Good Morning. Mongolia once backed its currency with sheep. In the early 20th century, Mongolia’s government used livestock as collateral to issue banknotes. Sheep, yaks, and camels literally backed the national money supply.

Talk about liquid assets, just… woollier than usual.

-Jonathan Kibbler, Jordon Mellor, Patrick Lewis

MARKETS

How’s your favorite today?

Prices supplied by Google Finance as of 4:00am ET - stock prices as of close. Here is what the prices mean.

TRADER INSIGHTS

Built a Forex Tool With AI Because I Can’t Code

As you may or may not know I am a bit of a currency strength and weakness nerd and I have been trying to get AI to build me currency strength meters in order to develop my understanding as well as open myself up to new trading opportunities.

We have already built a macro currency strength meter which uses such things as:

• GDP

• Interest rates

• Real yields 

• Core CPI

But this time I wanted to explore something a little different.

So I opened my old pal chatGPT again and got to work. 

1. Theory

I wanted to see if we could build a currency strength meter based on economic surprises. 

What do I mean by this? 

The actual vs the forecast. 

I have kind of done this already but not for all the G10 currencies. You may be familiar with my fundamental tracker which tracks all the releases of the US and UK data, takes into consideration the actual data vs the forecast to see if the averages are wrong. 

In my theory it could appear that the data is not as bad as first thought so the market may begin to reprice their expectations. 

For example if the US retail sales comes in at 0.1% beating forecasts of 0%, then it’s better than expected. If we then have multiple of these key data points coming in better than expected, could this then lead into a positive outcome for the currency? 

2. Sentiment Indicator ONLY

When I talk about building all these indicators, I want to add a caveat. These are only to be used for added layers of confluence and never as a sole excuse to trade the financial markets. We also need to test this going forward for a long period of time in order to see if it actually is useful as backtests can only do so much. 

I say this because the data could come out better than expected but still worse than the previous reading, so in theory the data could still be coming in lower. 

But still, this could be the making of an interesting sentiment reading indicator. As markets may be a little more upbeat on the fact that things aren’t as bad as it seems. 

If I know anything about markets this year, it's that they are being driven by sentiment over macro right now. 

3. What does it look like?

So I did add another little piece into it which was the interest rate differentials, which is probably why we are seeing the Japanese Yen as the weaker currency, as the rate differences favor the USD in this. 

To caveat that I created two one with the interest rate differentials and one without just in case the data was being skewed. 

Here’s how they look. 

As you can see it changes drastically depending on the inputs we use. I like using interest rate differentials when looking for flows, but it depends on the narrative as well. Is a central bank hiking or is it cutting, then we need context of why. 

Again, this is why I would use this as a bit of a sentiment reading more than anything else.

4. AI tools should be used as such

I have been using AI to build these tools as I am an amateur when it comes to coding. I have done some bits here and there, but I am far from being well educated. 

This is where AI for retail traders could really shine.

If we know what we want to ask and we know how the outcome can impact markets, then we can get the AI to do everything in between. 

Like I said, I have been monitoring the surprises and building them into a manual tool, but this could now halve my time and produce the outcome for multiple markets not just two. 

Final Thoughts

What excites me the most is the potential to use AI to simplify, refine and create different versions of ideas. The market is always changing and as traders we should too. We should not just stand still, we just continue to understand and learn. 

So if you have an idea, give it a go. Just be aware it won’t change things overnight for you, but it could change the way you view or understand the market. 

See you in the lab again soon. 

-Jonathan Kibbler

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MARKET ANALYSIS

BTC Profit-Taking Pressure, But $115K Could Trigger a Massive Short Squeeze

Bitcoin continues its stellar month, as it briefly flirted with a new all-time high, showing its resilience in the face of global macroeconomic uncertainties. The leading cryptocurrency has been spurred on by improving U.S. economic data and growing institutional interest, but under the surface, on-chain metrics reveal a complex battle between the profit-taking investors and the possibility of an explosive upside if key resistance levels break. As the market teeters on this knife edge, traders are having to decide whether the current conditions will lead to consolidation, correction, or another leg up in this remarkable run.

Bitcoin continues its stellar month, as it briefly flirted with a new all-time high,

So for backstory, the current Bitcoin rally got its strong support from the improving U.S. financial conditions. On May 27, BTC briefly touched $110,700, riding a wave of positive vibes following a strong equities market open and the surprising announcement from Trump Media and Technology Group about plans to raise $2.5 billion for a Bitcoin treasury. The bullish momentum aligns perfectly with the Chicago Fed's National Financial Conditions Index (NFCI), which has shown a dramatic shift from tightening to ultra-loose conditions in recent weeks.

Market analysts point to this liquidity surge as a key driver for risk assets like Bitcoin. Ecoinometrics, a trusted macroeconomic research firm, says that the current environment mirrors patterns seen in 2023, when similar liquidity conditions sparked major crypto rallies.

The liquidity picture becomes even more compelling when you look at the components of the NFCI. The index tracks critical factors like credit spreads, leverage, and funding conditions - all of which have shown marked improvement in recent weeks. This creates what economists call a "Goldilocks scenario" for speculative assets: easy access to capital combined with reduced market stress typically creates ideal conditions for crypto rallies.

While the macroeconomic backdrop looks pretty supportive, Bitcoin faces a crucial technical test at the $115,000 level. Data from derivatives tracking platform CoinGlass shows a massive concentration of short positions clustered around this price point. A decisive break above $115,000 could trigger a cascade of liquidations exceeding $7 billion - an event that would likely propel prices significantly higher through forced buybacks. Continue Reading…

-Patrick Lewis

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Answer: Gold