The dollar, commodities and crypto

After bonds, the next set of intermarket relationships runs through the US dollar. Commodities are priced in it, foreign earnings are translated into it, and global risk appetite tends to show up as a bid or an offer for it. Crypto, the newest asset in the intermarket picture, has spent most of its liquid history behaving like a leveraged risk asset, though the relationship has been unstable enough to deserve its own section.

The dollar index

The dollar index (DXY) measures the dollar against a basket of six major currencies, heavily weighted to the euro. A broad trade-weighted dollar index published by the Federal Reserve is a better measure of the dollar's economic effect; DXY is what traders quote. Either works for regime purposes.

Rough relationships, all of which are tendencies rather than laws:

The strongest of these is the safe-haven pattern: in acute global stress the dollar rises because dollar funding is scarce and everyone needs it. A sharp dollar rally alongside falling stocks and widening credit spreads is one of the clearest risk-off fingerprints there is. A dollar that fails to rally during an equity selloff suggests the selloff is domestic and contained.

Commodities

Three commodities carry most of the intermarket information.

Crude oil. A demand and inflation signal. Oil rising with stocks is growth; oil rising while stocks fall is a supply shock and an inflation problem; oil collapsing is a demand scare. The ratio of the energy sector to the index tracks the same story from the equity side.

Copper. An industrial demand gauge, sometimes called "Dr Copper". The copper-to-gold ratio has historically tracked the 10-year yield, since both rise with growth expectations. When copper/gold and yields diverge, one of them is usually wrong.

Gold. A real-rates and fear trade. Gold tends to rise when real yields (nominal yields minus inflation expectations) fall and when confidence in policy falls. Gold rising with the dollar is unusual and usually marks genuine stress; gold rising with stocks and a falling dollar is a liquidity rally lifting everything.

Growth:      oil ↑  copper ↑  gold ↔   dollar ↓   stocks ↑
Inflation:   oil ↑  copper ↔  gold ↑   dollar ↑   stocks ↓
Deflation:   oil ↓  copper ↓  gold ↓   dollar ↑↑  stocks ↓↓
Liquidity:   oil ↑  copper ↑  gold ↑   dollar ↓   stocks ↑↑

The four rows are stylised, and real weeks are messier. The value is in noticing when a week does not fit any row: that usually means a transition.

Key idea: The dollar is the hinge between global risk appetite and commodities. A fast-rising dollar with falling commodities and stocks is the risk-off fingerprint; a falling dollar with rising commodities and stocks is the liquidity fingerprint. Weeks that fit no pattern are transitions.

Crypto's evolving correlation

Bitcoin's correlation with the Nasdaq 100 was near zero for most of its first decade. From 2020 it rose sharply, and through 2021-2022 bitcoin traded like a high-beta technology stock: rallying on liquidity, falling on rate shocks, and bottoming within weeks of the equity low in late 2022. Rolling 90-day correlations with the Nasdaq reached 0.6-0.8 in that period.

Since then the correlation has been unstable: sometimes high, sometimes near zero, occasionally briefly negative around crypto-specific events (exchange failures, ETF approvals, regulatory news). Two honest statements cover it:

1. In broad risk-off episodes driven by rates or liquidity, crypto has tended to sell with equities and usually harder. It has not been a hedge.
2. Outside those episodes, crypto has its own drivers, and its correlation with stocks is too unstable to use as a fixed input.

For a stock trader the practical use is asymmetric. Crypto moving with stocks tells you little. Crypto breaking sharply while stocks are calm is worth noting as an early-warning of liquidity stress, because crypto trades 24 hours and reacts first, and because leveraged crypto liquidations have occasionally preceded weekend-gap risk in equities. It has also, often, meant nothing. Treat it as a "look closer" prompt.

Rolling 90-day correlation, BTC vs Nasdaq 100 (stylised)

 0.8 ┤                 ╱‾‾‾╲
 0.6 ┤              __╱     ╲___     ╱╲
 0.4 ┤           __╱            ╲   ╱  ╲    ╱╲
 0.2 ┤    ______╱                ╲_╱    ╲__╱  ╲
 0.0 ┼───╱────────────────────────────────────────
-0.2 ┤
     └────────────────────────────────────────────
      2017     2019     2021     2023     2025

Building the intermarket line

For the daily regime sentence, one line for this lesson's material is enough:

"Dollar [rising/falling/flat] on the month, oil and copper [up/down], gold [up/down], crypto [with/against] stocks."

Then, the only question that matters: does this fit the current equity regime, or is it telling a different story? If breadth is broad and the VIX is in contango but the dollar is spiking and copper is breaking down, the intermarket picture is ahead of, or wrong about, the stock market. Either way you want to know.

Failure modes

• Fixed correlations. All of these relationships drift. Measure them rolling; do not memorise them.
• Reading commodities as pure demand. Supply shocks, weather and geopolitics move oil and copper for reasons unrelated to growth.
• Treating crypto as a leading indicator. It leads sometimes. Track when it did and when it did not before assuming.
• Ignoring the dollar's own drivers. Rate differentials and foreign central banks move the dollar for reasons that have nothing to do with US stocks.

Try it: For the last two years, compute rolling 60-day correlations between the S&P 500 and (a) the dollar index, (b) crude oil, (c) gold, (d) bitcoin. Plot all four. Note how often each crosses zero. The one that crosses least is the one you can use with the most confidence; the one that crosses most is the one to always re-check before relying on it.

Recap

• The dollar links global risk appetite and commodities; a fast-rising dollar with falling commodities and stocks is the risk-off fingerprint.
• Oil is growth-or-inflation depending on what stocks do alongside it; copper tracks industrial demand and historically the 10-year yield; gold tracks real rates and confidence.
• Crypto's correlation with equities rose to high levels in 2020-2022 and has been unstable since; it sells with stocks in liquidity shocks and is not a hedge.
• Crypto breaking sharply while stocks are calm is a "look closer" prompt, not a signal.
• Measure every correlation rolling and log which ones are currently holding.