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April 2010

Volume 7, No. 4

Strategies, analysis, and news for FX traders

THE DOLLAR VS. EUROPE:Outlook for the buck,

Euro, and pound p. 6

PATTERN DISSECTION:Whats driving your

strategy? p. 16

THE CHILEAN PESOSsingular path p. 20

TRAPPED AT THE BOTTOMof a Euro trade p. 32

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2/322 April 2010 CURRENCY TRADER

CONTENTS

Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Global Markets

U.S. gains traction,Europe spins wheels . . . . . . . . . . . . . . . . . 6The U.S. might not be clicking on all cylinders

economically, but its a piston or two ahead of

Europe as evidenced by the dollars recent

strength. The question is, what might upset this

apple cart?

By Currency Trader Staff

On the MoneyStraight talk on sovereign risk . . . . . . . . . 12Forget about Greece, the U.S. has its own

default risk to worry about.

By Barbara Rockefeller

Trading Strategies

Pattern combination,

pattern dissection . . . . . . . . . . . . . . . . . . . 16

Breaking down an hourly forex patterninto its components.

By Currency Trader Staff

Advanced Strategies

Chilean peso makes exceptions

to currency rules . . . . . . . . . . . . . . . . . . . 20Movement in the South American currency

defies easy explanation.

By Howard L. Simons

Currency Futures Snapshot . . . . . . . . 24

International Markets . . . . . . . . . . . . . . 26

Numbers from the global forex, stock,and interest-rate markets.

Global Economic Calendar . . . . . . . . . . 2 9Important dates for currency traders.

Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Conferences, seminars, and other events.

New products & services . . . . . . . . . . . . 30

Forex Journal . . . . . . . . . . . . . . . . . . . . . 32Playing the waiting game with an ill-timed

intermarket trade.

Looking for an advertiser?

Click on the company name for a direct link

to the ad in this months issue.

Ablesys

eSignal

FXCM

MetaStock

Traders Expo

Questions or comments?Submit editorial queries or comments to

[email protected].
mailto:[email protected]:[email protected]

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CONTRIBUTORS

Howard Simons is president of

Rosewood Trading Inc. and a strategist for

Bianco Research. He writes and speaks fre-

quently on a wide range of economic and

financial market issues.

Barbara 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 financial institutions, and currently

publishes two daily reports on foreign exchange.

Rockefeller is the author of Technical Analysis for Dummies

(For Dummies, 2004), 24/7 Trading Around the Clock, Around

the World(John Wiley & Sons, 2000),The Global Trader(John

Wiley & Sons, 2001), and How to Invest Internationally , pub-

lished in Japan in 1999. A book tentatively titled How to

Trade FX is in the works. Rockefeller is on the board of

directors of a large European hedge fund.

4 April 2010 CURRENCY TRADER

Editor-in-chief: Mark [email protected]

Managing editor: Molly [email protected]

Contributing writer: Chris [email protected]

Contributing editor:Howard Simons

Contributing writers:Barbara Rockefeller, Marc Chandler

Editorial assistant andwebmaster: Kesha Green

[email protected]

Art director: Laura [email protected]

President: Phil Dorman [email protected]

Publisher, ad sales:Bob Dorman

[email protected]

Classified ad sales: Mark Seger

[email protected]

Volume 7, Issue 4. Currency Trader is published monthly by TechInfo, Inc.,161 N. Clark St., Suite 4915, Chicago, IL 60601. Copyright 2010 TechInfo,Inc. All rights reserved. Information in this publication may not be stored or reproduced in any form without written permission from the publisher.

The information in Currency Trader magazine is intended for educational pur-poses only. It is not meant to recommend, promote or in any way imply theeffectiveness of any trading system, strategy or approach. Traders are advisedto do their own research and testing to determine the validity of a trading idea.Trading and investing carry a high level of risk. Past performance does notguarantee future results.

For all subscriber services:www.currencytradermag.com

A publication of Active Trader

CONTRIBUTORS
http://www.rts-forex.com/http://www.rts-forex.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.currencytradermag.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.currencytradermag.com/http://www.rts-forex.com/

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GLOBAL MARKETS

U.S. gains traction,Europe spins wheels

Although the U.S. was ground zero for the 2008-2009 financial collapse,

Europe appears to be having a harder time rebounding, with the pound and

the Euro paying the price vs. the dollar.

