All language subtitles for Lesson 2.3 Interest Rate Differentials (J) EN

Okay folks.

Welcome back.

This is less than 2.3 with the
January, 2017 OCT mentorship.

We're looking at interest
rate differences.

Okay, central bank interest rates.

Uh, if we're going to be looking at a
macro view, it really needs to start here.

And there's several
places on the internet.

You can go to get this list, but
this is the global currency interest

rates from the central banks.

And this is the list that you
can get from FX street.com.

You can do simple Google search and
in the notes for the PDF, I'll have

all the links for all these things.

I even though they all show up in the
actual presentations and your PDF file,

like I said, the notes will be rich with
details about where to get the information

from and what you can do with it.

But this list is from FX street.com.

And what you want to do is when you look
at the list, and obviously it's a rather

anemic list of, uh, interest rates,
uh, currently in the current state of.

The global economy, but generally
there's always going to be a

higher interest rate among another
currency versus another country.

And basically what you're going
to do is you simply look for a

currency or country in this case,
uh, that has a high interest rate.

And as you see here, the highest on this
list is the reserve bank of New Zealand.

The second.

High end of the interest rates would
be the reserve bank of Australia.

And obviously the low end would be
the bank of Japan and the Swiss bank

and the European central bank at zero.

We're going to go through
this and to pass this.

In other words, you want to find two
trading examples on a hard timeframe

basis using interest rate differentials,
starting with the interest rates

that are pegged at the central bank.

Now again, if we're looking at
this, this is going to cut to what

fundamental basis there is to buy
or sell a particular currency.

Uh, you can't get any more
fundamental to interest rates.

So if we're going to look at these
countries, If we pick, for instance,

a currency that we want to be a buyer
of, obviously money seeks yield.

So it makes perfect sense to be a buyer
of Australian or New Zealand currency.

If you're expecting weakness in a
particular country or in a country's

economy, uh, you can see that
in the form of a weak interest.

For that particular currency or that
country, uh, Swiss national bank.

Thank of Japan, European central
bank, bank of Canada, bank of England,

even federal reserve.

Really it's very low end on the interest
rate curve based on this list here.

So, if we were to take a look at these
countries, we could build a model on

a higher timeframe basis on long-term
macro trades, which have the most

opportunity to move based on a fundamental
establishment of interest rates being

utilized for the selection process.

Put in, in other words, Funds
will seek the trade high yielding

currencies and placed that
against a weak yielding currency.

And they will look to buy strong
currencies and so against weak

currencies, and they will look
to sell against currencies and

buy against strong currencies.

In other words, they're gonna be buying
strong pairs and selling weak pairs.

All right.

So let's take a look at
selecting a pair for trading.

First thing you do is you want to look for
a country that has a high interest rate.

Then you want to start the country
with a low interest rate and it doesn't

have to be the lowest of the low.

It doesn't have to be
the highest of the high.

It can be.

It just a very strong difference
between the two interest rates.

And then obviously once you select
the high end and the low end currency

or country in its restrict respective
currency, obviously you're going to

determine the Forex pair coupling based
on those two respective countries.

For an example, we're going to assume that
the Australian dollar is our selection for

our high interest rate yielding country.

And the interest rate comes in at 1.5%.

And we're going to pair that up with
a weaker currency from the federal

reserve, which is the U S market
with a 0.75% or three quarter.

Now I'm going to have to remind you
that this data is factored in with a

interest rate hike of 25 basis points.

So at the time of the trade,
we're going to rest there.

We reviewed the federal reserve.

Central bank rate was at 0.50.

But when we look at this the way we
couple that up for a four X payer,

obviously the Australian dollar.

Pair is what we'd be looking at.

Once we arrive at our currency, that we're
going to be focusing on being a buyer of

buying strength against a weaker currency,
for instance, the dollar next year.

We're gonna be looking for strong
support on a higher timeframe chart.

Now we're thinking
long-term macro perspective.

So we're only looking for large mus
in a fund level trend, following idea.

But before we get to that point, we
have to expect some sizable move.

That's going to be positioned
with big flows behind it.

