Macro Edge – Trading Opportunities In Macro Markets
How are the macro winds blowing?
Macro Edge tells you what you need to know about macro developments in financial markets, together with our latest trading ideas.
Summarized and presented to you in charts!
Focus On Markets, Not Headlines! Macro Trading Opportunities
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A high CPI reading reversed last week’s rallies, reiterating the bearishness that has been in place, while increasing volatility and correlation between markets – which isn’t good news.
- Global markets were rallying strongly before this week’s US CPI print, which drove everything into reverse. Inflation is a problem, but focus on markets instead of headlines
- Macro markets and equities have begun to really move in tandem, which together with rising volatility and how macro markets have aligned over the past few months, does not bode well for risk appetite
- Although UST yields are rallying, the US yield curve remains deeply inverted at multiple points, base metals are still weak, and breakevens remain low
- USD strength remains broad based
- Stress levels in USD funding markets are obviously high, and still increasing. Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
- CNY has broken out vs the Dollar in a bad way, and is now approaching the key 7.00 level. If CNY continues to weaken vs the USD, expect more selling in global risk assets
- Commodity markets are aligned with the USD and the US yield curve, signaling serious deterioration in global conditions
- WTI has fallen below major support, Aluminum has fallen to make new lows for 2022, Copper is way off its highs for the year, and Iron Ore remains stuck in consolidation
- US 10y and 30y yields have bounced strongly after breaking below key support in early August, with the 30y making new cycle highs over the last week. However, UST yields can fall sharply given poor global conditions, and how other markets have been trending
Trading Ideas – Performance
Trading Ideas – Commentary
- Re-entered Dollar longs against EUR, GBP, AUD, and CAD, as broad USD strength continues
- Entered a short position in Copper’s December 2022 contract in anticipation of further weakness given deteriorating global economic conditions, and bearish indications from other macro markets
- US long yields continue to rally, and our long TLT call position is still in the red, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
- Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
- Stronger USD, with significantly weaker CNY, is a huge warning signal
- Re-inverting yield curve, plummeting breakevens, base metals breaking lower, and now even tumbling oil prices, are all ominous signs
- Closed the straddle on GLD for a net profit of 115%
- Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off handsomely, with gold tumbling down to ~$1700 after failing its retest of 2000
Trading Ideas
- Long USD
- Well established trend, in place for >11 months in most major currency pairs
- Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
- US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
- USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
- USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
- EUR
- CAD
- GBP
- AUD
- JPY
- Long 10y or 30y US Treasuries
- Yield curve re-inversion (2s10s, 5s10s) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
- Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
- 10y yields have broken below key 2.71% support – keep an eye on whether the breakout is sustained
- Trade can be expressed:
- Long TLT, or long TLT Calls
- Long US T Note/Bond Futures, or long Calls on Futures
- Short Commodities
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
- Oil and copper are the most liquid and accessible markets to trade using futures, or E-mini futures
- Can express the short oil trade by shorting XLE, or purchasing puts on XLE (see ETF Edge)
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
Charts for this week’s report can be found in the slides at the beginning of the article.
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Another Week Of Dollar Warnings. Macro Trading Opportunities
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The USD’s warning continues to sound, as it pushes higher against both EM and DM currencies.
Keep watching USDCNY, base metals, and the US yield curve.
