From the desk of Joe Rios
The Grains continued to present trading opportunities to the short side led by wheat tumbling -6.1% followed by corn dropping -4.9% and soybeans -3.5%. The US dollar’s bullish momentum continued even though the Euro 0.1% , the Swiss franc -0.3 and British pound -0.4% consolidated from the recent bearish downtrend. However the commodity currencies including the Australian -3.6% and Canadian -1.9% Dollars slid lower providing trading opportunities in the Forex market. Global bonds including the US Treasuries continued to trend lower pushing interest rate yields higher. The metals market also suffered losses with Gold dropping -3.0%, Silver -2.8% and Copper -2.1%.
Having a good understanding of correlations within the multiple asset classes can provide active traders an edge for selecting optimal markets to trade. Market environment is frequently characterized by herding behavior. The global markets are linked today with each other like never in the past because of globalization due to technological advances. Most traders and investors use a single market analysis approach when investing or trading in the financial markets. For example, a stock trader will look at the S&P 500 or the Dow Jones industrial average. A currency trader will look at the Euro, the British pound or the Japanese yen. At RiosQuant we utilize multi-market analysis which involves the analysis of the key asset classes in the financial markets: stocks, bonds, commodities and currencies. To effectively use multi-market analysis you need to have a good understanding of correlation analysis. It is how the four major markets interact with each other that gives this type of analysispredictive value.
Here are some basics on how the major asset classes should interrelate: The US dollar trends in the opposite direction ofcommodities, a falling dollar is bullish for commodities, a rising dollar is bearish for commodities. When rising interest rate yields help push the dollar higher then commodities tend to move with bond prices.Therefore commodities trend opposite direction as interest rate yields. Rising commodities coincide with rising bonds and falling interest rate yields. Falling commodities coincide with rising interest rate yields and falling bond prices. Bond prices sometimes but not all the times trend in the same direction as stock prices. That relationship is going to be dependent on where we are in the economic cycle and the economic environment. In most cycles, my main focus in on the bond market and interest rate yields.
In the week ahead there are a number of events that have the potential to trigger volatility across most of the financial markets.Will the theme continue to be rising interest rate yields? Will the FOMC meeting trigger volatility? Will the Scottish referendum send the British pound into aggressive price action? Or will the launch of the ECB’s TLTRO facility set off the Euro out of the recent consolidation range? Join us in our live online trading room and learn how we apply quantitative trading to profit from the markets while controlling risk.
Joe Rios – Founder, Rios Quantitative LLC
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Topic: Ride e-Mini Momentum
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Topic: The Next Big Swing
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Training Session 11 of 12 with Schwartz
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Topic: Looking for Trading Patterns
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