Trade Currencies Using Intermarket Analysis

Expert: Dan Johnson , chief dealer at Spencer Financial
Start:    April 11, 2006 - 14:00GMT 10EST 
End:      approx. 15:00GMT 11EST 

   
Topics that will be covered for above session are: 

•    How to read signals
•    Incorporating intermarket analysis

Who is Dan Johnson?

Dan Johnson has more than twenty years of Forex and Currency Futures experience. He began working at the Chicago Mercantile Exchange (CME) floor in 1980, and became a member of the exchange in 1985. Mr. Johnson’s many years on the CME trading floor involved trading, and execution of his own and client accounts in the foreign currency markets. He has been active in the FOREX markets since leaving the trading floor in 1992. He is currently chief dealer at Spencer Financial.

Speech Material:

Trading the Australian dollar can be just like trading gold. As the world's third largest producer of gold, the Australian dollar has an 85% positive correlation with the precious metal. Generally speaking, this means that when gold prices rise, the Australian dollar appreciates as well. Interestingly enough, the NZD/USD, which is closely tied to the Aussie economy, actually has an even stronger correlation with gold than the AUD/USD does - the correlation has been 90% over the past three years. 
 

Chart Click to enlarge:

The chart below shows clearly positive relationship between oil prices and the Canadian Dollar. In fact, the price of oil actually acts as a leading indicator for the price action in the CAD/USD.
*Since the traded instrument is the inverse, (USD/CAD), it's important to note that based on the historical relationship, when oil prices go up, USD/CAD falls.   

Chart Click to enlarge:

Session Material:

Fxstreet Moderator (Apr 11, 2006 9:55:13 AM)
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Fxstreet Moderator (Apr 11, 2006 9:56:48 AM)
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Fxstreet Moderator (Apr 11, 2006 9:57:22 AM)
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Fxstreet Moderator (Apr 11, 2006 9:58:17 AM)
Today I am delighted to welcome our Brand new guest speaker Dan Johnson, Chief dealer at Spencer Financial

Dan Johnson (Apr 11, 2006 9:58:35 AM)
Hello

Dan Johnson (Apr 11, 2006 10:00:06 AM)
My name is Dan Johnson and I run the FX dealing desk for Spencer FX

Dan Johnson (Apr 11, 2006 10:01:18 AM)
I posted some of the more correlated commodity/currency relationships

Fxstreet Moderator (Apr 11, 2006 10:03:08 AM)
Please post your Live Questions now

winlots (Apr 11, 2006 10:05:16 AM)
How do you see gold and crude oil pricing in the short term?

Dan Johnson (Apr 11, 2006 10:06:03 AM)
I would like to stress that these correlations

Dan Johnson (Apr 11, 2006 10:06:32 AM)
in the short term can be difficult to trade

Dan Johnson (Apr 11, 2006 10:06:38 AM)
with that said

Dan Johnson (Apr 11, 2006 10:07:06 AM)
I would expect some Consolidation

Dan Johnson (Apr 11, 2006 10:07:26 AM)
but the trend in both remain up

Dan Johnson (Apr 11, 2006 10:07:47 AM)
dips would be buying ops

gramps (Apr 11, 2006 10:09:03 AM)
$A gold correlation. Is it direct or do they share factors in common that events trigger simultaneously that gives the appearance of correlation??

Dan Johnson (Apr 11, 2006 10:09:59 AM)
They share many factors

Dan Johnson (Apr 11, 2006 10:10:32 AM)
Gold moves on inflationary scares

Dan Johnson (Apr 11, 2006 10:10:57 AM)
Aussie is not only a big gold producer

Dan Johnson (Apr 11, 2006 10:11:09 AM)
but other commodities as well

Dan Johnson (Apr 11, 2006 10:11:38 AM)
higher commodity prices

Dan Johnson (Apr 11, 2006 10:11:55 AM)
would mean strong Gold prices

Dan Johnson (Apr 11, 2006 10:12:06 AM)
and strong Aussie

Dan Johnson (Apr 11, 2006 10:12:56 AM)
higher commodity prices = inflation

The (Apr 11, 2006 10:16:09 AM)
will the NZD/USD pull through if gold rises, despite it';s continous downtrend?

Dan Johnson (Apr 11, 2006 10:17:02 AM)
I believe it will

Dan Johnson (Apr 11, 2006 10:17:31 AM)
this 12 month or so correction

Dan Johnson (Apr 11, 2006 10:17:47 AM)
is following a rally

Dan Johnson (Apr 11, 2006 10:18:12 AM)
which almost double the price of the NZD/USD

Dan Johnson (Apr 11, 2006 10:18:37 AM)
A correction was needed

Dan Johnson (Apr 11, 2006 10:19:32 AM)
I think the bottom is near

bn (Apr 11, 2006 10:20:21 AM)
Is it safe to hold on to physical gold long term like say for 1 year or so?