BY CURRENCY TRADER STAFF

A lthough 2009 saw most major currenciesrecouping much of the losses they suffered vs.the U.S. dollar in 2008, this year has been amuch different story for European currencies. As of April 1,the Euro had lost more than 12 percent vs. the U.S. dollarsince early December 2009, when it formed a top around$1.5150 (Figure 1). The British pound fell approximately 10percent vs. the buck from its Jan. 19 high of 1.6457 to its

March 1 low of 1.4780, a level it tested at the end of March(Figure 2).

Dollar bulls have had the upper hand lately for severalreasons, but better growth differentials are a major factorsupporting the U.S. currency vs. the Euro and the pound.The U.S. recovery, while sluggish by normal standards(and weak relative to those in many emerging-marketeconomies and Asia as a whole) has nonetheless been

stronger than its counterpart acrossthe pond.

Generally, we are in better shapethan [Europe], says David Wyss,chief economist at Standard & Poors.In the U.S., we are seeing a half-speed recovery, whereas Europe ishaving a harder time getting off themark.

Half speed might not sound thatgreat, but until the relative balance between the U.S. and Europe andBritain changes, the Euro and the

pound may have difficulty revertingto the bullish ways.

U.S. growth is real,but jobs picture still murkyThe U.S. economy began growingagain in Q3 2009, posting a 2.2-per-cent annualized GDP increase thatquarter; the fourth quarter produceda 5.6-percent annualized gain. CreditSuisse estimates annualized first-quarter 2010 growth at 3.3 percent,

Q2 at 4 percent, Q3 at 3.0 percent, and

By April 1, the Euro/U.S. dollar pair was down more than 12 percent from its early December 2009 high.

FIGURE 1 EURO/DOLLAR

Source: TradeStation

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focusing for the next six months at least on the section with-in the non-farm payrolls report detailing private hiring.

The weekly initial jobless claims number issued eachThursday has assumed a much higher profile over the pastyear, and the trend in this report has definitely improved:New jobless claims peaked at more than 650,000 in March2009, and while the more recent readings have been signifi-cantly lower, the numbers are still high. (The March 2010readings all exceeded 440,000 new claims per week.)

Wells Fargo Securities economist Adam York says a drop

to the 380,000-420,000 range might presage actual payrollgrowth.In a good economy, youll see jobless claims in the mid

to low 300,000s when you are adding jobs at a significantclip, he says.

Although some economists suggest reading around thecensus data to get a better handle on the labor market in thecoming months, Brian Dolan, chief currency strategist atForex.com, notes the 1.2 million temporary census positionsare real jobs with the potential to stimulate overall spend-ing and growth, even if that boost is short-term.

They are only temporary, but it is a real paycheck, he

says.With consumer spending previously driving roughlytwo-thirds of the U.S. economy, the importance of job cre-ation and consumer confidence cannot be underestimated.The U.S. may have come far from the dark days of late 2008, but its not out of the woods yet.

It is going to be a long road, Coronado says.Consumers are not panicking anymore, but they are stillsaving a lot and shying away from big-ticket items like cars.They are trying pay down debt and dont want to spend onthings that are usually financed.

According to Wyss, household debt has dropped forseven consecutive quarters. In the long run, this may be bet-

ter for household balance sheets, but inthe short run itmeans there is littlespending to drivegrowth. Wyss notesthat in the normalfirst four quarters of an expansion,growth averages 5percent, which con-trasts starkly to hiscurrent 2010 U.S.

GDP forecast of 2.5-2.7 percent.

The Fed: Tame inflation extends leashEconomists and traders are keeping a close eye on the U.S.Federal Reserve, looking for any clues to when the central bank might begin raising interest rates. Before an actual rateshift, analysts expect the Fed to signal its intentions fairlyclearly. Current speculations center around when the Fedwill drop language from its official statements regarding theneed to maintain exceptionally low levels of the federal

funds rate for an extended period. Some analysts believethe April 27-28 FOMC statement could usher in the change.The fed funds rate is currently at zero to .25 percent.

Estimates when the Fed might actually hike rates rangefrom the third or fourth quarter of this year to mid-2011.However, analysts generally agree the Fed will start raisingrates before either the European Central Bank (ECB) or theBank of England (BOE).

BNP Paribas doesnt expect the Fed to hike until the mid-dle of next year.

According to the Feds mandate, it would be irresponsi- ble to tighten now, Coronado says. Inflation is decelerat-

ing and unemployment is very, very high.Credit Suisse forecasts a year-over-year U.S. consumerprice index (CPI) increase of 1.8 percent this year, with thecore number (ex food and energy) even lower at 0.9 percent.Such low inflation gives the Fed some room to wait thingsout, economists say.

