FX/Commodity Correlation -

One thing that I like playing in FX space is commodity beta currencies, as they tend to have various source of risks to fuel their volatility (both RV and IV)... currencies like EM commodity producing (ZAR, MXN, RUB, BRL) and DM (CAD, NOK, AUD, NZD)
are always the places where you can find both idiosyncratic monetary policy risks (see hawkish BoC/Norges Bank), and commodity driven price action...

The most noticeable currency on my vol radar right now is CAD for the two reasons mentioned above
1. BoC turned quite hawkish on its last meeting, but very likely to play down further CAD strength in its next meeting (after the next two CPI/Payroll reading prior to its July 14th meeting)

2. Some decent unwinding in commodity complex going on, which drives down oil prices
if we look at the correlation between Bloomberg Commodity Index (BCOM) and CADCHF, we can see a significant beta, so given further decline in commodity prices we can get further weakness in the pair
Intra-commodity bloc trades are also somewhat interesting, as trading the relative strength of metals/energy (or the volatility of that ration) can be done in a relative cheap cost with AUDCAD, NZDCAD due to the implied FX correlation (AUDUSD-USDCAD or NZDUSD-USDCAD)

Just my 2c.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Harel Jacobson

Harel Jacobson Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @VolQuant

8 May
Lessons from the Boxing Gym - Never skip a "Leg Day"

One thing that you learn early on in boxing is that you should never skip a "leg workout". I'm not necessarily talking about lower body strength but rather the general concept of training the basics and fundamentals
You can see many fancy pad flows and mitt works/combos on IG/TikTok, but at the end of the day these are the fundamentals that win round and do the work of win fights. Basic head movement, footwork, jabs and consistency go a long way in putting you in a position of strength.
When I train (and work with fighters) I dedicate a significant amount of time to working the fundamentals (hell, I occasionally train for about 30min just working the jab on the heavy bag...), as sharpening the basics will make a huge difference in the ring
Read 8 tweets
4 May
Risk today feels bit on the soft side, and while I have literally no clue whatsoever whether this is going to develop into a sell-off today or not there are few things that worth keeping an eye on:

1. USDJPY vol has been outperforming implieds for about a week now...
when you see this kind of dynamic it's definitely a good sign for risk. wider trading range of USDJPY = more volatile USD/ TYs

2. SGD realized x2 move compared its 1m vol. We are talking about a currency that almost never moves

3. very weak HY currencies (EM, commodity G10)
4. FX vols coming of a somewhat low base, which means that gamma is cheap to own (short gamma more painful, less buffers)

5. Inflation expectations creeping higher w/ commodities but treasury yields are somewhat low
Read 4 tweets
10 Apr
While most of the people on my twitter feed are all about the next 5-10pts in ES and vanna/charm/gamma squeeze (or anything else which is the flavor of the month), very few look at a pretty big thing that can (and should) be alarming - China shadow banking
This "little" problem is something that unlike other crises, is an ongoing bubble-like train wrack that the CCP has to carefully deflate, so every few months they deleverage a bit more.

In 2015 they had to deleverage their stock market after a boom of margin retail accounts
that sent their stocks to the moon (think today's US market on steroids). After that they had to devalue their currency, which global markets really didn't like.

After that they kept on letting thousands of companies to under in a controlled way, and occasionally drained
Read 6 tweets
8 Apr
One of the biggest misconception in boxing is that the southpaw stance indicates left-hand domination (@Ksidiii should know a thing or two about that...)

Ex-soviet union coaches (Cubans are actually known for the overwhelming portion of southpaw fighters) teach from young age
boxers to fight in a southpaw stance, and I can assure you that most of them are right-hand dominant.

So you are probably asking how this is all has to do with trading, right?

Very much like in boxing, experimenting different strategies/models/market helps you develop arsenal
of tools that can become handy under different market regimes...

I'm an orthodox fighter, so my default stance a leading left hand, but I do train at least twice/week in a southpaw stance to be able working both stances. This helps me become more versatile as a fighter
Read 11 tweets
27 Mar
If you run a portfolio (no matter what you trade) the most important question you need to ask yourself is "in what situation this portfolio blows up?)

I recently took some time off the market, and besides doing a lot of housework and renovation I ran complete scenario analysis,
backtest, and stress test to my portfolio.

We tend to think that we know our strategies in-and-out and we know that in scenario X the performance will be x1 and in scenario Y the performance will be y1, but we tend to neglect the crucial part of cross effect
of the individual strategies on our entire portfolio:
1. Are there correlated strategies (either positively or negatively) ?
2. How are the greeks on the portfolio level move with respect to spot/vol? are we happy with our gamma/vega at X% move? should we mitigate some of that?
Read 7 tweets
22 Mar
Let's talk FX funding..

Today's move in $TRY is a great opportunity to talk about a rather niche segment of FX trading which is the funding cost..

Generally speaking, when we trade any FX spot (buy CCYx/ sell CCYz) the trade settles in T+2 days (except TRY and CAD who are T+1)
So if we want to keep the trade alive we need to roll the trade forward. When we roll the trade we basically borrow in CCYz and lend in CCYx. If we borrow at a lower rate and lend in a higher rate we will earn the carry (and vice versa...)
In EM, in addition to the rate differential between the key rates the market prices in additional basis in most currencies to reflect the funding risk premium of these market.

Low risk EM (CZK, ILS, PLN, CNH) will price a moderate, while premium, while market like ZAR , TRY
Read 7 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

:(