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In my earlier intermarket correlations update, I showed y’all how certain currencies and asset prices had been moving in lockstep like Mia and Sebastian in La La Land. However, recent market moves suggest that their relationship may be on the rocks. For the newbie traders out there, don’t forget to review our School lesson on forex correlations before reading on!

USD/CAD vs. Crude Oil

There have been a lot of developments in the crude oil markets over the last couple of months, starting from speculations about an OPEC output deal which was followed by an actual agreement to cut production then by doubts that the Black Crack mafia members will stick to their word. This narrative also featured a few plot twists coming from rising U.S. oil rig counts and Trump’s decision to give the green light for the Dakota Access and Keystone XL pipeline, as well as his plans to renegotiate NAFTA. Whew!

Oh, and the Canadian economy also had a few glitches here and there, too, forcing the Loonie to pay more attention to fundamentals and the BOC’s monetary policy bias recently. To top it off, inauguration blues in the U.S. also stole the spotlight in terms of USD/CAD price action earlier this month.

USD/CAD vs. Crude Oil
USD/CAD vs. Crude Oil

All these probably explain why the inverse relationship between USD/CAD and crude oil didn’t hold up so well around the middle of December last year onto the first half of January. Unlike the portion highlighted in green which shows prices heading in opposite directions, the part in the red box appears to show some positive correlation between the two. So far this week, crude oil has moved mostly sideways while USD/CAD rallied and reversed.

AUD/USD vs. Gold

Back in November, AUD/USD and gold were looking tight as bros but they seem to have had a bit of falling out in early December. Their bro-hood was renewed towards the end of the year and at the start of January but they appear to be aiming for different directions again recently. In particular, AUD/USD seems ready for more upside on an improved outlook for the Chinese economy while the precious metal is starting to turn lower.

AUD/USD vs. Gold
AUD/USD vs. Gold

Uncertainty ahead of Trump’s inauguration boosted gold prices earlier this month while dampening demand for the U.S. dollar. But now that the actual event and the Donald’s first few days in office seem have gone by without any major incidents, the safe-haven precious metal looks poised to return its recent gains while risk appetite could keep AUD/USD propped up.

EUR/JPY vs. S&P 500 Index

Speaking of risk sentiment, I’ve saved the best for last as the S&P 500 index has been making new record highs on expectations of increased infrastructure spending and fiscal stimulus from the Trump administration. Upbeat earnings reports are also shoring up equities, along with the promise of lower corporate taxes down the line.

EUR/JPY vs. S&P 500 Index
EUR/JPY vs. S&P 500 Index

EUR/JPY is often considered a barometer of risk sentiment but in this case, it seems that the currency pair is unable to keep up with the S&P 500’s climb. After all, the Japanese yen has been the beneficiary of risk-off flows away from the dollar recently while the euro is being bogged down by Brexit-related concerns. Then again, the currency pair might simply be lagging in terms of trailing the stock index so it might be gearing up for a break higher soon or later. What do you think?