Again, we're fundamentally
aligning ourselves with the

central bank interest rate.

We're coupling a pair based
on a high yield interest rate.

1.5% versus a half of 1%
at the time of the trade.

But in this case, we had to show
the numbers as they are here.

Now, a 0.7, 5%.

We wait for smart money
clues that it's being bought.

Now we went through several of those
things that indicates that in the

mentorships so far, but we'll, we
visit a few of them for this example.

Seasonal tendency and or open
interest can confirm this.

So there's are two elements of
smart money tools that we can use.

It doesn't have to use
every possible scenario.

We only need one or two to confirm,
and we are looking for a us dollar

index, directional confirmation
that qualifies the setup.

Okay.

We're going to look at the
Australian dollar is the cash

price for Australian dollar.

And we identified a long-term support
level old low in form of 71 50.

And we were to our March contract 2017
of Australian dollar, which would be

the active contract that you would be
trading at the end of December of 2016.

We're going to add that
71 50 level or a chart.

You can see price has
traded into that as support.

Now, I want you to take a closer look
at what's going on with open interest.

Did you see open interest
has been declining

and notice this big reduction here,
that purple line dropping like that.

That's a massive reduction
in open interest.

Open interest is going to be a.

Indication that there's short
covering by way of the smart money

or, or large commercial traders.

If they're short covering, that means
that they're not trying to assume the

other side of the trade for buyers there.

They want to reset themselves
because they anticipate what if

they don't want to be sure they're
anticipating sharply higher prices.

And did you get here off that 71 50 now
look at the look at the magnitude of the.

Scene with the Australian dollar here.

Remember that the pair that we're trading
in the Forex market is Aussie dollar

Aussie has that higher 1.5% interest rate.

The federal reserve was offering 0.5, zero
to a latter part of December, where it was

adjusted for another 25 basis point pike.

So now it's at 0.75% for
the federal reserve rate.

It's still.

Half of the interest rate.

That's yielding only Australia and
central bank consider how much this pair

has moved from 71 50 level 400 plus pips
have been seen from this rally off of

a higher timeframe support level 71 50.

Now, just because it trades at higher
timeframe support level doesn't

mean that it's going to treat.

But when you couple that 71
50 level, what's the hard time

support level or an old low.

And you also noticed that the
market has seen a sudden reduction

in open interest, which is short
covering on the part of smart money.

And you couple the idea fundamentally
that the higher yielding interest

rate of 1.5% from the Australian
central bank coupled against the.

Point seven, 5%.

Or if you want to go back and use the
half of 1% rate, either way, you're

getting a higher yield off of the
Australian currency versus the dollar.

And that's why we've seen such a sharp
rally and why I have been talking about

the Australian dollar going higher.

Basis of our teaching throughout
this mentorship, we've been talking

about the Australian dollar going
higher with respective levels.

Have this recently been hit with 75 80
as that level that we just mentioned from

last week, the fundamentals, if you will.

Okay.

We're aligned with the central bank
interest rate of one and a half percent,

couple against a weaker federal reserve
0.75% interest rate for the dollar.

When you have that basis and you have
technical support it, and you're looking

at a hard timeframe chart like this,
it lines your pockets with wonderful

opportunities to continuously take
large moves out of the marketplace, and

you don't need to be trading a lot by
looking at these hard timeframe, interest

rate, yield scenarios, coupling it with
a high odds probability technicals.

You get yourself in sync with.

Significant price moves that are
going to most likely surprise

many of the neophyte traders

you could see also that we had a higher
high in the dollar index when we failed to

make a lower low in the Australian dollar.

Okay.

We're going to do another example.

We're going to select a pair with
a low interest rate this time.

And I'm going to select the
country with a high interest rate.

And we're going to determine the four
X pair that couples for that trade.

And this example, we're going to use a
higher yielding currency 0.75%, which

again, that was actually half of 1% at
the time when his trade is being shown.

So I had to adjust it, which show
you for your notes versus Japanese.

Uh, And their central
bank rate was negative.

And the two respective countries
and their currencies would be

paired up in the form of dollar yen.

We're gonna look for strong
resistance on higher timeframe charts.

