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December 2012
Volume 9, No. 12
Strategies, analysis, and news for FX traders
TAKING THE PULSE OF FEVERISH DOLLAR/YEN PAIR P. 16
God Save The Queen (and Her currency):
British pound searches for a catalyst p. 6
Dollar/yen pullback setup p. 29
Dont be fooled by currency wars p. 14
Dissecting the dollar index/Aussie dollar relationship p. 20
Figuring out what matters in FX right now p. 10
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2/292 December2012CURRENCY TRADER
CONTENTS
Contributors................................................. 4
Global Markets
British pound has potential near-term
edge over Euro ............................................6
The UK currency isnt poised to make a huge
move either way, but it has more potential
upside vs. the Euro than the U.S. dollar.
By Currency Trader Staff
On the Money
What matters? ..........................................10
To understand whats important in the forex
market, start with what isnt.By Barbara Rockefeller
The misdirection of currency wars ........14
Distracting rhetoric obscures the real dynamics
ofglobalcapitalowsandcurrencyvaluations.
By Marc Chandler
Spot Check
Dollar/yen makes another swing ............16
But is it the real thing?
By Currency Trader Staff
Advanced Concepts
Spreading the dollar index
and Australian dollar ...............................20
Trading the U.S. dollar against the Australian
dollar is different than trading the dollar indexs
components against the AUD.
By Howard L. Simons
Global Economic Calendar ........................24
Important dates for currency traders.
Currency Futures Snapshot.................25
Managed Money Review .......................25
Top-ranked managed money programs
International Markets............................ 26
Numbers from the global forex, stock, and
interest-rate markets.
Forex Journal ........................................... 29
Pullback sets up long entry in hot dollar/yen
pair.
Looking for an
advertiser?
Click on the company
name for a direct link to the
ad in this months issue.
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CONTRIBUTORS
4 December2012CURRENCY TRADER
Editor-in-chief: Mark Etzkorn
Managing editor: Molly Goad
Contributing editor:
Howard Simons
Contributing writers:
Barbara Rockefeller,
Marc Chandler, Chris Peters
Editorial assistant and
webmaster: Kesha Green
President: Phil Dorman
Publisher, ad sales:
Bob Dorman
Classifed ad sales: Mark Seger
Volume 9, Issue 12. Currency Trader is published monthly by TechInfo,Inc., PO Box 487, Lake Zurich, Illinois 60047. Copyright 2012 TechInfo,Inc. All rights reserved. Information in this publication may not be stored orreproduced in any form without written permission from the publisher.
The information in Currency Trader magazine is intended for educationalpurposes only. It is not meant to recommend, promote or in any way implythe effectiveness of any trading sys tem, strategy or approach. Traders areadvised to do their own research and testing to determine the validity of atrading idea. Trading and investing carry a high level of risk. Past perfor-mance does not guarantee future results.
For all subscriber services:www.currencytradermag.com
A publication of Active Trader
CONTRIBUTORS
qHoward Simons is president of Rosewood
Trading Inc. and a strategist for Bianco Research.
He writes and speaks frequently on a wide range
of economic and nancial market issues.
q Marc Chandler([email protected]) is the
head of global foreign exchange strategies at
Brown Brothers Harriman and an associate profes-
sor at New York Universitys School of Continuing
and Professional Studies. Chandler has spent more
than 20 years analyzing, writing, and speaking
about global capital markets. He is the author of Making Sense of
the Dollar: Exposing Dangerous Myths about Trade and Foreign
Exchange (Bloomberg Press, 2009).
qBarbara Rockefeller(www.rts-forex.com) is an international
economist with a focus on foreign exchange. She has worked as a
forecaster, trader, and consultant at Citibank and other nancial
institutions, and currently publishes two daily reports on foreign
exchange. Rockefeller is the author ofTechnical Analysis for Dum-
mies, Second Edition (Wiley, 2011), 24/7 Trading Around the Clock,
Around the World (John Wiley & Sons, 2000), The Global Trader
(John Wiley & Sons, 2001), How to Invest Internationally, published
in Japan in 1999, and The Foreign Exchange Matrix (Harriman
House, January 2013). Rockefeller is on the board of directors of alarge European hedge fund.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.currencytradermag.com/http://www.rts-forex.com/http://www.rts-forex.com/http://www.currencytradermag.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]7/29/2019 Ctm 201212
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While the financial world fixates on the U.S. fiscal-cliffcrisis and never-ending Eurozone sovereign-debt crisis,the UK continues to trudge along rather quietly and itseconomy is finally beginning to show modest signs ofimprovement.
The last several years in the UK have been tough inthe wake of massive fiscal austerity implemented bythe British government, with GDP growth basicallyunchanged in 2012.
Theyve had a very sluggish recovery, says Jay Bryson,global economist at Wells Fargo. Whereas the U.S. isabove precrisis levels, the UK is still 3% below. Up untilthe third quarter, GDP was roughly unchanged over thepast two years. Theyve been completely stagnant.
However, there are some signs that the worst could beover and that could be bullish in the months ahead forthe British pound (GBP), especially vs. the Euro (EUR).
Double dipTechnically, the UK economy retreated back intorecession defined as back-to-back quarters of negativeGDP at the beginning of 2012. Stephen Webster, direc-tor of UK-based economic consultancy Top Econ, notes the
country registered consecutive quarters of negative growth(-0.3% in Q1 after -0.4% in Q4 2011).This was followed by -0.4% in the second quarter [this
year], owing largely to the impact of an extra bank holidayin June on the occasion of the Queens Diamond Jubilee,he says.
Britains third-quarter GDP posted a 1% gain. However,economists point out this positive figure was inflated byseveral unique factors, including the summer Olympics,and is unlikely to be sustained.
Given relatively strong third quarter growth, somepare-back is anticipated for the final quarter of 2012, saysMelanie Bowler, economist at Moodys Analytics. Both
the services and manufacturing purchasing managersindexes deteriorated in October.
However, Bowler adds the Purchasing Managers Index(PMI) for the services sector which accounts for around75% of the UK economy remains in expansionary ter-ritory (expansionary is a reading over 50), which she sayssuggests the sector will soon recover the output lost since2008. The construction PMI also moved into expansion-ary territory in October, she says. As such, modest butwell-below-potential growth is anticipated in the fourthquarter.
Bowler pegs 2012 GDP at -0.1%, the same pace cited byWebster.
Lucky 13?For 2013, however, growth forecasts are edging marginallyhigher. The good news is they are not in recession, thebad news is they still have a ways to go, Bryson notes. Heforecasts the UKs 2013 GDP at 1.6%.
Webster also has a positive, although slightly moremodest, GDP outlook. Im looking for UK 2013 GDPgrowth to turn out around 1.2%, he says. The EuropeanCommission is forecasting 0.9% and the Bank of England
1.2%. Recession in 2013 is unlikely, but persistent weaknessin global growth is a clear downside risk.Meanwhile, Bowler forecasts the UK economy to
expand by around 1.2% in 2013. But overall GDP is notexpected to surpass its 2008 level until late 2014, she says.Furthermore, the risks remain firmly weighted to thedownside. The lingering crisis in the Eurozone, with whichthe UK has strong financial and trade ties, remains the keyconcern, but a new recession in the U.S. would also weighon the UK.
Headwinds remainBritain still faces significant challenges, though. Fifty per-
British pound has potential
near-term edge over EuroThe UK currency isnt poised to make a huge move either way, but it
has more potential upside vs. the Euro than the U.S. dollar.
BY CURRENCY TRADER STAFF
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cent of UK exports head to the Eurozoneand forecasts for a mild recession in theEurozone in 2013 should continue toweigh on UK growth prospects.
Consumer spending and sentiment arefar from turbo-charged, Bowler notes.The outlook for the countrys retailers
remains subdued, she says. Consumerconfidence is still well below its long-term average, weighing on discretionaryspending. A number of high-profile retail-ers have fallen into administration thisyear, and more are possible. Austerity willremain the key drag on UK householdsthrough 2013.
Also, inflation has been moderatelytroublesome, edging just above the Bankof Englands (BOE) official 2% target raterecently. The UKs Consumer Price Index(CPI) rose by 0.1% month-over-month inOctober, lifting the headline inflation rateto a five-month high of 2.7%, according toWebster.
Domestic gas and electricity prices [are expected toadd] around 0.4 percentage points to CPI inflation by early2013, Webster says. There is very little the BOE can doabout it, and other prices in the economy, including wages,would need to be correspondingly lower in order toachieve the 2% inflation target. Overall then inflation is notexpected to return to target until around second or thirdquarter 2014.
