Practical Guide For Macro Trading

Commodity, Forex & Country ETF

Part 1: Commodity Trading

Key Commodity Watchlist

• Agriculture

  • Wheat (ZW), Corn (ZC), Rough Rice (ZR)

  • Soybean (ZS), Soybean Meal (ZM), Soybean Oil (ZL)

  • Coffee (KC), Sugar #11 (SB), Cotton #2 (CT), Cocoa (CC)

• Metals

  • CME: Platinum (PL), Silver (SI), Copper (HG)

  • LME: …

• Energy

  • Crude Oil WTI (CL), Crude Oil Brent (QA), Nat Gas (NG)

  • Gasoline RBOB (RB), USLD

Commodity Highlights

• General Commodity Index / ETF

  • High USD = Low Commodity Price

  • High Commodity X Price = High (Low) Price for Currency of Commodity X’s Exporter (Importer)

    • Higher Oil = Higher CAD.JPY, NOK.USD

    • Gold: Higher AUD.USD, CHF.USD

• Gold & Silver

  • Gold Price Factors: Geopolitical uncertainty, Central Banks buying / selling

  • High USD = Low Gold

  • High Inflation != High Gold, Economic Uncertainty != High Gold

  • Silver industrial use: Solar PV, Electronics

  • Silver price are highly volatile + correlated to Gold

• Crude Oil & Nat Gas

  • Crude Oil Price Factors: OPEC, Global Economy Forecast, Geopolitics

  • Nat Gas Price Factors: Europe heating demand

  • Major Oil & Gas Exporter: CAD, NOK

  • Major Oil & Gas Importer: JPY, CNH

• Copper & Lumber

  • Copper Price Factors: Infrastructure Expansion (esp China) Fiscal Policy

  • Lumber Price Factors: Real Estate market / housing demend (esp US)

Part 2: Forex & Country ETF Trading

Forex Trade Identification

• Key Currencies

  • Major: US (DX), EUR, GBP, CNH, JPY

  • Minor: CAD, CHF, AUD, NOK, KRW, TWD

• “Strong Currency” checklist

  • Central Government is tightning: hike rates, sell bonds, fiscal tightening

  • High Inflation + GDP Growth / Employment still “acceptable”

  • Country’s current focus: control inflation

• “Weak Currency” checklist

  • Central Government is easing: cut rates, buy bonds, fiscal stimulus

  • Low Inflation + GDP Growth below target + High Unemployment

  • Country’s current focus: boost import + stimulate economy

Major Currency Highlights

• USD (SPY)

  • FED Hiking = Economic Uncertainty = High USD

  • Geopolitical Uncertainty = High USD

  • Good US Economy = High USD

• EUR (FEZ)

  • Economy are generally stagnating / slow growth

  • Key players: Germany (EWG) & France (EWQ)

  • “Troubled” Economy: Italy (EWI) & Spain (EWP)

• GBP (EWU)

  • Economy heavy depend on Financial Services

  • Susceptible to inflation due to being heavy import-dependent

  • Recent political situation is not stable

• JPY (EWJ)

  • Slow growth, low inflation had been maintained for low time

  • BOJ can (& want to) stimulate the economy without too much inflation fear

  • Need to import high amount of Oil & Gas

  • JPY is considered safe heaven

• CNH (ASHR / FXI)

  • PBOC policy is generally conservative

  • Currency need to be maintained at low valuation to remain export competitiveness

  • Loosely pegged to USD

Minor Currency Highlights

• CAD (EWC) & NOK

  • Heavily correlated with oil price

  • Relatively stable economy

• CHF (EWL)

  • Well know for political neutrality, banking secrecy and low inflation economy

  • CHF is considered safe heaven during political tumoil

• AUD (EWA)

  • Heavily correlated with commodity price

  • Heavily correlated with China economy / political relations

• KRW (EWY)

  • Asia Tiger with the least amount of issue

  • Considered “stable currency”

• TWD (EWT)

  • Facing relatively high political instability

  • Economy heavyly depend on Semiconductor industry

Other Country Highlights

• Hongkong (EWH)

  • Affected by “China Risk”

  • Losing status as Asia Financial Center

• India (INDA)

  • Poised to be Asia’s next high growth economy

  • Expected to benefit from China de-risk trend

• Brazil (EWZ) & South Africa (EZA)

  • Heavily correlated with commodity price

  • Political Stability may be low (esp Braxil)