The financial markets are closely linked today. Even though the forex market is the 'big daddy' of all other markets due to its size and daily volume, currency movements are correlated with other smaller financial markets namely the gold and oil. Here is an analysis of the impact of gold and oil movements on the forex market.
Gold has always been a valuable investment option, an alternative to the US dollar, and even a hedge against inflation. While it is true that the long term correlation between gold and forex is the exact opposite which occurs when the US dollar is trading low, the price of gold is higher. high and vice versa, the short term correlation between the two is almost zero as each market reacts according to its own internal dynamics and liquidity.
Perhaps one could conclude from this that the gold market, which is significantly smaller than the forex market, is more dependent on the performance of the forex market, rather than the other way around as we often see. . That said, any intense fluctuation in gold prices could sway the US dollar and invoke the law of reverse movements and plunge the value of the dollar.
Now it's a 'slippery' area where many new forex traders go crazy thanks to the misinformation that goes around! The crude link that we can see is that the currencies of the largest oil producing countries could rise or fall depending on whether their oil productions rise or fall. Another theory is that the currencies of oil importing countries will fall when oil prices rise.
However, correlation studies on the impact of oil on the forex market have not shown such a strong relationship between the two, especially in the short term, which is at the center of most trading of currencies. Perhaps the best way to follow the movement of the currency market is to determine the long-term correlation between oil prices and the forex market from an inflationary perspective and its impact on economic growth. For example, an increase in world oil prices could mean higher inflation and slower economic growth in the country, which could impact the movement of the US dollar. With the exception of this one, the impact of oil on forex is only as good as that of other financial markets.