Dan Johnson (Apr 11, 2006 10:20:46 AM)
I do

Dan Johnson (Apr 11, 2006 10:21:36 AM)
We may see some correction

Dan Johnson (Apr 11, 2006 10:21:44 AM)
but over time

Dan Johnson (Apr 11, 2006 10:22:02 AM)
its still a good hold

Dan Johnson (Apr 11, 2006 10:22:22 AM)
oil prices will stay strong

Dan Johnson (Apr 11, 2006 10:22:33 AM)
and that will help gold

Dan Johnson (Apr 11, 2006 10:23:05 AM)
I also think the US Dollar has further weekness ahead

Dan Johnson (Apr 11, 2006 10:23:19 AM)
which will also help

CM (Apr 11, 2006 10:23:31 AM)
Do you think in the long term, USD and Feb rate still maintain the positive correlation relationship?

Dan Johnson (Apr 11, 2006 10:24:14 AM)
Fed rates will play a part

Dan Johnson (Apr 11, 2006 10:24:17 AM)
however

Dan Johnson (Apr 11, 2006 10:24:53 AM)
its not enough to direct a currency in the long run

Dan Johnson (Apr 11, 2006 10:25:04 AM)
At some point

Dan Johnson (Apr 11, 2006 10:25:17 AM)
there will be a more

Dan Johnson (Apr 11, 2006 10:25:49 AM)
overwellming situation

Dan Johnson (Apr 11, 2006 10:26:13 AM)
that traders will focus

Dan Johnson (Apr 11, 2006 10:26:30 AM)
rates will be ignored

Dan Johnson (Apr 11, 2006 10:26:47 AM)
remember when rates where dropping

Dan Johnson (Apr 11, 2006 10:27:29 AM)
the dollar strengthened

Dan Johnson (Apr 11, 2006 10:27:39 AM)
durring much of that period

Dan Johnson (Apr 11, 2006 10:28:18 AM)
it is the focus until there is something better to focus on

CM (Apr 11, 2006 10:28:45 AM)
I understand that Iraqi dinar is not a liquid currency in the market. Beside buying the underlying, is there any currency pair that is correlated with Dinar?

Dan Johnson (Apr 11, 2006 10:29:37 AM)
I can't say for sure

Dan Johnson (Apr 11, 2006 10:29:50 AM)
Too many changes going on over there

Dan Johnson (Apr 11, 2006 10:30:05 AM)
You may want to check

Dan Johnson (Apr 11, 2006 10:30:18 AM)
the Serbien dinar

Dan Johnson (Apr 11, 2006 10:30:30 AM)
they are big trading partners

Dan Johnson (Apr 11, 2006 10:31:13 AM)
I don't know if theyare correlated

CM (Apr 11, 2006 10:35:23 AM)
The value of currency is much subject to political or national interest at times. How can a trader gauge the probabalities of interfernace from those forces using intermarket analysis, or even inter currency analysis?

Dan Johnson (Apr 11, 2006 10:36:10 AM)
good Q

Dan Johnson (Apr 11, 2006 10:36:26 AM)
What I look for

Dan Johnson (Apr 11, 2006 10:36:53 AM)
is when two markets

Dan Johnson (Apr 11, 2006 10:37:31 AM)
that have had consistent correlation for some time

Dan Johnson (Apr 11, 2006 10:37:57 AM)
positive or negitive Coral

Dan Johnson (Apr 11, 2006 10:38:09 AM)
begin to displace

Dan Johnson (Apr 11, 2006 10:38:22 AM)
in other words

Dan Johnson (Apr 11, 2006 10:38:44 AM)
they are no longer following each other

Dan Johnson (Apr 11, 2006 10:39:57 AM)
this could be an indication that the smart money is already making a move

Dan Johnson (Apr 11, 2006 10:42:55 AM)
this happen with interest rate makets mostly

Dan Johnson (Apr 11, 2006 10:45:06 AM)
I am mostly a technical trader

Fxstreet Moderator (Apr 11, 2006 10:45:10 AM)
I lost power meaning I lost connection so I lost all your questions can you please repost please Apologies

Jeri (Apr 11, 2006 10:45:49 AM)
Which currencies correlate with silver?