Central bank shake-upIn a surprise announcement in late November, Bank ofCanada Governor Mark Carney was tapped to replaceoutgoing BOE governor Mervyn King. Although thistransition wont take place until July 2013, speculation onwhat this could mean for BOE monetary policy has runrampant.
As is the case in the U.S., there has been some criticismand questioning of the effectiveness ofquantitative easingin the UK, especially because lending to businesses andindividuals has remained sluggish.
With the governments hands tied to austerity morefiscal tightening measures are expected to be announced
in the governments annual autumn statement the Bankof England is being relied upon to bolster the economy,Bowler says. Interest rates have been on hold at therecord low of 0.5% since March 2009 and are expectedto remain steady well into 2014. One monetary policycommittee member voted to increase asset purchasesin November, and further purchases or the use of newunconventional monetary policy tools cannot be ruled out,especially if the economy fails to continue to expand asexpected or if it is subject to a shock.
Greg Anderson, North American head of FX strategy atCitigroup, thinks Carneys appointment might nudge theBOE in another direction. Its a fresh set of eyes from an
outsider, he says. It probably makes it a little less likelythe BOE will extend QE programs.
Bowler sees it differently. The choice of Carney shouldlift confidence in the UK banking system, but it is unlikelyto alter the direction of British monetary policy, which weexpect to remain expansionary through late 2014, shesays. The BOCs Carney has a good, clean track record,which the BOE will be hoping to take advantage of.
Some market watchers say whether additional monetarypolicy accommodation or more quantitative easing willoccur could simply depend on economic performance in
coming months. You could potentially see more quantita-tive easing. Its a close call at 55% odds of no more QE and45% odds of more QE, Bryson says.
The UKs asset-purchase program remained unchangedat 375 billion in November, according to Bowler. TheBOE restarted purchases in October 2011 after ending themin early 2010, she says. Central bankers last increased thefund by 50 billion in July.Monetary policy action will be key in the coming monthsif the BOE ends its QE programs ahead of the Fed or theECB; that could be a bullish factor for the pound on thecrosses.
Pound positioningThe pound/dollar pair (GBP/USD) has been decliningmodestly since the mid-September peak around $1.63(Figure 1). The high represents strong resistance, havingturned back the early-2012 rally around the same level.However, the main driver of the mid-September to mid-November pullback was primarily a U.S. dollar rally.
There was a better overall performance for the U.S.dollar over the period, while the pound began to loseground as the fundamental UK data proved disappoint-ing, Webster says. The inability of the UK government toreduce debt also put a question mark over the durability of
the UKs AAA rating, and limited attractiveness of pound-
FIGURE 1: DOLLAR/POUND
The GBP/USD pair pulled back after challenging the late-April high in
September.
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based assets.Price action in the U.S. dollar, which
could be volatile into the final weeks ofthe year because of fiscal-cliff uncertainty,will be the key factor driving the pound/dollar pair.
Webster holds a cautious view. Theconfirmation of third-quarter UK GDPgrowth at 1% should help support thepound, and with no obvious deal in sighton the fiscal cliff, I expect GBP/USD willbe underpinned in the near term, hesays. However, once the U.S. gets its fis-cal act together, I see [the dollar] betterplaced than most for growth next year,and the pound could lose groundagain and quite sharply so, at leastinitially if the AAA rating is removed.
Moodys has promised a review early in2013.Meanwhile, BNP Paribas analysts have
a strong bullish view, which targets a move in pound/dol-lar toward $1.68 by the end of the first quarter 2013 and ashigh as $1.74 by the second quarter. However, the funda-mental factors of this forecast primarily come down to dol-lar weakness, as opposed to pound strength.
We have a fairly aggressive view for the Fed, saysVassili Serebriakov, FX strategist at BNP Paribas. Webelieve the Fed will continue easing policy through QE3.While the Fed is currently embarking on the program of$40 billion in monthly purchases of mortgage-backed secu-
rities it announced in September, BNP Paribas expects theprogram to expand.
Operation Twist ends in December, Serebriakov says.That is where they sell around $45 billion in short-termsecurities and buy longer-term securities. Thats balance-sheet neutral. We think they will roll that into outright pur-chases of Treasuries of $45billion starting in January. Rightnow they are expanding the balance sheet by $40 billion,but that would bring it to $85 billion [per month].
If the Fed were to enact that shift it, would be dollarnegative and we think the dollar will weaken across theboard, Serebriakov says.
HSBC offers a more tepid outlook. We see the pound
at $1.60 at the end of the year and at $1.62 by the endof March, says Bob Lynch, head of G-10 FX strategyAmericas HSBC. From a pound perspective, we seeissues with the UK and the U.S. and really dont have thepound/dollar exchange rate moving a great deal.
Euro/poundForex traders interested in trading a more specificallyUK outlook might prefer the cross rates. If you want toisolate the UK story, the Euro/pound is a better guide,Serebriakov says.
Anderson agrees. Seventy percent of the move in
pound/dollar [in September-November] was really Euro/
dollar, he says.Ultimately, trajectory of the pound/dollar pair is in large
part predicated by the direction of the U.S. dollar, whereasthe Euro/pound (EUR/GBP) represents a purer growth-differential play between the UK and the Eurozone (Figure2). Some analysts make the case that the pound could havea growth-differential edge vs. the Euro. Since late July, theEuro/pound pair has been rallying, but its upside prog-ress stalled in late November below the late-October peakaround .8165.
We generally expect to see the pound appreciate slowlyagainst the Euro as the UK economy does better than theEurozone, Anderson says.
Serebriakov sees a similar UK edge. The cyclical posi-tion of the UK economy appears slightly more advanta-geous to the Eurozones, he says. The economic under-performance of the Eurozone and the European debtcrisis will not be fully solved. For investors looking toput money into Europe, the UK remains a more attractiveoption because the UK is not associated with the extremefiscal risks of the Eurozone.
In the months ahead, BNP Paribas forecasts the pound tooutperform the Euro, with a fourth-quarter 2012 target at
79.00 for the Euro/pound, a 78.00 target for the end of Q12013, and a 76.00 target for the end of the second quarter.
Volatility pickup?Heading into the final month of 2012, Lynch notes thathistorical volatilities for many currencies are at fairly lowlevels. However, several risk factors could heat up actionin the near term, some foreseeable and others that mightemerge unexpectedly.
Theres the U.S. fiscal backdrop and the threat of atemporary disruption to the Eurozone financial system,he says. If and when something upsets the apple cart, it
often is something you didnt flag ahead of time.y
FIGURE 2: EURO/POUND
Traders interested in isolating the pounds dynamics should favor the EUR/
GBP pair over the GBP/USD pair.
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9/29CURRENCY TRADERDecember2012 9
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The factors that matter in FX are ever-changing. Even oldthemes get recycled in slightly different ways, as the mixof factors differs over time e.g., raising the U.S. debtceiling will be different this time from what it was in 1995.Looking ahead to 2013, can we say what matters to the FXmarket?
We can start with what does not matter.Greece doesnt matter. As the Eurogroup held three
meetings on the delayed tranche of the second Greek bail-out disbursement, the Euro rallied. A rally in the midst ofa financial crisis means the crisis is one-sided its a crisis
for Greece, just not for anyone else.Greece doesnt matter to the FX markets perception of
the Euro because its a small economy and no one actuallybelieves Greece will accept reform and come out of thecrisis with a well-functioning economy. Its citizens do notaccept the fact that they need to pay taxes; the state cantprivatize assets, chiefly real estate, because it doesnt havean accounting of titled properties.
Weve had a long time to get used to Greek problems.Catastrophe in Greece is already priced in. Theres noth-ing worse about Greece that can come along and harmthe Euro. Even a Grexit would not be Euro-negative.(A Greek exit from the Eurozone would, in fact, be Euro-
favorable.)Spain doesnt matter, either. Spain has the fourth-largest
Eurozone economy and faces some severe challenges,including a possible Catalan referendum on secession anda banking sector bailout delayed by however long it willtake to get the European Central Bank (ECB)-managedEurozone bank supervisor in place. Technically, it will existas of year-end, but officials say it will be six to 18 monthsbefore Spain can expect any cash. Still, despite near-beg-ging by ECB chief Mario Draghi, Spain seems determinedto postpone asking for a sovereign bailout. As SpainsPrime Minister Mariano Rajoy says, as long as bond yieldsare tame, Spain gets to rack up the cost savings. And as
November rolled to an end, the bond gang was supportingthe viability of the delay. The 10-year yield was about 5.7%compared to 7.75% at the July peak. The Madrid IBEX isperforming about the same as the Paris CAC.