We are seeing a very tame inflation profile, which sug-gests the Fed will not be in a hurry to raise rates, Basilesays. I think the Fed is willing to wait a little longer tomake sure the train has left the station. It feels like a waitinggame, but you dont want to be wrong [and hike too soon]when unemployment is this high.

But to some analysts, the interest-rate increase horizon


GLOBAL MARKETS

Median AverageDaily range (past 40 days) 0.0140 0.0139

Daily close-to-close move (past 40 days) 0.0068 0.0075

Weekly range (past 26 weeks) 0.0293 0.0291

Weekly close-to-close move (past 26 weeks) 0.0121 0.0129% Gain/loss (close-to-close) 20-day 62-day 125-day 250-day

-1.36% -5.77% -7.78% 1.04%

52-week high/low 1.5144 1.2884

Central bank rate, last change EUR US1%, NC 0-0.25%, NC

Next scheduled central bank meeting April 8 April 27-28

Quarterly GDP change Q1 2010* Q4 2009 Q3 2009 Q2 2009

EUR - 0.1% 0.4% -0.2

US - 1.4% 0.6% -0.2

*Estimate Daily data as of 3/31/10; weekly data as of 3/26/10

EURO/U.S. DOLLAR AT A GLANCE

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appears less distant.Wells Fargo expects ahike (to .50 percent) before year-end.Credit Suisse is evenmore aggressive,forecasting Fed tight-ening in the thirdquarter, ratcheting upthe rate to 1 percent by year-end.

The Eurozone:Debt issues,growth differen-tials drag currenciesThe picture is decidedly different on the other side of theAtlantic, where sovereign debt concerns have added stressto an already weak recovery. CreditSuisse forecasts 2010 Eurozone GDPgrowth at 1.5 percent, with Germanyexpected to be one of the strongereconomies at 2.5 percent. The bank forecasts a 2.3-percent pace for the

Netherlands and a 2-percent rate forFrance.Those are the bright spots. The well-

publicized debt problems of otherEuropean nations are expected toweigh on EU growth in the comingmonths.

The deficit concerns weighing onthe Euro and the British pound are notgoing to dissipate anytime soon,which means a flight to quality to theU.S. dollar, Dolan says.

In fact, the Greek debt crisis has fedtalk of a possible breakup of EuropesEconomic and Monetary Union(EMU). Most analysts dont believe itwill happen, but the fact that some-thing once deemed unthinkable hascrept into the realm of speculationunderscores the magnitude of theproblem.

Although Wyss doubts highly a breakup would actually come to pass,he concedes it is what everybody isscared of. This is the first real test for

the EU and ECB.Dolan calls the breakup hypothesis absurd.I dont think its a viable option, he says. They cant

CURRENCY TRADER April 2010 9

Median AverageDaily range (past 40 days) 0.0168 0.0172Daily close-to-close move (past 40 days) 0.0086 0.0096Weekly range (past 26 weeks) 0.0358 0.0380Weekly close-to-close move (past 26 weeks) 0.0142 0.0152% Gain/loss (close-to-close) 20-day 62-day 125-day 250-day

0.57% -6.00% -4.72% 2.23%52-week high/low 1.7042 1.4109Central bank rate, last change UK US

0.50%, NC 0-0.25%, NCNext scheduled central bank meeting April 7-8 April 27-28Quarterly GDP change Q1 2010* Q4 2009 Q3 2009 Q2 2009

UK - 0.3% -0.3% -0.6%

US - 1.4% 0.6% -0.2

*Estimate Daily data as of 3/31/10; weekly data as of 3/26/10

BRITISH POUND/U.S. DOLLAR AT A GLANCE
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just say overnight, we are dropping the Euro. Theyregoing to do whatever is necessarily to make sure it sur-vives.

Nonetheless, Dolan points out the current problemswithin the EU diminishes the Euros appeal as a potentialalternate reserve currency.

Wyss agrees. Its hard to unscramble eggs, he says.At the very least, though, changes are on the horizon for

the EU.Although a break-up of the [EMU] is very unlikely,

some national governments in the Eurozone need to makesignificant fiscal corrections in the years ahead, wroteWells Fargo economists in their March 11 Global Chartbook.

The EU faces not only the challenges of the Greek debtcrisis, but a growing economic dichotomy between coun-tries within the union. Core countries such as Germany andFrance are doing relatively well, while Italy, Spain, Ireland,and some Eastern European nations are struggling.

The southern European countries suffered a deeperrecession, Wyss says. Theyd like to keep interest rateslow for a longer period of time, whereas Germany wouldlike to see rates go up now. Its going to be a conflict, andweve havent seen this play out before.