- The USD continues to rally. Given how macro conditions and markets remain weak, renewed Dollar strength is signaling further sell offs
- CNY has broken out vs the Dollar in a bad way, and is now approaching the key 7.00 level. If CNY continues to weaken vs the USD, expect more selling in global risk assets
- Although UST yields are rallying, the US yield curve remains deeply inverted at multiple points, base metals are still weak, and breakevens remain low
- Given how macro markets have aligned over the past few months, we are looking at further, and possibly steeper, sell offs
- USD strength remains broad based
- Stress levels in USD funding markets are obviously high, and still increasing. Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
- USDCNY is very weak and looking bearish. CNY’s shift, and it being one of the last to weaken vs the USD, heralds a shift in the global cycle, which does not bode well for economic growth and risk assets
- Commodity markets are aligned with the USD and the US yield curve, signaling serious deterioration in global conditions
- WTI has fallen below major support, Aluminum has fallen to make new lows for 2022, Copper has broken below major support, and Iron Ore looks set to break below its recent range
- US 10y and 30y yields have bounced strongly after breaking below key support in early August, with the 30y making new cycle highs over the last week. However, UST yields can fall sharply given poor global conditions, and how other markets have been trending
Trading Ideas – Performance
Trading Ideas – Commentary
- Re-entered Dollar longs against EUR, GBP, AUD, and CAD, as broad USD strength continues
- Entered a short position in Copper’s December 2022 contract in anticipation of further weakness given deteriorating global economic conditions, and bearish indications from other macro markets
- US long yields continue to rally, and our long TLT call position is still in the red, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
- Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
- Stronger USD, with significantly weaker CNY, is a huge warning signal
- Re-inverting yield curve, plummeting breakevens, base metals breaking lower, and now even tumbling oil prices, are all ominous signs
- Closed the straddle on GLD for a net profit of 115%
- Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off handsomely, with gold tumbling down to ~$1700 after failing its retest of 2000
Trading Ideas
- Long USD:
- Well established trend, in place for >11 months in most major currency pairs
- Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
- US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
- USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
- USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
- EUR
- CAD
- GBP
- AUD
- JPY
- Long 10y or 30y US Treasuries:
- Yield curve re-inversion (2s10s, 5s10s) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
- Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
- 10y yields have broken below key 2.71% support – keep an eye on whether the breakout is sustained
- Trade can be expressed:
- Long TLT, or long TLT Calls
- Long US T Note/Bond Futures, or long Calls on Futures
- Short Commodities:
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
- Oil and copper are the most liquid and accessible markets to trade using futures, or E-mini futures
- Can express the short oil trade by shorting XLE, or purchasing puts on XLE (see ETF Edge)
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
Charts for this week’s report can be found in the slides at the beginning of the article.
Do You Want To Make Money Trading A Crisis?
Learn how to, and more, in our Trading Courses.
Will The Bears Come Out Again? ETF Trading Opportunities
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Equity markets continue to break below key levels.
With the USD running rampant again, bears look set to reassert themselves in stocks.
- The reversal of the summer rally continues, with many markets breaking below key support levels over the last 2 weeks
- SPY, QQQ, IWM, XLI, XLY, and EZU have all broken below major support levels
- Continue to pay attention to EEM. If it breaks decisively below its recent range, it could signal further weakness in risk assets
- Remember that changes occur at the margins first, then spread to the core
- Energy stocks (XLE) are an exception to the current selloff in stocks, and while they have come down a little, could still be headed for a test of its current cycle highs. Oil prices are back in the high $80s, but this is still too high with macro conditions deteriorating all over the world
- XLU has come down from its all time high in tandem with the broader market selloff
- Fixed Income ETFs are in a precarious position
- TLT has broken below its range, and is close to testing its June lows. But if it rallies again, and manages to break out to the upside decisively, be prepared for more turbulence in markets
- EMB’s (Emerging Market USD denominated debt) rally has started to reverse, falling sharply to indicate that the global USD shortage is getting worse, and pointing towards a further sell off
- LQD, HYG, and EMB are not mechanically tied to UST prices. Should a financial or economic crisis arise, UST prices can rise even as other fixed income assets sell off
Trading Ideas – Performance
Trading Ideas – Commentary
- Re-entered short in IWM at 186.95 after it gapped lower on the open
- High beta small cap stocks are primed to suffer heavy losses given equities’ bearish trend, and deteriorating macro conditions
- Re-entered short position in EMB after it broke below major support ~88
- Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
- EMB can still fall even if prices of USTs keep rising (yields fall), if macro conditions get bad enough
- It has already broken below its 2020 COVID low, signaling increasing stress in the global USD funding market
- Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
- Position will be profitable if XLU makes a decisive move in either direction
- XLU has rallied back to all time highs, and if it continues to push higher from here, will drive our straddle into the green
Trading Ideas – Long
- A straddle on XLU is an increasingly interesting prospect
- Consolidating between critical support and all time highs, which way will it break?
- Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
- With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
- Consolidating between critical support and all time highs, which way will it break?
- TLT
- This trade is covered in our Macro Edge reports
Trading Ideas – Short
- IWM remains vulnerable to deteriorating macro conditions, especially with how bearish 2022 has been for small cap equities
- The trade can also be expressed via other high beta ETFs, like QQQ and XLY
- LQD, HYG, EMB
- LQD, HYG can still make a large move lower, with a test of COVID 2020’s lows a real possibility, especially with EMB having already done so
- XLE looks like an increasingly attractive short
- Global economic conditions are rapidly deteriorating
- Oil prices are off their peak even with global supplies tight, and Russia’s war dragging on
- Patience is needed here for XLE to make a decisive break lower, as it has managed to rally strongly in recent weeks
- EEM and FXI are good short candidates, as their charts are looking weak even as the summer rally progresses
- Remember that change starts at the margins and spreads to the core (learn more about this in our Global Macro course). In market terms this means that weakness in EM (EEM, EMB, FXI) often presages weakness in DM
Charts for this week’s report can be found in the slides at the beginning of the article.
Do You Want To Make Money Trading A Crisis?
Learn how to, and more, in our Trading Courses.
Heed The Dollar’s Warning. Macro Trading Opportunities
Click on the slides above and press CTRL+SHIFT+F to view in full screen. If the slides aren’t loading, you can read them over here.
The USD continues to strengthen broadly, and macro markets remain stuck in their negativity, warning of worse to come for risk assets.
- The USD continues to rally, except against the EUR. Given how macro conditions and markets remain weak, renewed Dollar strength is signaling further sell offs
- CNY has broken out vs the Dollar in a bad way, and continues to make new lows for the year. If CNY continues to weaken vs the USD, expect more selling in global risk assets
- Although UST yields are rallying, the US yield curve remains deeply inverted at multiple points, base metals are still weak, and breakevens remain low
- Given how macro markets have aligned over the past few months, we are looking at further, and possibly steeper, sell offs
- USD strength remains broad based
- Stress levels in USD funding markets are obviously high, and still increasing. Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
- USDCNY is very weak and looking bearish. CNY’s shift, and it being one of the last to weaken vs the USD, heralds a shift in the global cycle, which does not bode well for economic growth and risk assets
- Commodity markets are aligned with the USD and the US yield curve, signaling serious deterioration in global conditions
- WTI remains off its Russian war highs, Aluminum remains very weak, Copper has broken below major support, and Iron Ore looks set to break below its recent range
- US 10y and 30y yields have bounced strongly after breaking below key support in early August, and could retest their current cycle highs. However, UST yields can fall sharply given global conditions, and how other markets have been trending
Trading Ideas – Performance
Trading Ideas – Commentary
- Re-entered Dollar longs against EUR, GBP, AUD, and CAD, as broad USD strength continues
- Entered a short position in Copper’s December 2022 contract in anticipation of further weakness given deteriorating global economic conditions, and bearish indications from other macro markets
- US long yields have turned, although it remains to be seen if a top has been made. Our long TLT call position is still in the red, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
- Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
- Stronger USD, with significantly weaker CNY, is a huge warning signal
- Re-inverting yield curve, plummeting breakevens, base metals breaking lower, and now even tumbling oil prices, are all ominous signs
- Closed the straddle on GLD for a net profit of 115%
- Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off handsomely, with gold tumbling down to ~$1700 after failing its retest of 2000
Trading Ideas
- Long USD:
- Well established trend, in place for >11 months in most major currency pairs
- Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
- US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
- USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
- USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
- EUR
- CAD
- GBP
- AUD
- JPY
- Long 10y or 30y US Treasuries:
- Yield curve re-inversion (2s10s, 5s10s) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
- Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
- 10y yields have broken below key 2.71% support – keep an eye on whether the breakout is sustained
- Trade can be expressed:
- Long TLT, or long TLT Calls
- Long US T Note/Bond Futures, or long Calls on Futures
- Short Commodities:
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
- Oil and copper are the most liquid and accessible markets to trade using futures, or E-mini futures
- Can express the short oil trade by shorting XLE, or purchasing puts on XLE (see ETF Edge)
- Short oil, copper, aluminum, iron ore, given that so many macro markets are indicating more macro weakness to come
Charts for this week’s report can be found in the slides at the beginning of the article.
