Known Forex Market Trends

Question

As the title implies, is there anywhere I can find (or would anyone be kind enough to make) a [obviously far from comprehensive] list of known connections between a currency’s trends and world markets.

For example, something like:
CAD — Crude Oil
EURO/USD | USD/CHF — Opposite
AUD — Gold

Where I can sort of have a quick reference to look at when dealing with currencies?

Answer 1

Exchange rates patterns are very tricky. It often depends on time frequency you are looking at.

Let me give you a couple of references:

1. At high-frequency a good reference is: Fourel, Rime, Sarno, Schmeling and Verdelhan (2015). The first paragraph of that paper answers your question:

At intraday frequencies, no economic variable is known to describe exchange rate dynamics, except for their associated order flows, a quantity-based measure of buyer-initiated and seller- initiated orders. In this paper, we show that common, currency-based factors describe exchange rate dynamics at intraday frequencies at least as well as order flows.

2. At low frequency, again academics have had little success. From the same paper as above:

Under rational expectations, exchange rates respond to macroeconomic news and instantaneously adjust to the new equilibrium level implied by macroeconomic news. The literature has generally struggled to find hard evidence that this mechanism works. The typical finding is that many news announcements have no perceptible effect on exchange rates.

So basically even academics don't know what explains exchange rates. The seminal contribution of Evans and Lyons (2002) documented the strong relation between order flows and daily exchange rates. But that's about where our knowledge stops.

There have been some progresses in related areas such as why the US dollar earns a safety premium: Maggiori (2017).

A good place to start reviewing the literature is Kenneth Rogoff webpage: https://scholar.harvard.edu/rogoff/publications/filter_by/empirical-exchange-rate-issues

Basically, you can find a lot of interesting papers that relate to your question. Unfortunately most of the times you will find that there is not much predictability. A few examples:

• Can Exchange Rates Forecast Commodity Prices?
• The Failure of Empirical Exchange Rate Models: No Longer New but Still True