobbles.

Let me paint a scenario. It’s 2022. Everyone and their nan knows what happens next. The Fed starts tightening rates. Bond yields rise. Suddenly, that 10-year US Treasury is paying 3.5%, then 4%, then 4.5%. Where do you think all the money that was chasing tech stocks and crypto goes? Back to bonds. Safe, boring, yielding bonds.

This creates a cascade.

Stocks start dumping because money’s fleeing for bonds. The dollar strengthens because foreign investors want those juicy Treasury yields—so they sell their euro positions to buy dollars. EUR/USD tanks. Meanwhile, emerging market currencies absolutely crater because everyone’s pulling capital out to get back into developed market bonds.

That retail trader who was long EUR/USD on a “support bounce” got absolutely demolished. Why? Because they were staring at a chart instead of understanding why money moves.

The Correlation Dance: Bonds and Stocks

Here’s where it gets interesting.

Historically—and I mean historically—bonds and stocks have been negatively correlated. When stocks fall, bonds rise. It’s the classic “risk-off” trade. You sell equities, buy Treasuries, sleep soundly knowing you haven’t lost everything.

But here’s what the new lot of traders don’t understand: this relationship isn’t permanent. It’s a feature, not a law of physics.

During stagflation (high inflation, slow growth—remember the 1970s?), bonds AND stocks fell simultaneously. Rising inflation eroded the real value of fixed income and crushed corporate profit margins. Both asset classes got absolutely filleted.

Then came the 2008 financial crisis. Stocks crashed. Bonds soared as the Fed slashed rates and investors fled to safety. Beautiful negative correlation. Thank you, please drive through.

Fast forward to 2010-2021. Zero interest rates. Quantitative easing. Bonds and stocks moved together, up, up, up. Positive correlation. “Risk-on” dominated. Everyone was making money. It was brilliant. It was also intellectually lazy.

Then 2022 happened again—rates shot up, bonds down, stocks down. Both asset classes suffered. Negative correlation returned with a vengeance, but it didn’t help because investors needed liquidity everywhere.

The point? You need to understand the current regime, not just assume correlations work the way they did in 2010.

Where the Forex Trader Actually Gets Hurt

Here’s the bit that matters for your account balance:

When bonds and stocks diverge sharply, currency volatility explodes. Why? Because it signals confusion about the economic outlook. Is growth slowing (bad for stocks, good for bonds) or is inflation surging (bad for both)? Traders don’t know. So they panic. Volatility spikes. Spreads widen. Stop-losses get hunted.

I watched GBP/USD swing 200 pips in three minutes during the March 2020 COVID crash. Why? Because the bond market was in absolute freefall—yields were crashing, spreads were blowing out, and nobody knew what anything was worth. Forex followed like a traumatised puppy.

The traders who survived? The ones watching the 10-year yield futures, checking the Vix, understanding that something was broken in the correlation structure.

The traders who died? The ones mechanically trading their “breakout strategy,” utterly blind to the fact that the entire regime was shifting.

Using Intermarket Analysis Practically

Right, enough ranting. How do you actually use this?

Monitor the 10-year yield spread. Compare US Treasury yields to other major economies. If US yields are rising faster than German bunds, capital flows into dollars. EUR/USD weakens. This is mechanical. You can bank on it.

Watch the volatility indexes. VIX spiking? Equals risk-off. Money rotates from equities to bonds. Carry trades unwind. High-yielding currency pairs (like GBP/USD) get demolished. Low-volatility pairs (like USD/JPY) stabilize. Plan accordingly.

Check the stock market before trading forex. I know, shocking. But if the S&P 500 opens significantly down, risk appetite is dead. Your directional forex trade is swimming upstream.

Understand yield differentials. If GBP rates are rising relative to EUR rates, money flows into sterling. Cable (GBP/USD) strengthens. If this sounds like grunt work, you’re right. It is. But it’s the work that separates winners from rubble.

The Uncomfortable Truth

Most retail traders won’t do this analysis. They’ll keep staring at their charts, convinced that technical analysis is the holy grail. They’ll ignore bonds entirely. They’ll be shocked when their “perfect setup” gets invalidated because some central banker blinked and the entire correlation structure shifted.

That’s fine. More money for people who actually think.

Intermarket analysis isn’t glamorous. It won’t get you followers on Twitter. But it will keep you solvent, and solvent traders eventually become profitable traders.

Use a forex calculator to run your position sizes. Use an economic calendar to track yield movements. Use your brain to connect the dots.

The market’s interconnected. Start acting like it.

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Now stop reading blogs and get to work.