The ECBs lending rate currently stands at 1 percent.

Credit Suisse expects a hike late this year to 1.50 percent.Other analysts, however, say ECB may not raise rates untilas late as the second half of 2011.

UK: May elections maydictate monetary policy courseOff the coast of the continent the UK also continues to strug-gle, weighed down by a housing crisis that was even morepronounced than the one in the U.S. According to Wyss,from 1997 to 2005 UK housing prices surged 155 percent more than twice the percentage increase in the U.S. He saysBritain is in even worse shape than the Eurozone.

The UK still has a lot of negatives, he says. Theyvegot banks underwater and a lot of bank bailouts. Theyhavent been able to clean it up as fast as we did. Their mainexport market is Europe and Europe is not growing.

Credit Suisse forecasts a 1.5-percent UK GDP growth ratein 2010. In their March Global Chartbook, Wells Fargo econo-mists wrote: Continued deleveraging by the [UK] house-hold sector will likely exert headwinds on consumer spend-ing growth. In addition, fiscal tightening will weigh onoverall economic growth.

Dolan warns: I would put a little more emphasis on thepotential for a double-dip in the UK.

The upcoming national election also looms large in the

GLOBAL MARKETS

European alphabet soup A few terms some with overlapping meanings are

used to describe the political and monetary alliancesamong European states.

European Union (EU): The alliance of 27 Europeanmember states pursuing common political and monetarygoals.

Economic and Monetary Union (EMU): Usuallyreferred to as the European Monetary Union, the EMUconsists of the EU member states (currently 16) that usethe Euro as their currency. Some EU members (includ-ing Britain and Sweden) do not use the Euro as their currency, either because they have chosen not to or

because they have not satisfied the financial criteriarequired for inclusion in the EMU.

Eurozone: Another word for the EMU.

EU member nations Eurozone/EMU members Austria AustriaBelgium BelgiumBulgariaCyprus Cyprus

Czech RepublicDenmark

EstoniaFinland FinlandFrance France

Germany GermanyGreece Greece

HungaryIreland Ireland

Italy ItalyLatvia

LithuaniaLuxembourg Luxembourg

Malta MaltaNetherlands Netherlands

PolandPortugal PortugalRomaniaSlovakia SlovakiaSlovenia Slovenia

Spain SpainSweden

United Kingdom

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countrys market outlook. The May 6election is expected to be closely con-tested, with recent polls showing thepossibility of a hung parliament inwhich neither party captures an out-right majority.

A hung parliament [could] meangridlock, which means no deficitreduction package is likely, and thatsa sterling negative, Dolan says.

Britains key lending rate nowstands at 0.50 percent. Dolan puts theodds at 20 percent the BOE will hikerates in the fourth quarter, 80 percentit will wait until 2011. Credit Suisseexpects a more aggressive pace, withseveral increases bringing the rate to1.50 percent by year-end.

The chartsOverall, analysts argue growth andinterest-rate differentials favor thegreenback vs. the Euro and pound inthe near future.

Even though the U.S. recoverydoesnt look strong, it looks a lot bet-

ter than the European situation,which has helped to support the dol-lar, Coronado says. Weve got a lotof issues, but a lot of the correction is behind us.

Dolan targets the $1.3700-1.4000range as a sell zone in the Euro, with$1.2800-1.2700 as the next downsideobjective. In sterling, he sees $1.5400-1.5600 as a resistance zone, with adownside target around 1.4300-1.4200.

Currency traders may also want tokeep an eye on the Euro/pound crossrate in the weeks ahead (Figure 3).

In the short run, we think EUR/GBP is likely to continue torange trade, but the second half of theyear should see general GBPstrength, Barclays analysts wrote intheir March FX Quarterly . In additionto the resolution of election uncertain-ty, our economists forecast the [BOE]will raise rates in August, well before

the current consensus.


FIGURE 3 EURO/POUND

The Euro/pound has been wandering in a range, but some analysts believe it could make a move later in the year.

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ON THE MONEYON THE MONEY

Will Greece defaulton its sovereigndebt? Although thishas been the rivet-

ing question since the Greek drama started to unfold inDecember 2009, the more appro-priate question might be, So whatif it does?

In late March the European Union(EU) devised a rescue plan to pre-vent Greek default, although its nei-ther a rescue nor a plan. Everyonetalks about the sustainability of theEurozone as a consequence of default

by one of its member sovereigns, but just about everyone gets it wrongwhen they talk about sovereign risk.