We're going to wait for smart
money clues that it's being sold.

In other words, we want to see
Japanese yen hit resistance level.

And showed indications
that it wants to sell off.

And we're looking for seasonal tendencies
and or open interest to confirm the trade

and looking for dollar index directional
confirmation to qualify the setup.

So if we have the expectation that
the weaker currency is the Japanese

yen interest rate basis against the
stronger of the two, the dollar, which

has the higher yielding central bank
rate, we're going to see that U S.

Versus Japanese yen pair
actually go higher because you're

buying dollar and selling in.

So for expecting weaker Japanese yen,
because of the weaker lower interest

rate, that means that the pair we
coupled for foreign exchange trading, the

dollar yen is to pair would be trading.

So even though we're looking for weakness
in yen, We're looking for the opposite

of that for the payer to way it's formed
to the dollar yen pair is actually going

to strengthen or go up in our charts.

As it relates to the cash.

You can see the weekly chart
here in a bare shoulder block

at the 9,000 level right here.

And that would set the stage for a move.

And this is the cash
price of the Japanese yen

and price trades up into that 98
big figure and weaknesses scene.

From that point on, obviously this
is seen on the heels of the Donald

Trump election, but nonetheless,
this move many hundreds of pips.

Well over 1200 pips of a price move.

And again, it's based on the
central bank interest rate and

a differential between the two.

And by having that coupled with
strong technicals seasonal tendency,

understanding that the market was
expected, high volatility because of

the election, this massive decline
seen in the cash price of Japanese yen.

Is also seen in understanding because
of our analysis or my own analysis, as

we were going through the mentorship,
why I was calling the dollar yen

higher, all those factors for leading
us up into those commentaries.

This was the basis behind it all, having
the higher yielding interest rate of the

dollar versus the weaker currency interest
rate of the yen and coupling that with.

The technicals that we teach or using
an inner circle, trader a repertoire,

it gives you these massive price moves
based on a higher timeframe premise.

So you're using these things
again, you're not using them today.

Trade you're not using them to,
uh, facilitate short-term trades.

But if you trade in that direction,
obviously your trades will be a

lot higher probability, but they're
more inclined to be used on a

higher timeframe basis because.

The large funds because of the
nature of their trading style or

trend following in nature, they're
going to look at fundamental reasons

to trade specific currencies.

And if you look at the moose that's
transpired in the last three to

six months, all of the big mus come
by way of the information that's

drawn by the differentials that
we've discussed so far here, and the

method of using those central bank
interest rates pegging them together.

Specific currency payers
and having technicals align.

You'll be able to see that footprint
of large flows and funds pouring

money into a particular currency.

If you look at the Valerie end payer
in relationship to this in November,

you would see a strong buy or a
low in that particular current.

So we're going to talk more about
differentials and we're actually going

to start talking about a yield spreads
also when we get into swing trading.

So there's other information we're
going to talk about with interest rate

differentials and yield spreads, but for
now go through your charts and look at

the interest rate differentials between
all the weaker and higher yielding

currencies on the central bank level.

And look back over the last six months.

Payers you see and find through as
a homework assignment, look for set

ups that took place higher timeframe,
support resistance levels, institutional

order flow ideas, open interests.

Try to incorporate that as well on support
levels and then justify why in hindsight

now it's this is a good exercise.

Go back in hindsight and justify why
the fundamentals were on the line.

With those significant price moves.

And again, you're looking back
three to six months for currency

pair of moves to take place.

Now I don't tell people or even
advise people to trade exotic pairs.

Now exotic pairs would be
like, um, uh, Euro swissy okay.

Or something like that.

Um, but look at some of those currency
payers to have a higher yielding interest

rate versus a lower interest rate.

Okay.

And how you would pair them up in a
Forex pair and look at the respective

price action in the last three to
six months on those pairs viewing

the, the information that we're using
from the central bank level at the.

Again, this is a really simplistic
approach to trading long-term and

it's coupled with there, I say it
again, a fundamental application of

how the funds would go in and move
large scale into a particular currency

or out of a currency based on the
interest rate information that we've

covered here today until next time I
wish you good luck and good trading.