And big-picture macro doesnt matter. The Eurozoneis officially in recession, with Q3 GDP down 0.1% after a0.2% contraction in Q2. The International Monetary Fund(IMF) predicts an 80% probability of Eurozone recession in2013. The European Commission says 2012 growth will be0.4% and cut its Eurozone growth forecast to 0.1% in 2013(from 1% in May). German growth was cut in half to 0.8%
from 1.7%. France will contract by 1.4%.S&P cut Spains rating two notches to triple-B-minus,
one step above junk; Moodys cut Frances rating by onenotch to Aa1, leaving Finland as the only Eurozone coun-try with a triple-A rating. The Economist named France thetime-bomb at the heart of Europe on labor market rigid-ity and loss of competitiveness.
In a nutshell, the equity and FX markets get jittery fromtime to time as each new chapter of the Eurozone trainwreck comes to light, but since July the Euro has beenresilient (Figure 1). From the low at 1.2043 on July 24the Euro rallied to 1.3172 in mid-September, and by lateNovember, it was rallying again after a dip. The upside
breakout in September carried the Euro above resistanceat the top of the standard error channel, and the Eurohas barely glanced back. If we hand-draw support andresistance lines, we can easily see the Euro surpassing theSeptember high at 1.3172 and reaching, perhaps, 1.3500 byyear-end. (As a happy coincidence, 1.3500 is near the 50%retracement of the down move from May 2011 to July 2012.As we know, a 50% retracement has magic properties insome traders imagination.)
Crisis, perception, and realityHow can the chart be so divorced from any reasonable
interpretation of Eurozone conditions? There are two pos-
On the Money
10 December2012CURRENCY TRADER
ON THE MONEY
What matters?
To understand whats important in the forex market, start with what isnt.
BY BARBARA ROCKEFELLER
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11/29CURRENCY TRADERDecember2012 11
sible answers, and they depend on time frame. On theshorter time frame (weeks and months), a Euro upside
breakout is justified because a lot of terrible things hap-pened and the world didnt end. With each new crisis,the power to influence the Euro was diluted. When crisisbecomes routine, its very concept and experience is deval-ued. Traders become weary and jaded; it takes ever-biggercrises to get their attention.
This is not to say all crises are created equal. For exam-ple, if and when confidence in Spanish brinkmanshipwith the ECB is lost and Spanish 10-year yields again top7.5%, you can expect the Euro to be punished with a largedrop. And savvy traders are planning against this day.According to the CFTCs Commitments of Traders (COT)report, as of Nov. 13 speculative accounts were net short
Euro futures by 83,646 contracts, up from 67,141 the weekbefore. The record Euro short is 214,418 contracts, fromJune 5, 2012.
This gives us a clue that over the longer time frame say, to March-June 2013 the market expects the Eurowont be able to resist the drag of recession that may bringwith it an ECB rate cut, ratings agency downgrades, possi-ble bank failures, probable Grexit, and heaven only knowswhat else. Fundamentals and institutional factors can beshrugged off in the short run, but in the long run, surelythese things add up and do matter. The warning here is theold saw from Keynes: The life of a market is only a seriesof short runs, and in the long run, were all dead.
The Euro and the U.S.The problem arises when we ask, against what currency
will the Euro fall as these negatives develop? The Japaneseyen is already on one of its periodic bouts of weakening(see Deciphering the yen, Currency Trader, November2012). The Euro/pound chart looks a lot like the Euro/dol-lar chart. Maybe the Euro will fall against all of them.
So lets consider the U.S., since the Euro/dollar is theindustry benchmark. First, theres the so-called fiscal cliff.If the tax and spending changes go forward as designed,the U.S. faces recession, rising unemployment, and areturn to a falling stock market. The S&P 500 fell 9% frommid-September to mid-November, with one of the rea-sons given as expected higher taxes on dividends andcapital gains, so players were cashing in early. Nobody
knows if this is an accurate description of investor senti-ment, although its fun to note the presidential electionwas Nov. 6 and most of the down move was done by then.Therefore, the drop has to be attributed to stock marketplayers correctly expecting the president to be re-elected,and thats more than most analysts can swallow. Instead,we might look to actual stock market factors, such as earn-ings.
As of late November, the debate about the fiscal cliff wasall over the map, with many confident some deal, howeversuboptimal, will get done, and an equal number sayingthe fiscal cliff is not so steep, anyway. It will take monthsfor contractionary effects to occur, and by then a new pic-
FIGURE 1: EURO UPSIDE BREAKOUT
The equity and FX markets tend to get unsettled as each new chapter of the
Eurozone train wreck unfolds, but the Euro has been resilient since July.
Source: Chart Metastock; data Reuters and eSignal
7/29/2019 Ctm 201212
12/2912 December2012CURRENCY TRADER
ON THE MONEY
ture will have formed.Its possible the fiscal cliff doesnt matter, either. Its a
problem and not a crisis. Despite protestations from FedChairman Ben Bernanke that the Fed cannot manage all
economic problems and its Congress job to fix the fiscalcliff (which was Bernankes phrase, by the way), mar-kets are still reliant on central banks to save them. AndBernanke delivered. On Nov. 20, he told the EconomicClub of New York, We will continue to do our best toadd monetary-policy support to the recovery[W]hat theFederal Reserve can do and will do is continue its statedpolicy, which is to do additional asset purchases, buy MBS,and take whatever actions are appropriate to try to ensurethat the outlook for labor markets improves in a sustainedway and a substantial way.
Bernanke called for a not-too-aggressive long-run deficit-reduction plan that would reduce business uncertainty.
He said, Even as fiscal policy makers address the urgentissue of longer-run fiscal sustainability, they should notignore a second key objective: to avoid unnecessarily add-ing to the headwinds that are already holding back theeconomic recovery. With Bernankes caveats, his state-ment is on a par with Draghis whatever it takes com-ment introducing Outright Monetary Operations last sum-mer, whereby the ECB will buy sovereign paper.
Although two central banks are announcing whateverit takes, it means two different things. In the U.S., thebuyer of government paper (the Fed) is a close cousin tothe issuer (the Treasury). Both are part of the executivebranch of the government and their interests are the same.Particularly, they have no ability to affect fiscal policyexcept as scolds. This is not the case in Europe, where theECB may become a buyer of sovereign paper but its notrelated to the issuers of such, and will assert the power todemand fiscal conditions (hence Spains reluctance). Thus,the ECB has a stake in those whose paper it is buyingbeing able to repay, and repayment depends on fiscal aus-terity. Promoting growth is secondary. In contrast, the Fedand Treasury are not worried about the governments abil-ity to repay the government can just print more money.
Maybe this will create inflation down the road ormaybe it wont, but the key point is fiscal austerity isnt
an ingredient. Without opening the can of worms that isthe Keynesian stimulus policy debate, note that Keynesianstimulus is the only policy that has ever worked, althoughthe sample size is too small and the social science of eco-nomics is hardly scientific enough to judge. In the end, itis likely the U.S. will resume growth, however subpar, andEurope will remain mired in recession.
Here we have growth vs. fiscal restraint, the most impor-tant divergence. The Eurozone was literally built on therequirement of debt and deficits not exceeding a certainratio of GDP. This is the source of the underlying magicof the Euro controlling sovereign debt is the gold stan-dard of government management. That the Eurozone is
not actually accomplishing the goal seems not to matter asmuch as the statement, written in stone, that it is the goal.
In contrast, the U.S. doesnt have any such rules. Inpractice, it may not matter. Investors continue to buy U.S.
government paper whatever the ratings and whateverthe fiscal outlook. This is the exorbitant privilege of thereserve currency issuer it is spared, so far, the rise inrisk premium that normally accompanies a fiscal mess. Inother words, the U.S. is getting away with failing to adopta fiscal standard. Getting away with it means lowerfinancing costs but it comes, ironically, at the expense ofthe dollar.
Finally, theres violence and potentially a war in theMiddle East. The Gaza cease-fire reduced the strain on oilprices, but nobody imagines other problems will notarise such as the direction Egyptian leader MohamedMorsi is going. Egypt is a net importer of crude oil, but
it controls the Suez Canal and the Suez-MediterraneanPipeline (SUMED). The canal moves 800,000 barrels perday of crude oil and 1.4 million barrels per day of petro-leum products, while the SUMED pipeline averages 1.7million barrels per day. This is Mediterranean Europesoil supply, and yet it is the dollar that falls when oil pricesrise on fear of war. At some point, however, an outbreak ofhostilities in the Middle East benefits the dollar as the safehaven.