What we really need to talk about iscountry risk, and in that discussion, theU.S. is particularly vulnerable.

At its core, sovereign risk is the risk of default a nations refusal orinability to repay principal or intereston bank loans or bonds. Choosingdefault may be a political choice or afinancial necessity.

Willingness vs. abilityAnalysts often draw the distinction between ability to pay and willingness

to pay. This leads to the broader con-cept of country risk, because a coun-try that has the ability to pay butchooses not to is making a politicaldecision, not a financial one. Russiaand Argentina are the 20th centuryposter boys for this kind of countryrisk, both having defaulted on theirdebts several times despite having theability to pay.

In practice, the probability of default by a major country today includingGreece and the U.S. is near zero.Default is not really the issue anymore,which leaves the broader and morenuanced discussion of country risk.How a country deals with deficitrecovery is a subjective process thataffects the foreign exchange market insome very strange ways. The UK, forexample, announced a budget in lateMarch that falls far short of fixingdeficit problems, but sterling remainedon the upswing in congruence with therising Euro. Nobody much cared thatthe budget failed to meet International

Monetary Fund (IMF) and ratings-agency standards.

Dubai presented the world with a

strange kind of sovereign risk when itdeclined to accept sovereign responsi- bility for the debts of its entirely state-owned company, Dubai World, sayingthe company never had an explicitgovernment guarantee. This came as ashock to bank lenders. The resolutionso far consists of an equity injectioninto the company using proceeds froman Abu Dhabi aid package and otherDubai funds, but still no state guaran-tee.

Lest you imagine this is some new

Middle East misunderstanding of thesovereign concept, the U.S. has longhad a similar ambiguity in the form of its Government Sponsored Enterprises(GSEs), chiefly the Fannie Mae andFreddie Mac mortgage units. (There isalso a student loan facility namedSallie Mae and a farmers mortgageloan unit named Farmer Mac.) Thesewere explicitly not guaranteed by thefull faith and credit of the U.S. govern-ment but have been treated during thefinancial crisis as if they were.

If sovereign risk is a measure of acountrys ability to pay and countryrisk widens the definition to includewillingness to pay, theres also the sit-uation of a country having the willing-ness to pay but not the ability. A coun-trys government may be honorablewith respect to repaying sovereigndebt, but it might still permit corrup-tion, mismanagement, or both. Itsinstitutions, especially financial ones,could be on shaky ground because of lax accounting standards and lack of


Straight talkon sovereign risk

Its not sovereign risk everyone should be worried about, but country risk.

BY BARBARA ROCKEFELLER

A high ranking implies a country with the ability to pay will alwaysmake the political decision to pay.

TABLE 1 TRANSPARENCYINTERNATIONAL CORRUPTIONPERCEPTIONS INDEX (2009)

Source: www.transparency.org

Rank Country1 New Zealand2 Denmark3 Sweden, Singapore

6 Netherlands, Finland8 Canada, Iceland14 Germany17 UK, Japan19 U.S.79 China120 Viet Nam130 Nigeria139 Pakistan162 Venezuela
http://www.transparency.org/http://www.transparency.org/

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13/32

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ON THE MONEY

supervision.For example, Iceland ranks high in Transparency

Internationals evaluation of countries for perception of cor-ruption, Number 8 of 180 countries covered (Table 1). ButIcelands banking sector went down in flames in 2008-2009,leaving the country with massive international debts it can-not, so far, repay, and struggling under harsh IMF-imposed

budget constraints.Transparency International judges a country on rule of law, sustainable development, and quality of life. These arenot financial criteria, but the inclusion of rule of law sug-gests borrowers will honor debt contracts. A high rankingimplies a country with the ability to pay will always make

the political decisionto pay. The rankingsare quite interesting,with New Zealand atthe top of the list andSomalia, a failed state,in last place at No. 180(not shown).

We generallyassume the majordeveloped nations(G7 or perhaps G20,ex-Russia) wouldnever make the politi-cal decision to default because it would laterimpose too high afunding cost on thetaxpaying (and vot-ing) citizens. And yet

in November 1994 the Republicans, underNewt Gingrich, shut down the U.S. govern-ment and threatened default, which wasaverted by the nimble Treasury SecretaryRobert Rubin, who funded interest pay-ments from other government coffers untila political compromise could be reached.Rubin said a U.S. default was unthink-able and evidently the FX market believedhim. At the time it was fascinating andinexplicable that the dollar did not fall dur-ing this episode (Figure 1).

