Here’s the key points of Forex Trading book titled “Currency Trading and Intermarket Analysis” by Ashraf Läidi. The book is quite expensive but worth well the price. I thought it would be helpful to outline the key points:
Gold up -> Buy AUDUSD
Intetest rate up, stable market -> Gold down
Commodity currency = AUD CAD NZD, correlate positively with gold
Gold correlate + with AUD EUR JPY NZD
Gold correlate – with USD
Gold goes up as equity down
Gold goes up along commodities except at certain phase where gold exclusively goes up during economic threat
Oil goes up -> inflation soars, GDP down -> Interest rate up -> stronger currency but recession
Oil and USD goes down -> oil importer currency up, cheaper oil, better trade balance
Slow growth GDP is not good for oil price, slower demand leads to excess of supply and tumbling price
Gdp up, better trade balance, lower unemployment -> currency rise
Low yield currency dropped when global growth improved (strong economic data from US or China
Copper goes with AUD
Oil goes with CAD
Assessing risk appetite in currency market: equity indexes, volatility index, speculator’s future commitments, corporate bond spreads
When risk is being avoided, JPY CHF up
Market borrow from low interest rate currency for funding investment in equity and other higher yielding currency
Countries with current account deficit have higher interest rate and weaker currency. When US market declined, buy JPY because money invested there are borrowed from cheap JPY (with low interest rate)
Volatility Index above 30 -> JPY CHF up
Corporate bond spread (corporate bond – treasury bond yield) high mean bad economy, VIX high, low mean good economy, VIX low
Stronger economuc report -> Rising inflation -> reduce bond value and increase bond yields
Difference between Fed Funds rate and 10-YR treasury yield
Upward sloping bond yield curves precedes economic expansion ( expectation of future high inflation)
Flat yield curves precedes economic slowdown or expansion
Inverted yield curves signal economic slowdown and often harbinger of recession -> sign of future stock market declines, Fed rate cuts
Inverted 10-2 yield curve -> next 0-18 months USD going down, US market going down
Yield curve is a more effective indicator than macroeconomic indicator (GDP, employment)
Gold-Oil ratio historical average =15, a 20-30% declined from recent high is a drag on US economy, recession signal
Depreciating currency -> cheaper export, reduce import demand -> reduce CAD
Strenghtening currency -> increase CAD
Negative trade balance -> slower GDP
When Fed funds rate lowered, US investor is benefited from weaker USD paid to foreign investor investing in US and stronger currency from US investment abroad
As USD weaken, more foreign investor interested in investing in US, but US investor interested investing in foreign investment. Since 2003 there’s more outflow than inflow
Corn, soy and wheat = AUD NZD CAD Brazilian Real
Oil = CAD Russian Rubel Norwegian Krone Poland Mexican Peso Brazilian Real
Copper, gold = AUD Peruvian Sol Chile Peso ZAR
Peaking 10-2 yield spreads is an indication for Fed Rate increase (in the next 5+- 10 months)
Inverted 10-2 yield spreads is an indication for Fed Rate cut (in the next 3-18 months)
Tightening = interest rate hike
Easing = interest rate cut
Peaking 10-2 and bottoming USDJPY are two predictor of future interest rate hike by Fed
Weak USD -> Stronger JPY EUR AUD etc -> declining export of the counter currency and higher dollar denominated commodity (oil, gold, etc) -> high inflation
Today equity/gold and equity/commodity ratio is too high historically