Do You Want To Make Money Trading A Crisis?
Learn how to, and more, in our Trading Courses.
King Dollar Showing The Way. Macro Trading Opportunities
Click on the slides above and press CTRL+SHIFT+F to view in full screen. If the slides aren’t loading, you can read them over here.
King Dollar looks to be exerting its strength again.
However, other markets have yet to follow its lead. Is it just a matter of time?
- The USD has continued its rally. Given how macro conditions and markets remain weak, renewed Dollar strength is probably a signal of further sell offs, even though other markets have yet to make firm moves lower at this point
- CNY has broken out vs the Dollar in a bad way, and has made new lows for the year. If CNY continues to weaken vs the USD, expect more selling in global risk assets
- The US yield curve remains deeply inverted at multiple points, base metals are still weak, and US breakevens remain low
- Given how macro markets have aligned over the past few months, we are looking at further, and possibly steeper, sell offs
- USD strength remains broad based
- Stress levels in USD funding markets are obviously high, and still increasing. Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
- USDCNY is very weak and looking bearish. CNY’s shift, and it being one of the last to weaken vs the USD, heralds a shift in the global cycle, which does not bode well for economic growth and risk assets
- Commodity markets are aligned with the USD and the US yield curve, signaling serious deterioration in global conditions
- WTI remains off its Russian war highs, Aluminum remains very weak, Copper’s bounce may have topped out, and Iron Ore prices are consolidating
- US 10y and 30y yields have bounced strongly after breaking below key support in early August, and could retest their current cycle highs. However, conditions are lined up for UST yields to fall sharply given global conditions, and how other markets have been trending
Trading Ideas – Performance
Trading Ideas – Commentary
- Re-entered shorts in EURUSD and GBPUSD. May take more long Dollar positions vs CAD and AUD depending on how price action unfolds
- US long yields have turned, although it remains to be seen if a top has been made. Our long TLT call position is still in the red, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
- Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
- Stronger USD, with significantly weaker CNY, is a huge warning signal
- Re-inverting yield curve, plummeting breakevens, base metals breaking lower, and now even tumbling oil prices, are all ominous signs
- Closed the straddle on GLD for a net profit of 115%
- Decision to straddle gold using GLD options, instead of putting on an outright long position, has paid off handsomely, with gold tumbling down to ~$1700 after failing its retest of 2000
Trading Ideas
- Long USD
- Well established trend, in place for >11 months in most major currency pairs
- Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
- US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
- USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
- USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
- EUR
- CAD
- GBP
- AUD
- JPY
- Long 10y or 30y US Treasuries
- Yield curve re-inversion (2s10s, 5s10s) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
- Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
- 10y yields have broken below key 2.71% support – keep an eye on whether the breakout is sustained
- Trade can be expressed:
- Long TLT, or long TLT Calls
- Long US T Note/Bond Futures, or long Calls on Futures
- Short Commodities
Charts for this week’s report can be found in the slides at the beginning of the article.
Do You Want To Make Money Trading A Crisis?
Learn how to, and more, in our Trading Courses.