The next big country to face a sovereignrisk concern is Japan. Japan has sovereigndebt (government bond issuance) totalingnearly 200 percent of the countrys annualGDP, or about $9 trillion. The IMF estimatesthat by 2014, Japans government debt willreach 246 percent of GDP. Ratings agencieswarn that Japan faces a rating downgradeunless it brings government spendingunder control. S&P reduced Japans sover-

eign rating from Triple A to Double A, and Moodys cut therating to Aa2 in May 2009.

No one doubts the willingness of Japan to repay all thisdebt as a matter of national pride; the question is the abili-ty to repay it, and repay it on schedule. Because Japan has$1.051 trillion in reserves as of February 2010, it could, intheory, liquidate reserves to fend off any tax shortfall and

avoid default. The Japanese government could also instructits banks to stop rolling over foreign loans and its corpora-tions to repatriate any surplus held in foreign countries. Inshort, the probability of Japanese default on its sovereigndebt is effectively zero. Besides, less than 5 percent of Japanese debt is held by foreigners, so an outright defaultwould impoverish Japanese savers and have little effect onglobal bond holders. Most telling of all, the yen does not fallwhen ratings downgrades and budget deficits are the head-line news.

While we may be willing to give G20 the benefit of thedoubt when it comes to willingness to repay, the ability torepay is being put through the shredder of the GreatRecession. Ratings agencies have warned the U.S. couldface a downgrade because of high and rising deficit fund-ing. In fact, former IMF chief economist Simon Johnson hassaid, Its not just about Greece anymore, referring to otherEuropean countries falling into the abyss of unpayabledebts. But with the exception of Canada, just about everydeveloped country faces a ratings-agency downgrade. Thisis an unprecedented simultaneous deterioration of everycountrys public finances. Table 2 shows the IMFs 2014 projections of government debt as a percentage of GDP for theG7.

The U.S. has gone deeper into sovereign debt by a stun-ning 20 percent of GDP over the past two years. The buyers

Amazingly, the dollar didnt collapse in November 1994 when Republicansshut down the U.S. government and threatened default.

FIGURE 1 U.S. TREASURY DEFAULT CRISIS, NOVEMBER 1994

Source: Chart Metastock; data Reuters and eSignal

The U.S. has gone deeper intosovereign debt by 20 percent of GDP over the past two years,and projections for 2014 dont show an improving picture.

TABLE 2 2014 PROJECTEDGOVERNMENT DEBT ASPERCENTAGE OF GDP

Source: The Economist , 3/27/2010

Japan 246%Italy 129%U.S. 108%UK 98%France 96%Germany 89%Canada 60%

U.S. dollar/Swiss franc (USD/CHF)

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are about 40 percent foreign,including Japan and China,with Brazil the only notablename divesting U.S.Treasuries.

In Greece, the debt-to-GDPratio is 120 percent. Greecewas already paying 5 percentof GDP in interest paymentsin 2009, a figure that will riseto 8.4 percent in 2014.According to Johnson, thisdebt load is likely unsustain-able. He says if Greece had topay 10 percent interest onnew bonds issues (from 6percent now), it would endup transferring 12 percent of GDP to foreign holders of itsdebt every year.

The currency angleWhen every major issuerfaces ratings agency down-grades and every major coun-try has to pay some largechunk of annual GDP in debt service, what effect does this

have on currencies? As difficult as might be to believe, wedont know. This is an unprecedented situation.At a guess, we have to start making new judgments

about country risk not only the ability to pay, whichcomes from taxation or asset sales, but also the willingnessto pay. Commentators note that Ireland squeezed its deficitand its citizens are suffering real hardship, while Greecescontraction plans have yet to result in outcomes such as anincrease in the average retirement age from 58 to the morecommon 65 or 66.

Because both countries are in the Eurozone, do theircountry risks offset each other? Probably not, judging fromthe Euros decline since the Greek drama started to unfold.In other words, its not so much that any particular countrydoes the right thing, its how the right thing stacks upagainst what other countries are doing.

And who does the judging? The IMF, the ratings agen-cies, and the bond market. So far Greece has had to payabout 3 percent more than Germany for the same maturitydebt. In the U.S., some companies (Warren BuffettsBerkshire Hathaway, for example) can raise money morecheaply than the U.S. government.