In the conflict between growth vs. fiscal restraint, theU.S. chooses growth and Europe chooses fiscal restraint. Sofar, the resulting European recession has not scared every-body, although the COT report indicates this is the mainbias. As long as the U.S. avoids outright recession, U.S.conditions make the world safe for risk appetite, and thatincludes short-term plays favoring the Euro. Perversely, ifthe U.S. were to fall off the fiscal cliff entirely, it would bedollar-favorable, not because the U.S. is adopting Europesgold standard, but because of the sheer messiness of grid-lock, something S&P named in downgrading the U.S. sov-ereign rating last year.
Still, at this point a fiscal cliff fix is likely, and it willrequire knowing that outcome to be able to generategrowth forecasts. Longer term, U.S. growth over Europeangrowth and U.S. leadership in the Middle East should
favor the dollar. Spain doesnt matter until it does, andnobody today can name the catalyst that would send sov-ereign debt rates back to 7.5%. The U.S. fiscal cliff doesntmatter until it does, when rates fly up or a rating agencysays so.
The problem is that a switch in sentiment needs a trig-ger, and short of a shooting war its hard to see what thatwill be, given traders are so blas about bad economic andinstitutional developments in Europe. Its hard to knowtoday whats a real crisis, but well know it when we getit, because the proof will be a rising dollar.y
For information on the author, see p. 4.
7/29/2019 Ctm 201212
13/29CURRENCY TRADERDecember2012 13
THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PER-
FORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OROVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSOSUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS ORLOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTUREPERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.
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14/2914 October2010CURRENCY TRADER
The misdirection of
currency warsDistracting rhetoric obscures the real dynamics of global capital flows and currency valuations.
BY MARC CHANDLER
Misdirection is a standard ploy of magicians and politi-cians. A feint of some type distracts the audience from thereal movement or purpose. Currency war, which hasbecome the title of countless books, articles, and confer-ences, is such a misdirection.
Some officials, notably Brazilian Finance Minister GuidoMantega, have been leading the charge that by pursuingunorthodox monetary policy, the U.S. has sparked power-ful forces that destabilize the emerging-market economiesthrough capital flows, driving their currencies sharplyhigher.
It is indisputable that international capital movement isvolatile, and the accommodative monetary policy in the
U.S. and other developed economies has shifted interest-rate differentials more in favor of emerging markets.Further, this shift has likely spurred private capital flows.
However, capital inflows into the emerging markets aredriven by a number of factors, not just interest-rate dif-ferentials. Consider, for example, that growth differentialsand higher returns on investments have also been attract-ing inflows, especially in recent years.
The general investment climate is shaped in part bythe risk appetite of investors. The risk-on, risk-off matrixhas shifted in recent years, not as much by the pursuit ofU.S. monetary policy as by the shifting response to theEuropean debt crisis.
In a recent speech, Federal Reserve Chairman BenBernanke cited research by the International MonetaryFund (IMF) and others that the monetary policies of theadvanced economies were not the dominant drivers ofprivate savings into emerging markets. He went furtherand noted that capital flows into emerging markets haveslowed considerably over the past couple of years, andeven the U.S., Europe, and Japan continued to ease mon-etary policy.
If the cry of currency war is a misdirection, whatexactly is it trying to distract us from? Many emergingmarket countries want currency valuations that economistsargue are below fair value. They do so to promote exports
and bypass domestic structural obstacles to growth.Undervalued currencies in and of themselves may
attract foreign capital flows anticipating currency appre-ciation. Moreover, purposefully weak currency strategiesoften leave developing countries more vulnerable to infla-tion, and more sensitive to the monetary policies of othercountries.
Currency flexibilityThe U.S., through numerous administrations, and in vari-ous declarations of the Group of Seven industrial nations,has consistently advocated greater currency flexibility.Such flexibility would allow greater independence in the
conduct of monetary policy and offer greater insulationfrom external developments.This, of course, applies not only to Brazil, but also to
China, the worlds second-largest economy. A more flex-ible currency regime would help officials refocus theireconomy from one driven by external demand to one ledby domestic consumption. It would allow the Chinesepeople to enjoy a greater share of their countrys economicsuccess and prowess.
Brazils finance minister claimed the U.S. was beingselfish in pursuing monetary policy without taking intoaccount the impact of such a policy on other countries.Yet, the real selfishness and beggar-thy-neighbor policies
are not the easing of the U.S. and other advanced econo-mies, but the reluctance of many emerging countries toallow their currencies to appreciate in the face of strongergrowth, capital inflows, and larger reserve positions.
Monetary policyEven if there are costs for developing countries as a resultof the easy monetary policy of the advanced economies,there are also benefits. Part of the reason the economies ofmany developing countries have slowed is their exportsto the U.S. and Europe have decreased as those economieshave decelerated.
Easier monetary policy, which has taken on an unortho-
ON THE MONEY
14 December2012CURRENCY TRADER
7/29/2019 Ctm 201212
15/29CURRENCY TRADERDecember2012 15
dox characteristic given that policy rates are near zero,is meant to help fuel a recovery in aggregate demand.Stronger U.S. and European growth would stimulate trade,as well as underpin growth in emerging markets.
Aggressive monetary policy in the face of weak domestic
economies is not the equivalent of a currency war. On thecontrary, the fact that some developing economies insist onhaving undervalued currencies is a more directly recogniz-able shot in a currency war. Such policies can be associatedwith costs, such as greater sensitivity to inflation and limitson the independence of their own monetary policies. Thereare various drivers of capital flows to emerging markets,and those capital flows do not appear to be correlated withU.S. or European monetary policies.
It is interesting to note that for the better part of the pastfour months, as the Federal Reserve pursued QE3+, theEuropean Central Bank announced its Outright MarketTransactions, and the Bank of Japan expanded its assetpurchase program in both September and October, theBrazilian real (BRL) has been largely flat. The dollar islargely confined to a 2.00-2.05 trading range (Figure 1).
Investors recognize there are a number of emerging-mar-ket countries, such as Mexico, Poland, Turkey, and SouthAfrica, that have embraced currency flexibility to a greaterextent. They have increased the capacity of their capitalmarkets to absorb inflows, as well as a greater part of theirdomestic savings.
U.S. dollar and Chinese renminbiThere is another dimension to debate about currency wars.
Many observers argue the U.S. dollar is in an inexorabledecline and it will be increasingly sup-planted by the Chinese renminbi. Onthe other hand, China is not abovedeflecting criticism of its rigid currencyregime by criticizing the internationalmonetary regime and the role of thedollar.
The internationalization of theChinese renminbi has been more blus-ter than substance. The role of the ren-minbi in the world economy remainsminor. The numerous swap lines that
China arranged with many developingcountries, which captured the imagina-tion of many critics of the U.S., havenot been used. Few countries havechosen to add the renminbi to theirreserves.
The Dim Sum market, the offshorerenminbi market in Hong Kong, aspecial administrative region of China,is dominated by Chinese state-ownedcompanies, banks, and property com-panies. Renminbi in Hong Kong isnot fungible with renminbi onshore.
The currency requires special authority to be used withinChina itself. Outside of Chinese trade with Hong Kong,most of Chinese trade continues to be conducted in U.S.dollars.
There has been some diversification of reserves away
from the dollar and Euro in recent years. However, it hasnot gone to the Chinese renminbi, but to the Australianand Canadian dollars. The kind of transparency and flex-ibility that an international currency requires still seemsbeyond the ken of Chinese officials.
More rhetoric than politicsCurrency wars then, in either expression, seem to be morein the realm of rhetoric than politics. There has been along and sustained push from the developed countries toget emerging markets to embrace more flexible currencyregimes. The adoption of unorthodox monetary policy bythe U.S., Europe, and Japan may, on the margins, increasesuch pressure, but few have capitulated.
Instead, they have developed a host of other tools, suchas macro-prudential policies (administrative measuressuch as Brazil taxing foreign purchases of stocks andbonds, or Taiwan prohibiting foreign investment in short-term instruments such as T-bills), to blunt the impact.China may one day provide the worlds key currency, butthat day is not in sight, and the role of the dollar as thenumraire continues.y
For information on the author, see p. 4.
FIGURE 1: DOLLAR/REAL
The U.S. dollar/Brazilian real (USD/BRL) pair has been mostly flat in recent
months as the Fed pursued QE3+, the European Central Bank announced
its Outright Market Transactions, and the Bank of Japan expanded its asset
purchase program.
