for your macro trade framework - On the part around rates differentials, for your CAD/USD example where youre buying USD Shorting CAD, how would you look at the forward curve? since your thesis was that CA was on a rate cut path, would the forward curve effectively show CAD higher over the term structure per Covered Interest Rate Parity and you are just aiming to profit off the fact that the market is mispricing the premium in CAD and same for dollar where the forward would say that USD is at a discount but obviously the rates path was higher/sticky? This post is amazing thank you!
Thank you lord fed for the explanation, do you have any book that goes into the details of what drives fx market longterm and short term(daily/weekly basis) for trading?
Thanks Fed. Yes pls if there’s more about it- how to use it as a gauge basically & more mechanics of how it works. I did do some google searches & learnt quite a bit but if there’s a great guide like your primer which has all in one place it will be great. I would XCCY basis must be going crazy right now given the market
Love learning how the professional/institutional arena trades and then having it explained in a way for retail to understand. Which you did beautifully.
- Major Currencies (Highways and Cities): Major currencies like the USD, EUR, JPY, and GBP are akin to highways connecting major cities. These currencies are widely traded, highly liquid, and the backbone of global trade and finance. As highways facilitate efficient and large-scale transportation between key hubs, major currencies provide stability and reliability in international markets.
- Minor Currencies (Secondary Roads and Towns): Minor or regional currencies like the NZD or SEK are like well-maintained secondary roads connecting smaller towns. They are still crucial for trade within specific regions but lack major currencies' global reach and liquidity.
Exotic Currencies (Village Roads): Exotic currencies like the Iranian rial or Zimbabwean dollar resemble local village roads—narrow, less traveled, and often unreliable. They are less liquid, more volatile, and typically used only within their domestic economies or for niche purposes.
- Currency Strength Indicators (Traffic Flow): Just as traffic flow on highways and roads indicates their usability and importance, currency strength indicators reflect the economic activity and market confidence in a currency. A "jammed highway" might represent a strong currency under stress (e.g., high demand), while an empty village road could signify a weak or underutilized currency.
for your macro trade framework - On the part around rates differentials, for your CAD/USD example where youre buying USD Shorting CAD, how would you look at the forward curve? since your thesis was that CA was on a rate cut path, would the forward curve effectively show CAD higher over the term structure per Covered Interest Rate Parity and you are just aiming to profit off the fact that the market is mispricing the premium in CAD and same for dollar where the forward would say that USD is at a discount but obviously the rates path was higher/sticky? This post is amazing thank you!
Thank you lord fed for the explanation, do you have any book that goes into the details of what drives fx market longterm and short term(daily/weekly basis) for trading?
Great post. Just want to add that tom next in EM market(like CNH) sometimes can be very interesting due to CB intervention.
Great read. Took me like 90 mins to read. Is there any good resource for Cross Currency basis? Would like to learn more about that.
Ha, it's a long one. I am more than happy to answer questions via DM or comment - can DM me on Twitter if preferable.
I will try and find something worthwhile for you.
Thanks Fed. Yes pls if there’s more about it- how to use it as a gauge basically & more mechanics of how it works. I did do some google searches & learnt quite a bit but if there’s a great guide like your primer which has all in one place it will be great. I would XCCY basis must be going crazy right now given the market
Fab read
Many thanks sir!
Very well written for someone who knows little about this! Thank you sir
I’m glad you enjoyed.
How long did it take out of interest ?
To read the whole thing?
Love learning how the professional/institutional arena trades and then having it explained in a way for retail to understand. Which you did beautifully.
Yes
Read it in chunks since I was working but about 1.5 hr
Great introduction, for sure, even to old-timers like me who’s run an FX business !
Extremely generous of you to leave it outside of the paywall !
Appreciate that, Chico.
Truth is, I didn’t have a grand plan when I published it. FX is so often overlooked or misunderstood, so there’s that.
Glad it resonated with both new traders and people like you who’ve been around the block!
Loved the detailed explanations, the synthesis and the final framework. It took a while to read but it was definitely worth it.
I’m glad you enjoyed!
Great post. I think of currencies like this:
- Major Currencies (Highways and Cities): Major currencies like the USD, EUR, JPY, and GBP are akin to highways connecting major cities. These currencies are widely traded, highly liquid, and the backbone of global trade and finance. As highways facilitate efficient and large-scale transportation between key hubs, major currencies provide stability and reliability in international markets.
- Minor Currencies (Secondary Roads and Towns): Minor or regional currencies like the NZD or SEK are like well-maintained secondary roads connecting smaller towns. They are still crucial for trade within specific regions but lack major currencies' global reach and liquidity.
Exotic Currencies (Village Roads): Exotic currencies like the Iranian rial or Zimbabwean dollar resemble local village roads—narrow, less traveled, and often unreliable. They are less liquid, more volatile, and typically used only within their domestic economies or for niche purposes.
- Currency Strength Indicators (Traffic Flow): Just as traffic flow on highways and roads indicates their usability and importance, currency strength indicators reflect the economic activity and market confidence in a currency. A "jammed highway" might represent a strong currency under stress (e.g., high demand), while an empty village road could signify a weak or underutilized currency.
Your guide is like Waze!