Opportunities in Global Macro Trading

09/03/2019 6:00 pm EST


Amelia Bourdeau

CEO & Founder, Market Compass, LLC

Earlier this year Amelia Bourdeau highlighted the importance of Global Macro analysis. This report has held up!

Global macro traders consider a range of economic, geopolitical, and market conditions across asset classes to formulate trade ideas. One way they manage the information is to identify market themes and track those themes. The tracking of those themes helps macro traders generate trade ideas and manage risk.

Macro themes tend to simmer in the background, but cause market volatility when they move to the forefront.  Market themes in play have the potential to cause big, directional moves. Therefore, in global macro trading, volatility is your friend. When markets are moving, there is opportunity to generate alpha. 

While macro managers can trade a range of asset classes, foreign exchange is a cornerstone. Global market themes tend to impact currencies and/or interest rates, which in turn affect currencies. 

Large macro themes are driving market activity in 2019 – all of which have the potential to cause initial or further market dislocation, providing trading opportunities. Themes include: the U.S. economy, the extent to which it is growing or slowing; the Federal Reserve’s Open Market’s Committee (FOMC) policy stance on interest rates and adjustments to its balance sheet causing market volatility; China economic slowdown; US-China trade war and trade negotiations; European political uncertainty and economic slowdown and uncertainty over the Brexit. 

As seen last year, negative headlines and/or announcements on US-China trade negotiations tended to negatively impact U.S. equity indexes.  As trade negotiations are ongoing, this pattern will likely continue. Heavy down days in U.S. equity indexes can strengthen the Japanese yen against the dollar as JPY is a safe haven currency. 

China’s growth slowdown negatively impacts Australia’s economy, through trade, commodity price, and investment standpoints. The Aussie dollar (AUDUSD) is likely to be further negatively impacted and could move to 0.60. In addition, it is difficult for the Australian dollar to strengthen if China’s renminbi is depreciating – a trend that has been occurring since April 2018.

The European growth slowdown is making market participants question whether there has been a policy error made by the European Central Bank (ECB). The ECB ended its quantitative easing in December 2018, and it is unlikely that they will be able to raise the policy rate any time soon. This combined with political risk at the upcoming European Union parliamentary elections in May could cause the euro (EURUSD) to drop. 

Finally, the tedious Brexit negotiation process is ongoing. The British pound (GBPUSD) is largely trading off of Brexit headlines. While a hard or “no deal” exit from the EU is not a likely scenario, that the option has not been completely taken off the table, makes macro traders nervous. GBPUSD has the potential to fall to parity with the dollar in a “no deal” or messy exit scenario.  
As you can see, there are a number of global macros themes that will create volatility and opportunities in a number of assets classes in 2019.

Join Amelia at TradersEXPO Chicago where she will discuss global macro trading, forex and Women in trading. Don’t miss these events: Don't Fear Market Uncertainty, Manage ItWomen In Trading: Forex Discussion & Global Macro Outlook

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