Market sentiment tends to be biased against the dollar.Good news is often shrugged off while bad data has anexaggerated effect. Meanwhile, until the Greek crisis camealong, the Euro was Teflon-coated, shrugging off bad data

and rising on the slightest bit of good news. In anticipationof the end of quantitative easing and the Fed raising rates

later this year, the 10-year yield has already jumped to near-ly 4 percent. This is the normal curve-steepening thataccompanies the return of growth. But if worries aboutinadequate deficit reduction get a grip on traders imagina-tions, analysts can attribute the rise in yield to a premiumdemanded by the global market to hold U.S. debt (even if foreign participation in bond auctions remains normal).

Who is to say the bond vigilantes are wrong? Yields ris-ing because of growth and a return to normal market con-ditions should be dollar-favorable, while yields rising because the world doesnt approve of U.S. government fis-cal actions is a direct response to U.S. country risk, and isdeeply dollar-negative.

Yield leads the dollar, as shown in Figure 2. But we mustconsider the paradigm shift arising from country risk notall yield changes are created equal. This is the biggest threatto the dollar uptrend today. The next big partisan battle inthe U.S. Congress will be deficit reduction. If it follows thesame path as health care, it will be politics first instead of America first. We could see the yield rise and the dollarfall, an unusual divergence.

The dollar index has already recovered about 24 percentof the decline from the head-and-shoulders top in 2001.Will it stall now because of country risk?

For information on the author see p. 4.


Yield leads the dollar, but in the event of a paradigm shift arising from country risk, wecould see the yield rise and the dollar fall.

FIGURE 2 YIELD LEADS THE DOLLAR

Source: Chart Metastock; data Reuters and eSignal

Dollar Index 10-year Yield Index

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W hen a trade setup consists of multipleinputs or parameters, it can be diffi-cult to determine if certain parts arecontributing more or less to perform-ance than others. This problem was highlighted inpart in The pattern behind the pattern ( CurrencyTrader , December 2009). That article analyzed a long-entry setup that centered around an inside bar form-ing after an intermediate-term retracement. However,

the inside-bar pattern turned out to be irrelevant. Theretracement pattern, which was initially conceived asmore of a filter than a primary trade catalyst, wasreally responsible for the patterns apparent outper-formance. A similar situation, in which a moderatelysuccessful short pattern set up a more promising longpattern, was the focus of Top pattern feeds bottomformation ( Currency Trader , March 2010).

Analyzing a trade ideas components individually is oneway to understand how it is reacting to price action. Say

youve been analyzing a currencypair and found a pattern consisting

of three consecutive wide-range bars near a 30-day high, with adescending relationship betweenthe closes of the bars, has often been followed by selling. You inputthe pattern variables into yourtrading software to see how thispattern has fared historically. Youget the results and see performanceisnt nearly as attractive as youdhoped.

But by treating the pattern as a

whole a single price event thatcannot be reduced in any way perhaps youre missing importantinformation the individual compo-nents might have to offer. Perhapsthere is something to be learned by breaking the setup into individualcomponents.

Sum of its partsFigure 1 is a 60-minute chart of theEuro/U.S. dollar pair (EUR/USD)showing a few days worth of activ-

TRADING STRATEGIES

Pattern combination,pattern dissection

Is a setup more or less than the sum of its parts?

BY CURRENCY TRADER STAFF

FIGURE 1 THREE-RULE BOTTOM PATTERNThe arrow marks a 60-minute bar with the following characteristics: three lower lows,a 0.029-percent or greater drop between the two most recent lows, and a new 48-hour low.


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17/32CURRENCY TRADER April 2010 17

ity in mid-March. The arrow(noon ET on March 18) identifiesthe conclusion of a pattern withthe following characteristics:

1. Three consecutive lowerlows.2. The most recent low is atleast 0.029 percent below theprevious low.3. The current low is belowthe lowest low of the preced-ing 48 hours.

In formula form these rules are:

1. L[0] < L[1], L[1] < L[2], L[2]< L[3];

2. (L[1] - L[0])/L[1] >= 0.0029(or, (L[0] - L[1])/L[1]

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TRADING STRATEGIES

pattern to the closing price of the 12 subsequent hourly bars), along with the average performance for theEUR/USD pair during this period (the average for all one-hour moves, all two-hour moves, and so on, up to 12hours). While EUR/USD had a bearish bias during thisperiod, as evidenced by the negative average returns at

each hourly interval, the sub-patterns performance wentagainst this grain, especially through hour 5. Pattern 2 (a0.029-percent or larger drop from the preceding bar to thecurrent bar) was the least bullish, with a median negativereturn at hour 2, as well as negative returns at four of thefive intervals from hour 6 through hour 10.