7/29/2019 Ctm 201212
16/2916 October2010CURRENCY TRADER16 December2012CURRENCY TRADER
For more than a generation, calling a bottom in the dol-
lar/yen pair (USD/JPY) has been akin to the search for
extraterrestrial intelligence looking for something that
should exist in theory but turns out to be remarkably
elusive in reality. Witness the huge spike low in March
2011: Not only did this intramonth breakdown and recov-
ery take the USD/JPY nearly 6% below the previous
months low, it shot well below the long-standing 1995
bottom that had just been penetrated five months earlier.
Nonetheless, the pair eclipsed this low a few months later,
in August, September, and October (Figure 1).
There have been a few two- to four-year bull moves in
the dollar/yen since the beginning of the floating-rate era
(the most recent being the roughly 23% upswing from the
beginning of 2005 to mid-2007), but as Figure 2 shows, the
long-term history of the pair reveals these rallies to be little
more than respites in a long, downward slog that has seen
the dollars value relative to the yen shrink to approxi-
mately 25% of what it was in 1975.
But as of the end of November, the USD/JPY rate was
more than a year removed from its record low of 75.57 set
in October 2011. Having sold off nearly 40% from its June
2007 peak and making repeated record lows in the lat-
ter half of 2011, this years consolidation and eventualupturn marked the longest the dollar/yen
has gone without making a new 12-month low
in more than five years.
In fact, the pairs seemingly modest two-
month run concluding in November two
consecutive months of higher monthly
highs and closes following a six-month low
(September) is a feat the pair has accom-
plished only 13 previous times since 1975
(the most recent and previous three instances
marked with arrows in Figure 1). Andalthough thats a small sample upon which to
base projections, the majority of these points
have been followed by further (although not
necessarily extended) gains in the dollar/yen
pair.
Although only a fool would claim the bot-
tom is finally in, its worthwhile to consider
whether the current rally is just another fluke,
or if it has the potential to follow through, at
least for a while.
SPOT CHECK
Dollar/yen
makes another swingBut is it the real thing?
BY CURRENCY TRADER STAFF
FIGURE 1: A RARE BUMP
It might be hard to believe, but the dollar/yen has rarely established
two consecutive months with higher highs and higher closes after a
six-month (or longer) low, as it did in November.
Source for all charts: TradeStation
7/29/2019 Ctm 201212
17/29CURRENCY TRADERDecember2012 17
Weekly perspective
Figure 3s weekly chart highlights the fact that
although the dollar/yen has managed to estab-
lish higher lows this year, it faces near-term
resistance as it approaches the 84.00-85.00 zone,
which encompasses the March 2012 and April
2010 highs as well as the November 2009 low.
A move above the March 2012 high of 84.17
would constitute a new 52-week high for the
pair, a milestone that has in the past been asso-
ciated with, at best, modest short-term gains.
Since 1975, after an initial 52-week new high(measured in terms of the high price, not the
weekly closing price), the dollar/yen has made
an average of two more consecutive higher
weekly highs (i.e., two more higher weekly
highs after the initial new 52-week high); the
median number of additional weekly highs
was one. The longest stretch of consecutive
higher weekly highs after 52-week highs was
nine, which occurred in October-November
2005. But the most common occurrence after a
new 52-week high was a lower weekly high.(However, many times a new 52-week high was
followed by one or two weeks with lower highs,
at which point price turned upward again to
establish additional 52-week highs.)
Table 1 compares the average and median
12-week price moves after initial new 52-week
highs to all 12-week dollar/yen price moves
from January 1974 through November 2012. The
moves are measured both in terms of closing
prices (the close of the week of the 52-week high
FIGURE 3: RESISTANCE
The dollar/yen faces resistance as it attempts to establish a new
52-week high for the first time since 2007.
FIGURE 2: DOWN AND DOWNER
The dollar/yens long-term history is one of selling interrupted by
sporadic bull moves.
7/29/2019 Ctm 201212
18/29
to the close 12 weeks later) and the largest up move (LUM,
the move from the close of the week of the 52-week high to
the highest high of the next 12 weeks). Although the aver-
age 12-week close-to-close move after a new 52-week high
was -0.07%, the median change was a gain of 0.43%, which
suggests the more representative outcome was a modest
gain, while a smaller number of negative moves skewed
the average figure lower. The average and median price
changes for all 12-week periods in the analysis period were
both negative (-0.60 and -0.40%, respectively). The LUM
comparison also shows a modest bullish edge after new
52-week highs.
The daily view
Figure 4s daily chart shows, despite a solid rally in
October that took the pair to its highest levels in six
months, the dollar/yens real fireworks occurred mostly
during a two-week period last month, when price jumped
4.8 percent from the Nov. 9 low to the Nov. 22
high of 82.83.
After a multi-day pullback (which set up the
trade described in this months Forex Trade
Journal), the pair turned sharply higher again
the last day of the month. The looming resis-
tance/target of the March high appears at the
left side of the chart.
At the beginning of December the dollar/
yen pair was certainly overheated, and his-tory shows long-term dollar/yen rallies have
been mostly few and far between. If recent
history is a guide, the most likely intermediate
outcome would be for the pair to continue to
wallow in a trading range near its lows. In the
short term, the prospect of a challenge to resis-
tance and the establishment of a 52-week high
(despite a likely correction at that juncture)
might provide some upside trading opportu-
nities.y
18 December2012CURRENCY TRADER
SPOT CHECK
FIGURE 4: DAILY DOLLAR/YEN
After a solid rally in October, the dollar/yen exploded to the upside in
November.
TABLE 1
12-week +/- after
52-week highAll 12-week +/-
12-week LUM after
52-week highAll 12-week LUMs
Avg. -0.07% -0.60% 3.90% 3.36%
Med. 0.43% -0.40% 3.35% 2.51%
Price action was modestly more bullish after new 52-week highs, but there was a great deal of
variability.
7/29/2019 Ctm 201212
19/29CURRENCY TRADERDecember2012 19
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20/2920 December2012CURRENCY TRADER
TRADING STRATEGIESADVANCED CONCEPTS
One of the enduring puzzles of markets in general and
exchange-traded markets in particular is the combination
of the first-mover and network effects: For every major
market category, one network node or exchange domi-
nates, and the first product to claim that node essentially
claims it forever. This combination goes a long way toward
explaining why successful assaults on a competitors estab-
lished contracts tend to have survival rates only slightly
greater than those of kamikaze pilots and car-bomb driv-
ers; at least the latter two categories have the excuse of
having failure as their established objective.
Such is the case with the venerable dollar index (DXY),
something we dealt with seven
long years ago (see The DollarIndex and Firm Exchange
Rates, December 2005). It has
frozen the world of 1973 in time
with the sole exception of con-
solidating the various European
currencies into the singular cur-
rency of the euro; you are free to
express your own opinion on the
wisdom of that latter move.
While the composition of the
DXY is open to criticism, andarguments exist as to why the
Swedish krona is included while
the currencies of important trad-
ing partners such as Mexico,
Brazil and China are not, the
DXY has established itself as the
dollar index to trade if you must
trade a dollar index. Perhaps
it is the indexs constancy of
composition we should credit;
unlike those stock indices whose
Spreading the dollar index
and Australian dollar
Trading the U.S. dollar against the Australian dollar is different than
trading the dollar indexs components against the AUD.
BY HOWARD L. SIMONS
Borrowing any of the DXY components and lending them into the AUD has produced
excess carry returns over time.
FIGURE 1: EXCESS CARRY RETURNS FOR DOLLAR INDEXCOMPONENTS INTO AUD (UNWEIGHTED)
7/29/2019 Ctm 201212
21/29CURRENCY TRADERDecember2012 21
weights change with rebalancing
and corporate actions, the 57.6%
weight of the euro is one of the
few things we can count on toremain fixed. Moreover, while
an argument can be made for a
trade-weighted index, such as
that maintained by the Federal
Reserve, the central bank is not
in the licensing business and has
to remain above the fray. The
conclusion reached in July 2011s
Weighting For Correlation remains:
You do not want to be in the
index management business.
Enter the Aussie
If the DXY and DXY futures are
a fact of life, should you look
to trade individual currencies
against them instead of just the
greenback itself? Lets return to a
structure introduced a year ago
(see Decomposing The Dollar
Index, December 2011) of look-
ing at the dollar index as the
weighted sum of its components.
First, lets look at the excess
carry returns of the six DXY
components into the AUD on an
unweighted basis since the EURs
January 1999 inception (Figure 1).
Now lets apply the weights
to these excess carry returns and
sum them up visually in a short
DXY-component/long AUD trade
(Figure 2).
The Australian dollar and its futures are based on the USD carry, not the carry from the
DXY components.
