Macro Economic To Micro Technical

Using interest rate markets to determine long-term currency direction

Definition

"it's a macro perspective so in other words it's not a day trading perspective it's not something that's going to be forcing you to look at 15-minute charts not even an hourly chart not even a four hour chart okay we're gonna be looking at daily charts only"

"when i look at the marketplace and i'm looking for a long-term macro view i'm looking for an insight that would give me a three to six month outlook on where currencies may be heading in what direction"

"what i require is a visual interpretation of that data and what i subscribe to is the bond market will tell me that if i can read price action in the bond market"

Time Frame & Outlook

"long-term to me is three to six months it may not be long-term for you but it is for me"

MACRO TO MICRO APPROACH

"so again it's a macro perspective using macroeconomic principles interest rates okay and then utilizing that down to a micro technical"

Interest Rate Instruments

30-Year Treasury Bond

"one of the things i use for that is interest rates and the way we find interest rates the way i do it is i'm looking at the bond market the 30-year treasury market will give me the insights i need for interest rates on a intermediate to long-term basis"

"now the 30 treasury bond is uh the benchmark for what we have in the us as our mortgage rate"

10-Year Note

"there is another interest rate asset uh market that i look at which is the 10-year"

"if i'm going to understand the interest rate market it just stands to reason if as long as i know the bond market in the 10-year note i'll know everything i need to know"

Bond Market & Dollar Relationships

Bond Market Rising = Interest Rates Lowering

"as the bond market rallies that's a lowering of interest rates"

Bond Market Falling = Interest Rates Rising

"when it drops down in the futures market for the bond market that is an increase in interest rates"

Interest Rates Rising = Dollar Strengthens

"if interest rates are going to go higher that's going to allow the dollar index to go higher"

"an increase in interest rates is going to see a aggressive pouring in of funds to buy up the dollar"

Bond Market & Dollar Index Relationship BOND MARKET Rallies = Interest Rates Lower Drops = Interest Rates Higher DOLLAR INDEX Weakens (Lower Rates) Strengthens (Higher Rates) Bond Market Drop = Interest Rates Rise = Dollar Rally

SMT Divergence Between Bond Market & Dollar Index

"in lesson five of this month's teaching i taught you the smt divergence relative to the dollar index and foreign currencies that same idea is applied here but for an interest rate divergence in other words we're looking at how the bond market interacts with the dollar index"

The Pattern

"in the last week of june we have the dollar index making a low and the market failed to make a lower low at the same time that the bond market was making a higher high"

DIVERGENCE SIGNAL

"this underlying change in trend is seen in the dollar index with the failure to make a lower low at the same time the bond market made a higher high"

10-Year vs 30-Year Divergence

"i want you to take a look at the smt divergence that we have in these two charts"

"take a look at the tenure note here making a higher high here at the same time 30-year made a lower bond market took off lower"

"we saw this higher high form in 10-year while we saw a lower high or smt divergence in the 30 year and then immediately we saw another decline in both 10-year and 30-year which is an increase in interest rates"

Quarterly Shift Concept

"every three every three to four months there is a quarterly shift that takes place and what i mean by that is whatever trend or whatever market condition is prevalent for right now in three to four months time there's usually a shift okay there's either a reversal or it's an extended period of consolidation and then a future resumption of the trend or again you know a reversal"

"every three or four months i'm looking for a change in direction because i believe there is a cordless shift that takes place in the marketplace"

QUARTERLY SHIFT TIMELINE

"around every three to four months there's going to be this shift that takes"

Practical Application

What To Look For

"so right away we know that there should be an accelerated buy or a rally in the second week of september and the last week of september for the dollar"

"we can take all this information okay and from the month of september start looking for a reason to be a buyer for all the dollar based currencies that start with the dollar first in their name we would be going along those pairs"

Dollar Pairs (USD First)

WHEN DOLLAR STRENGTHENS
  • "dollar cad" - Look to go long
  • "dollar swissy" - Look to go long
  • "dollar yen" - Look to go long

Foreign Currency Pairs (USD Second)

WHEN DOLLAR STRENGTHENS
  • Euro - Look to go short (sell-off expected)
  • British Pound - Look to go short (sell-off expected)
  • Aussie Dollar - Look to go short (sell-off expected)
  • New Zealand Dollar - Look to go short (sell-off expected)

Order Blocks In Context

"which means now we have the dollar index pulling back into a down candle which is a bullish order block so we can expect to see prices may move higher on the dollar which will do what send the bond market lower"

"when we see this rally up it's returning back to an up candle which is a bearish order block and it sells off again"

Study & Review

Click each card to reveal the answer (from transcript quotes)

What time frame does this macro to micro approach target?
"long-term to me is three to six months it may not be long-term for you but it is for me"
What does a rising bond market indicate about interest rates?
"as the bond market rallies that's a lowering of interest rates"
What does a dropping bond market indicate about interest rates?
"when it drops down in the futures market for the bond market that is an increase in interest rates"
What happens to the dollar when interest rates increase?
"if interest rates are going to go higher that's going to allow the dollar index to go higher"
What two instruments does ICT use to read interest rates?
"if i'm going to understand the interest rate market it just stands to reason if as long as i know the bond market in the 10-year note i'll know everything i need to know"
How often does a quarterly shift occur?
"every three every three to four months there is a quarterly shift that takes place"
What SMT concept is applied to bond markets and the dollar index?
"in lesson five of this month's teaching i taught you the smt divergence relative to the dollar index and foreign currencies that same idea is applied here but for an interest rate divergence"
What chart timeframe is used for this analysis?
"we're gonna be looking at daily charts only"
What divergence pattern signals an underlying trend change?
"this underlying change in trend is seen in the dollar index with the failure to make a lower low at the same time the bond market made a higher high"
Why does ICT prefer this approach over fundamental reports?
"what i require is a visual interpretation of that data and what i subscribe to is the bond market will tell me that if i can read price action in the bond market"
What is the 30-year treasury bond a benchmark for?
"now the 30 treasury bond is uh the benchmark for what we have in the us as our mortgage rate"
What happens when interest rates increase according to ICT?
"an increase in interest rates is going to see a aggressive pouring in of funds to buy up the dollar"