Global macro is one of the clearest ways to trade and invest in the global markets, be it FX, Bonds, Equities or Metals.
If you are a trader, and you cannot look at your higher time frame charts and tell the story of how the markets are moving value around different asset classes and why, then you have to take a break from trading and master the basics.
For example, in the last three months, July till mid September 2016, Gold has selling in a bear slump.
But in the last 2-3 weeks, around the 9th of October Gold bottomed across board, versus all the major currencies and reversed into an uptrend. Now whether this is a correction or the start of a bull run, only time will tell. Anytime gold rallies, it means investors are generally wary, scared or undecided about market direction, especially the US Dollar..
But, at the same time, the Euro has been selling off strongly versus the dollar. So, traders are slightly bullish, but generally unsure about the USD and thus are bullish on gold, but very bearish on the euro.
This is actually quite unusual. Cos most times, when investors are bullish on gold, they are usually bullish also on the Euro and bearish on the USD.
It is a bit rare for investors to be bearish on gold & the dollar at the same time. But apparently, they have been these past three weeks. And this contributed to a strong euro sell.
Now, throw in a little US Treasury/Bonds analysis, and an analysis of the US Stock markets and global equities indexes to gauge risk on or risk off sentiment and the picture gets clearer.
Lastly, add a little analysis of the behaviour of high yielding currencies like the Aussie dollar (which is best seen in the carry trade) and maybe oil prices and the picture becomes so much clearer.
Note: If you buy a bond with a 10% coupon at its $1,000 par value, the yield is 10% ($100/$1,000). Pretty simple stuff. But if the price goes down to $800, then the yield goes up to 12.5%. This happens because you are getting the same guaranteed $100 on an asset that is worth $800 ($100/$800).
That being said, if the Gold markets keep rallying and US Bond prices keep rallying, then I expect the Euro to reverse and buy a bit. This should eventually drag the USD down in a sell off.
If the US stock markets and other global equity markets sell off a bit also, then the USD should sell off even more.
All these should play out in the next 5 to 14 days…except the race to the US elections throws a curveball, which is why traders should use very good risk management tactics, as nothing is ever certain in these markets, especially these days of HFTs, fat finger mistakes and money printing, asset buy back central bank policy.
If everything I just said sounds like gibberish and you wish to trade forex, lets talk….it’s a lot easier to show you…some things are better experienced than explained!