FIGURE 3: AUD OFTEN MOVES OUT OF SYNC WITHEXCESS CARRY (DXY COMPONENTS)
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
95
105
115
125
135
145
155
165
175
185
195
205
215
Jan-99
Sep-99
Jun-00
Mar-01
Nov-01
Aug-02
May-03
Jan-04
Oct-04
Jul-05
Apr-06
Dec-06
Sep-07
Jun-08
Feb-09
Nov-09
Aug-10
Apr-11
Jan-12
Oct-12
AUD
Spot&
Front-MonthFutures
WeightedExce
ssCarryReturn,
DXY:AUD
Jan.
4,
1999=100
DXY : AUD
AUD Spot
AD Futures
The weighted-sum of excess carry returns into the AUD depicts a long-running bull
market for the Australian dollar.
FIGURE 2: EXCESS CARRY RETURN FOR DOLLARINDEX COMPONENTS INTO AUD (INDEX-WEIGHTED)
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
Jan-99
Sep-99
Jun-00
Mar-01
Nov-01
Aug-02
May-03
Jan-04
Oct-04
Jul-05
Apr-06
Dec-06
Sep-07
Jun-08
Feb-09
Nov-09
Aug-10
Apr-11
Jan-12
Oct-12
Ja
nuary
4,
1999
=
100
CHF
SEK
CAD
GBP
JPY
EUR
7/29/2019 Ctm 201212
22/29
ON THE MONEY
22 December2012CURRENCY TRADER
ADVANCED CONCEPTS
Dominance of
interest rates
A similar difference in behavior
can be observed if we replace the
weighted sum of the DXY com-
ponents excess carry returns into
the AUD with the simple excesscarry return from borrowing the
USD and lending into the AUD
(Figure 3). We can see how all
three AUD measures converged
after the events of September
2008, marked with a vertical line
on Figures 3-5, unfolded and the
drive toward zero percent interest
rates began. That event reduced
non-interest rate factors between
the USD and AUD, such as pro-spective asset returns, to insignifi-
cance.
Indeed, if we map the relative
total returns of the Australian
stock market vis--vis the U.S.
stock market, we see a marked
deterioration in the quality of
fit before and after the Lehman
bankruptcy; the r2 or percentage
of variance explained fell from
0.89 to 0.29 (Figure 4).
Relative total returns of the Australian stock market mapped vis--vis the U.S. stock
market shows a marked deterioration in the quality of fit before and after the Lehman
bankruptcy; the r2or percentage of variance explained fell from 0.89 to 0.29.
FIGURE 4: RELATIVE PERFORMANCE DIVERGED FROM EXCESS CARRYRETURN AFTER LEHMAN BANKRUPTCY (USD)
75%
100%
125%
150%
175%
200%
225%
250%
275%
300%
325%
350%
375%
400%
75
85
95
105
115
125
135
145
155
165
175
185
195
205
215
225
235
245
Jan-99
Sep-99
Jun-00
Mar-01
Nov-01
Aug-02
May-03
Jan-04
Oct-04
Jul-05
Apr-06
Dec-06
Sep-07
Jun-08
Feb-09
Nov-09
Aug-10
Apr-11
Jan-12
Oct-12
RelativePerformance,AustraliaVs.U.S.
Jan.4,1999=100
%
WeightedEx
cessCarryReturn,
USD:AUD
Jan.
4,
1999=100
USD : AUD
Rel. Perf.
r2 = 0.89 r2 = 0.29
Converting the DXY and AUD futures into contract values and constructing a simple
model of the AUD future being a function of the DXY future, we see a marked change
in behavior after September 2008.
FIGURE 5: AUSTRALIAN DOLLAR DISCONNECTEDFROM DXY AFTER LEHMAN BANKRUPTCY
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
Jan-99
Sep-99
Jun-00
Mar-01
Nov-01
Aug-02
May-03
Jan-04
Oct-04
Jul-05
Apr-06
Dec-06
Sep-07
Jun-08
Feb-09
Nov-09
Aug-10
Apr-11
Jan-12
Oct-12
AUDFutures&FittedValu
es,$Thousand
ModelResiduals:AUD
Future=f(DXY)Future
AD Res
AD Val
AD Fit
7/29/2019 Ctm 201212
23/29CURRENCY TRADERDecember2012 23
A simple model
If we convert the DXY and AUD futures into contract val-ues and construct a simple model of the AUD future being
a function of the DXY future, we see a marked change in
behavior after the September 2008 Lehman Brothers bank-
ruptcy; the probability the relationship before and after
this event was different approaches 100% (Figure 5).
Please note how the models residuals, or the difference
between the actual and fitted values of AUD futures, bal-
loon in variance after September 2008. If the AUD futures
were a direct and stable function of the DXY futures, we
should see a normal distribution, the familiar bell-shaped
curve, in the residuals. We do not: The distribution is
extremely flat and skewed toward positive values (Figure
6). This confirms the AUD is capable of putting in sus-tained uptrends against the DXY with the sort of abrupt
and violent retracements characteristic of a trending mar-
ket.
One day interest rates will rise over the 0% level they
have been pinned to since the 2008 financial crisis. When
that day arrives, we will see the carry trade from the
DXYs components into the AUD diverge from the straight
AUD futures and create a robust and trending trade.y
For information on the author, see p. 4.
The distribution is extremely flat and skewed toward positive values.
FIGURE 6: AUD FUTURES SKEWED POSITIVELY
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.1
1
10
100
-18250
-16000
-13750
-11500
-9250
-7000
-4750
-2500
-250
2000
4250
6500
8750
11000
13250
15500
17750
20000
NormalProbabilityDensityN
umberOfObservations
Model Residuals
Observations
Probability Skew: 0.613
7/29/2019 Ctm 201212
24/2924 December2012CURRENCY TRADER
CPI: Consumer price index
ECB: European Central Bank
FDD(rstdeliveryday):Therst
day on which delivery of a com-modityinfulllmentofafutures
contract can take place.
FND(rstnoticeday):Also
knownasrstintentday,thisis
therstdayonwhichaclear-nghouse can give notice to abuyer of a futures contract that itntends to deliver a commodity in
fulllmentofafuturescontract.
The clearinghouse also informsthe seller.
FOMC: Federal Open MarketCommittee
GDP: Gross domestic product
ISM: Institute for supplymanagement
LTD(lasttradingday):Thenal
day trading can take place in a
futures or options contract.
PMI: Purchasing managers index
PPI: Producer price index
Economic Releaserelease(U.S.) time(ET)
GDP 8:30 a.m.
CPI 8:30 a.m.
ECI 8:30 a.m.
PPI 8:30 a.m.
SM 10:00 a.m.
Unemployment 8:30 a.m.
Personal income 8:30 a.m.
Durable goods 8:30 a.m.Retail sales 8:30 a.m.
Trade balance 8:30 a.m.
Leading indicators 10:00 a.m.
GLOBAL ECONOMIC CALENDAR
December
1
2
3
4Canada: Bank of Canada interest-
rate announcement
5 Australia: Q3GDP
6
Australia: November employment
report
Brazil: November PPI
France: Q3employmentreport
UK: Bank of England interest-rate
announcement
ECB: Governing council interest-rate
announcement
7
U.S.: November employment report
Brazil: November CPI
Canada: November employment
report
Mexico: NovemberPPIandNov.30
CPI
LTD: December forex options;
December U.S. dollar index options
(ICE)
8
9
10
11
12
U.S.: FOMC interest-rate
announcement
France: November CPI
Germany: November CPI
Japan: November PPI
South Africa: November CPI
UK: November employment report
13
U.S.: November PPI and retail sales
Hong Kong: Q3PPI
South Africa: November PPI
14U.S.: November CPI
India: November PPI
15
16
17
LTD: December forex futures;
December U.S. dollar index futures
(ICE)
18
Hong Kong: September-November
employment report
UK: November CPI and PPI
FND: December U.S. dollar index
futures(ICE)
19
U.S.: November housing starts
FDD: December forex futures;December U.S. dollar index futures
(ICE)
20
U.S.: Q3GDP(third)andNovember
leading indicators
Germany: November PPI
Hong Kong: Q3GDPand
November CPI
Japan: Bank of Japan interest-rate
announcement
21
U.S.: November personal incomeBrazil: November employment
report
Canada: November CPI
Mexico: November employment
reportandDec.15CPI
UK: Q3GDP
22
23
24 U.S.: November durable goods
2526
27 France: November PPI
28
France: Q3GDP
Japan: November employment
report and CPI
29
30
31 India: November CPI
January
12
3Germany: November employment
report
4Canada: December employment
report and November PPI
The information on this page is sub-
ect to change. Currency Traderis
not responsible for the accuracy of
calendar dates beyond press time.