Dan Johnson (Apr 11, 2006 10:47:22 AM)
the CAD a little

Dan Johnson (Apr 11, 2006 10:47:59 AM)
but mostly it is coral with gold

Dan Johnson (Apr 11, 2006 10:48:09 AM)
that might be why

Dan Johnson (Apr 11, 2006 10:48:56 AM)
I havn't found one in particular

Roni (Apr 11, 2006 10:49:18 AM)
Do you think that correlation between EUR/USD _ USD/CHF will keep at the same level despite of high gold prices

Dan Johnson (Apr 11, 2006 10:49:50 AM)
Yes

Dan Johnson (Apr 11, 2006 10:50:22 AM)
Although the swiss is no longer backed by Gold

Dan Johnson (Apr 11, 2006 10:50:36 AM)
It is still a save haven

Dan Johnson (Apr 11, 2006 10:50:46 AM)
as is Gold

trader (Apr 11, 2006 10:52:17 AM)
Are the commodity prices determined solely on supply/demand? what % of spot fx price moved by commodities and how much by interest rates?

Dan Johnson (Apr 11, 2006 10:52:56 AM)
I have studied this a lot

Dan Johnson (Apr 11, 2006 10:53:15 AM)
And all of those things you mentioned

Dan Johnson (Apr 11, 2006 10:53:39 AM)
do impact Curr rates from time to time

Dan Johnson (Apr 11, 2006 10:53:45 AM)
However

Dan Johnson (Apr 11, 2006 10:54:00 AM)
the single most important thing

Dan Johnson (Apr 11, 2006 10:54:22 AM)
that directs a Curr direction

Dan Johnson (Apr 11, 2006 10:54:30 AM)
in the long run

Dan Johnson (Apr 11, 2006 10:54:45 AM)
is the condition of its economy

Dan Johnson (Apr 11, 2006 10:55:00 AM)
Curr reserves

Dan Johnson (Apr 11, 2006 10:55:11 AM)
will eventually go

Dan Johnson (Apr 11, 2006 10:55:22 AM)
to the strongest economy

Dan Johnson (Apr 11, 2006 10:55:44 AM)
regardless of any other factor

Dan Johnson (Apr 11, 2006 10:55:59 AM)
this from time to time

Dan Johnson (Apr 11, 2006 10:56:14 AM)
could mean all of the things you mentioned

Dan Johnson (Apr 11, 2006 10:56:31 AM)
but it is more a result

Dan Johnson (Apr 11, 2006 10:56:46 AM)
of whats happening rather then the cayse

Dan Johnson (Apr 11, 2006 10:57:06 AM)
cause

Dan Johnson (Apr 11, 2006 10:59:10 AM)
I think the USD/CAD will remain week

bn (Apr 11, 2006 10:59:14 AM)
USD/CAN is almost at the lowest since 1993. Do you think that it will beat this record now that gold and oil prices are increasing?

Dan Johnson (Apr 11, 2006 10:59:36 AM)
Gold and oil prices

Dan Johnson (Apr 11, 2006 11:00:19 AM)
will keep the CAD strong

Dan Johnson (Apr 11, 2006 11:00:52 AM)
And I do think it will take out the 1993 lows

Dan Johnson (Apr 11, 2006 11:01:13 AM)
after a bit of a correction first

Dan Johnson (Apr 11, 2006 11:01:34 AM)
I hope this was a helpful Q&A

Dan Johnson (Apr 11, 2006 11:01:53 AM)
This was my first one

Dan Johnson (Apr 11, 2006 11:02:11 AM)
And I enjoyed all your questions

Dan Johnson (Apr 11, 2006 11:02:26 AM)
I hope to see you back here again soon

Dan Johnson (Apr 11, 2006 11:02:33 AM)
Happy Trading

Fxstreet Moderator (Apr 11, 2006 11:03:26 AM)
Thanks to you Dan

Dan Johnson (Apr 11, 2006 11:03:44 AM)
Thank you

Fxstreet Moderator (Apr 11, 2006 11:05:15 AM)
If your question was not answered during the course of this chat, please contact

Fxstreet Moderator (Apr 11, 2006 11:05:33 AM)
Dan

Fxstreet Moderator (Apr 11, 2006 11:05:48 AM)
for a personalized answer

Dan Johnson (Apr 11, 2006 11:05:55 AM)
djohnson@spencerfx.com

Fxstreet Moderator (Apr 11, 2006 11:10:46 AM)
Thanks Dan!!!

Fxstreet Moderator (Apr 11, 2006 11:11:03 AM)
We also hope you liked this Q&A, you found it useful, educational, and beneficial to your trading day