7/29/2019 Ctm 201212
25/29CURRENCY TRADERDecember2012 25
CURRENCY FUTURES SNAPSHOT as of Nov. 29
The information does NOT constitute trade
signals. It is intended only to provide a brief
synopsis of each markets liquidity, direction,
and levels of momentum and volatility. See
the legend for explanations of the different
fields. Note: Average volume and open
interest data includes both pit and side-by-
side electronic contracts (where applicable).
LEGEND:
Volume: 30-day average daily volume, in
thousands.
OI: 30-day open interest, in thousands.
10-day move: The percentage price move
from the close 10 days ago to todays close.20-day move: The percentage price move
from the close 20 days ago to todays close.
60-day move: The percentage price move
from the close 60 days ago to todays close.
The % rank fields for each time window
(10-day moves, 20-day moves, etc.) show
the percentile rank of the most recent move
to a certain number of the previous moves of
the same size and in the same direction. For
example, the % rank for the 10-day move
shows how the most recent 10-day move
compares to the past twenty 10-day moves;
for the 20-day move, it shows how the most
recent 20-day move compares to the pastsixty 20-day moves; for the 60-day move,
it shows how the most recent 60-day move
compares to the past one-hundred-twenty
60-day moves. A reading of 100% means
the current reading is larger than all the past
readings, while a reading of 0% means the
current reading is smaller than the previous
readings.
Volatility ratio/% rank: The ratio is the short-
term volatility (10-day standard deviation
of prices) divided by the long-term volatility
(100-day standard deviation of prices). The
% rank is the percentile rank of the volatility
ratio over the past 60 days.
BarclayHedge Rankings:Top 10 currency traders managing more than $10 million
(as of Oct. 31 ranked by October 2012 return)
Trading advisorOctoberreturn
2012 YTDreturn
$ Undermgmt.
(millions)
1 RegiumAssetMgmt(UltraCurr) 4.23% 11.63% 24.2
2 Sharpe+Signa(Currency) 4.03% 11.91% 87.5
3 CenturionFxLtd(6X) 2.10% 76.38% 24.6
4 DynexCorpLtd.(Currency) 1.85% -0.20% 415 A-Venture Capital 1.74% 2.84% 53.7
6 PremiumCurrency(Currencies) 1.70% -5.49% 729.1
7 MIGFXInc(Retail) 1.61% 23.96% 45
8 FriedbergComm.Mgmt.(Curr.) 1.58% -18.69% 23.9
9 CapricornCurrencyMgmt(FXG10CHF) 1.36% 11.18% 14
10 IPMSystematicCurrency(C) 1.13% -3.91% 86
Top 10 currency traders managing less than $10M & more than $1M
1 JarrattDavis(ManagedFX) 6.20% 27.07% 5.1
2 HartswellCapitalMgmt(Apollo) 2.72% 20.89% 3.4
3 MFG(BulpredUSD)1.42% 12.21% 1.2
4 ValhallaCapitalGroup(Int'lAB) 1.13% 9.92% 1.5
5 CapricornCurrMgmt(FXG10EUR) 0.89% 7.98% 2.6
6 MatadorFX(MFX1) 0.58% -1.30% 1.7
7 FourCapital(FX) 0.43% 0.92% 1.6
8 DelmanSA(AlgopediaFXHarmonyUSD) 0.40% -11.25% 2.7
9 TMS(ArktosGCSII) 0.38% -2.44% 9.4
10 V50CapitalMgmt(FX) 0% -18.08% 3.7
Based on estimates of the composite of all accounts or the fully funded subset method.
Does not reflect the performance of any single account.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
Market Sym Exch Vol OI10-day
move / rank
20-day
move / rank
60-day
move / rank
Volatility
ratio / rank
EUR/USD EC CME 235.5 222.3 1.77% / 67% 0.07% / 2% 2.98% / 40% .30/72%
AUD/USD AD CME 106.9 177.8 0.63%/59% 0.77%/35% 2.35%/36% .50/100%
JPY/USD JY CME 99.3 159.9 -2.40% / 69% -2.89% / 92% -4.52%/94% .37/17%
GBP/USD BP CME 91.7 158.2 1.17% / 100% -0.55%/43% 0.84% / 10% .32/78%CAD/USD CD CME 70.0 166.3 1.12% / 100% 0.86% / 44% -0.18% / 7% .30/73%
MXN/USD MP CME 33.5 185.6 2.66% / 100% 1.48%/59% 1.28% / 21% .50/95%
CHF/USD SF CME 27.3 41.5 1.74%/43% 0.32%/ 15% 2.99% / 46% .34/83%
U.S. dollar index DX ICE 19.1 38.2 -1.14% / 100% 0.09%/3% -1.02% / 19% .29 / 82%
NZD/USD NE CME 15.1 31.2 1.62% / 90% 0.28% / 11% 3.42%/53% .53/88%
E-Mini EUR/USD ZE CME 3.4 6.3 1.77% / 67% 0.07% / 2% 2.98% / 40% .30/72%
Note:Averagevolumeandopeninterestdataincludesbothpitandside-by-sideelectroniccontracts(whereapplicable).Priceactivityis
based on pit-traded contracts.
7/29/2019 Ctm 201212
26/29
INTERNATIONAL MARKETS
26 December2012CURRENCY TRADER
CURRENCIES (vs. U.S. DOLLAR)
Rank CurrencyNov. 29
price vs.U.S. dollar
1-monthgain/loss
3-monthgain/loss
6-monthgain/loss
52-weekhigh
52-weeklow
Previous
1 Russian ruble 0.03214 0.89% 2.78% 2.88% 0.0345 0.0291 11
2 Australian Dollar 1.045295 0.77% 0.80% 6.12% 1.0808 0.9681 10
3 Swiss franc 1.073695 0.36% 2.96% 2.70% 1.1154 1.0074 4
4 Taiwan dollar 0.034315 0.32% 2.82% 1.63% 0.0345 0.032 5
5 Canadian dollar 1.00597 0.30% -0.50% 3.08% 1.0334 0.9601 14
6 Swedish krona 0.149655 0.22% -1.37% 6.95% 0.153 0.1374 15
7 Chinese yuan 0.15927 0.09% 0.94% 0.87% 0.1595 0.1559 1
8 Hong Kong dollar 0.12903 0.00% 0.08% 0.16% 0.12903 0.1283 7
9 Thai baht 0.03256 -0.02% 1.81% 2.81% 0.0329 0.031 2
10 Euro 1.292405 -0.11% 3.19% 2.83% 1.3461 1.2099 6
11 New Zealand dollar 0.821425 -0.16% 1.81% 7.88% 0.8415 0.7504 9
12 Singapore dollar 0.817635 -0.19% 2.47% 4.35% 0.8213 0.764 3
13 Great Britain pound 1.600495 -0.61% 1.33% 2.00% 1.6261 1.5308 12
14 South African rand 0.11307 -2.27% -4.79% -5.78% 0.1338 0.1116 17
15 Japanese yen 0.01221 -2.75% -4.08% -3.02% 0.0131 0.0119 16
16 Brazilian real 0.479145 -2.89% -2.38% -4.91% 0.586 0.4761 8
17 Indian rupee 0.01798 -3.33% 0.11% -0.03% 0.0203 0.0174 13
GLOBAL STOCK INDICES
Country Index Nov. 291-monthgain/loss
3-monthgain/loss
6-monthgain loss
52-weekhigh
52-weeklow
Previo
Japan Nikkei225 9,400.88 5.28% 3.65% 8.59% 10,255.20 8,238.96 11
2 France CAC 40 3,568.88 4.69% 4.54% 15.70% 3,600.48 2,922.26 8
3 Italy FTSE MIB 15,888.00 3.51% 6.32% 21.22% 17,133.40 12,362.50 6
4 Switzerland Swiss Market 6,828.50 3.44% 6.33% 15.45% 6,848.20 5,691.70 5
5 India BSE30 19,170.91 2.87% 9.61% 16.62% 19,372.70 15,135.90 12
6 Germany Xetra Dax 7,400.96 2.75% 5.57% 15.70% 7,478.53 5,637.53 13
7 South Africa FTSE/JSE All Share 37,909.31 2.48% 6.08% 13.36% 37,909.31 31,646.77 4
8 Hong Kong Hang Seng 21,922.89 1.91% 10.79% 15.05% 22,149.70 17,821.50 1
9 UK FTSE 100 5,870.30 1.30% 2.21% 8.89% 5,989.10 5,229.80 7
0 Brazil Bovespa 57,853.00 1.18% 0.84% 5.89% 68,970.00 52,213.00 15
1 Mexico IPC 42,090.69 0.65% 5.47% 10.40% 42,751.00 35,567.30 2
2 Singapore Straits Times 3,045.90 0.54% 0.14% 8.71% 3,110.86 2,606.52 10
3 U.S. S&P500 1,415.95 0.27% 0.39% 6.27% 1,474.51 1,202.37 14
4 Australia All ordinaries 4,490.10 -0.21% 2.48% 7.72% 4,602.50 4,033.40 3
5 Canada S&P/TSX composite 12,202.80 -0.89% 1.61% 5.11% 12,740.50 11.280.60 9
7/29/2019 Ctm 201212
27/29CURRENCY TRADERDecember2012 27
NON-U.S. DOLLAR FOREX CROSS RATES
ank Currency pair Symbol Nov. 29 1-monthgain/loss
3-monthgain/loss
6-monthgain loss
52-weekhigh
52-weeklow
Previou
1 Aussie $ / Real AUD/BRL 2.181595 3.77% 3.25% 11.60% 2.1829 1.8187 17
2 Aussie $ / Yen AUD/JPY 85.615 3.63% 5.06% 9.40% 88.31 75.6 4
3 Canada $ / Real CAD/BRL 2.09952 3.28% 1.92% 8.41% 2.1047 1.7067 20
4 Franc / Yen CHF/JPY 87.94 3.21% 7.31% 5.86% 91.90 78.81 1
5 Canada $ / Yen CAD/JPY 82.395 3.14% 3.71% 6.27% 84.49 74.74 8
6 Euro / Real EUR/BRL 2.697325 2.86% 5.70% 8.14% 2.7071 2.2481 13
7 Euro / Yen EUR/JPY 105.86 2.73% 7.56% 6.01% 110.83 94.65 2
8 New Zeal $ / Yen NZD/JPY 67.28 2.66% 6.13% 11.22% 68.81 58.52 3
9 Pound / Yen GBP/JPY 131.09 2.21% 5.62% 5.15% 132.81 117.58 5
10 Aussie $ / New Zeal $ AUD/NZD 1.2725 0.94% -1.00% -1.63% 1.3229 1.2436 16
11 Euro / Pound EUR/GBP 0.807505 0.49% 1.84% 0.81% 0.859 0.7779 9
12 Aussie $ / Canada $ AUD/CAD 1.03909 0.47% 1.30% 2.95% 1.0755 0.9951 1113 Aussie $ / Franc AUD/CHF 0.97355 0.41% -2.09% 3.34% 1.0328 0.9133 18
14 Yen / Real JPY/BRL 0.025485 0.16% -1.72% 2.04% 0.0262 0.021 21
15 Franc / Canada $ CHF/CAD 1.06732 0.06% 3.47% -0.38% 1.1217 1.0128 6
16 Euro / Canada $ EUR/CAD 1.284735 -0.40% 3.70% -0.25% 1.3822 1.2164 7
17 Euro / Franc EUR/CHF 1.20371 -0.48% 0.23% 0.13% 1.2406 1.2003 14
18 Euro / Aussie $ EUR/AUD 1.236405 -0.87% 2.37% -3.10% 1.3487 1.1614 10
19 Pound / Canada $ GBP/CAD 1.591 -0.91% 1.83% -1.06% 1.6162 1.5515 12
20 Pound / Franc GBP/CHF 1.49061 -0.97% -1.59% -0.68% 1.5434 1.4199 19
21 Pound / Aussie $ GBP/AUD 1.53114 -1.38% 0.52% -3.89% 1.6123 1.4637 15
GLOBAL CENTRAL BANK LENDING RATES
Country Interest rate Rate Last change May 2012 Nov. 2011
United States Fed funds rate 0-0.25 0.5(Dec08) 0-0.25 0-0.25
Japan Overnight call rate 0-0.1 0-0.1(Oct10) 0-0.1 0-0.1
Eurozone Refi rate 0.75 0.25(July12) 1 1.25
England Repo rate 0.5 0.5(March09) 0.5 0.5
Canada Overnight rate 1 0.25(Sept10) 1 1
Switzerland 3-monthSwissLibor 0-0.25 0.25(Aug11) 0-0.25 0-0.25
Australia Cash rate 3.25 0.25(Oct12) 3.75 4.5
New Zealand Cash rate 2.5 0.5(March11) 2.5 2.5
Brazil Selic rate 7.25 0.25(Oct12) 8.5 11
Korea Korea base rate 2.75 0.25(Oct12) 3.25 3.25
Taiwan Discount rate 1.875 0.125(June11) 1.875 1.875
India Repo rate 8 0.5(Apr12) 8 8.5
South Africa Repurchase rate 5 0.5(July12) 5.5 5.5
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INTERNATIONAL MARKETS
GDP Period Release date Change 1-year change Next release
AMERICAS
Argentina Q2 9/21 21.2% 15.0% 12/21
Brazil Q3 11/30 -0.3% 4.9% 2/29
Canada Q3 11/30 0.9% 2.9% 2/29
EUROPE
France Q2 9/28 0.0% 0.5% 12/28
Germany Q3 11/15 0.6% 1.8% 2/14
UK Q2 9/27 1.0% 2.2% 12/21
AFRICA S. Africa Q2 9/11 1.2% 8.3% 12/6
ASIA and S.PACIFIC
Australia Q2 9/5 1.0% 3.2% 12/5
Hong Kong Q3 11/16 6.5% 1.3% 2/27
India Q3 11/30 3.4% 12.0% 2/28
Japan Q3 11/12 -0.9% -3.6% 2/14
Singapore Q3 11/23 -0.4% 0.3% 2/22
Unemployment Period Release date Rate Change 1-year change Next release
AMERICAS
Argentina Q3 11/19 7.6% 0.4% 0.4% 2/19
Brazil Oct. 11/22 5.3% -0.1% -0.5% 12/21
Canada Oct. 11/2 7.4% 0.0% 0.0% 12/7
EUROPE
France Q2 9/6 9.7% 0.1% 0.6% 12/11
Germany Oct. 11/2 5.3% 0.2% 0.1% 1/3
UK July-Sept. 11/14 7.8% -0.2% -0.4% 12/12
ASIA andS. PACIFIC
Australia Oct. 11/8 5.4% 0.0% 0.2% 12/6
Hong Kong Aug.-Oct. 11/19 3.4% 0.1% 0.1% 12/18
Japan Oct. 11/30 4.2% 0.0% -0.2% 12/28
Singapore Q3 10/31 1.9% -0.1% -0.1% 1/31
CPI Period Release date Change 1-year change Next release
AMERICAS
Argentina Oct. 11/14 0.9% 10.2% 12/14
Brazil Oct. 11/7 0.6% 4.4% 12/7
Canada Oct. 11/7 0.2% 1.2% 12/20
EUROPEFrance Oct. 11/14 0.2% 1.2% 12/12
Germany Oct. 11/23 0.0% 2.0% 12/12
UK Oct. 11/13 0.6% 2.7% 12/18
AFRICA S. Africa Oct. 11/21 2.0% 8.0% 12/12
ASIA andS. PACIFIC
Australia Q3 10/24 1.4% 2.0% 1/23
Hong Kong Oct. 11/22 3.0% 3.8% 12/20
India Oct. 11/30 0.9% 10.3% 12/31
Japan Oct. 11/30 0.0% -0.4% 12/28
Singapore Oct. 11/23 -0.2% 4.0% 12/24
PPI Period Release date Change 1-year change Next release
AMERICASArgentina Oct. 11/29 1.0% 12.9% 12/14
Canada Oct. 11/29 -0.1% -0.2% 1/4
EUROPE
France Oct. 11/30 0.6% 12.9% 12/27
Germany Oct. 11/20 0.0% 1.5% 12/20
UK Oct. 11/13 0.1% 2.5% 12/18
AFRICA S. Africa Oct. 1/29 0.6% 5.2% 12/13
ASIA andS. PACIFIC
Australia Q3 11/2 0.6% 1.1% 2/1
Hong Kong Q2 9/13 1.5% -0.7% 12/13
India Oct. 11/14 0.2% 7.5% 12/14
Japan Oct. 11/12 -0.4% -0.5% 12/28
Singapore Oct. 11/29 -0.9% -2.1% 12/28
As of Nov. 30 LEGEND: Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.
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TRADE
Date: Nov. 29, 2012.