While the returns for pattern 1 and pattern 3 are littlemore consistent, they are nowhere near the noticeably bull-ish numbers for the overall formation, pattern 1-2-3. Theresno way to extrapolate from the individual pattern numbersto the total performance the total pattern returns are larg-

er than the sums of the three sub-patterns in every instance.

What we havent done yet islook at different combinations of the sub-patterns pairing pat-terns 1 and 2, patterns 2 and 3, andpatterns 1 and 3. Table 2 shows theresults of these matches. Here weget a much clearer picture of howthe sub-patterns were interacting.There were 15 instances of patterncombination 1-2, 40 instances of combination 1-3, and 12 instancesof combination 2-3. The weakest(but still mildly bullish) combina-tion was 1-3, while combinations1-2 and 2-3 were much more posi-tive the 2-3 pairing, in fact, out-performed the overall 1-2-3 pattern

results.Figure 3 graphs the results for all the tests and highlights

the more consistent and longer-lasting upside action(through hour 7) of the 2-3 combination. For the most part,the individual sub-patterns initially (and mildly) buck themarkets bearish bias before slumping lower, then recover alittle toward the end of the analysis window; no single sub-pattern dramatically outperformed the others. The 2-3 and1-2-3 patterns clearly stand apart from the rest.

One of the more interesting results from the two-patterncombinations was the underperformance of the 1-3 combi-nation. Pattern 2 was the single worst performer of the sub-patterns, but removing it from the equation did notimprove results. But overall, based on all the breakdowns,the 2-3 and 1-2-3 patterns appear to be more than the sumof their parts: The individual patterns do not have muchvalue on their own. They have more value as part of an inte-

FIGURE 3 COMPONENT BREAKDOWN

The 2-3 combination and the 1-2-3 composite pattern outperformed other combinations by a wide margin.


The combination of patterns 2 and 3 (second from bottom) outperformed the 1-2-3 pattern, although there were fewer signals.

TABLE 2 SUB-PATTERN COMBINATION PERFORMANCE

Hour 1 2 3 4 5 6 7 8 9 10 11 12

EUR/USD avg. -0.0001 -0.0001 -0.0002 -0.0003 -0.0003 -0.0004 -0.0005 -0.0005 -0.0006 -0.0006 -0.0007 -0.0008

Pattern 1-2 0.0008 -0.0002 0.0017 0.0015 0.0016 0.0019 0.0019 0.0020 0.0030 0.0018 0.0026 0.0018

Pattern 1-3 0.0002 0.0002 0.0006 0.0005 0.0002 0.0007 0.0007 0.0014 0.0005 0.0005 0.0016 0.0018

Pattern 2-3 0.0016 0.0018 0.0026 0.0030 0.0044 0.0051 0.0056 0.0050 0.0034 0.0040 0.0035 0.0031

Pattern 1-2-3 0.0008 0.0006 0.0025 0.0025 0.0052 0.0047 0.0048 0.0049 0.0036 0.0044 0.0042 0.0047

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gral whole a very different situa-tion than the one detailed in The pat-tern behind the pattern.

Different data,different resultsAlthough the analysis of the overallpattern was intended to highlightmethods of understanding its compo-nents and show they combined to cre-ate the composite performance, it isinstructive to show the performance

of some of these patterns on differentprice data. Since the original analysisincluded recent data (through March18), we applied two of the patterns onseveral preceding months to see whatresults were like.

It was quite a different story.Performance from mid-August 2009to Jan. 19, 2010 was poor (negative atevery hourly interval) for both the 2-3combination and the overall 1-2-3 pat-tern (Figure 4). Although it is perhaps

understandable the setups got ham-mered during December when theEUR/USD pair sold off sharply, theunderperformance relative to the mar-kets overall uptrend during the pre-ceding is jarring almost the exactopposite of the patterns bullish per-formance during the mostly bearish January-March 2010 period.

Losses would undoubtedly have been curbed by rudimentary trademanagement for example, exitingwith a stop-loss below the low of theentry bar but even so, the probabili-ty of having an open gain at anyhourly interval never exceeded 48 per-cent.

To further experiment with thesetrade ideas, we will monitor the 2-3and 1-2-3 patterns in coming monthsand post occasional updates in ourmagazine and on the Currency TraderWeb site. IGURE 2 AB

FIGURE 4 NEW DATA PERIODThe 2-3 and 1-2-3 patterns performed very poorly from mid-August 2009 to

mid-January 2010 especially in light of the EUR/USD pairs bullish biasduring this period.


Bob DormanAd Sales

[email protected](312) 775-5421

Mark SegerAccount Executive

[email protected](312) 377-9435

Advertise with the Active

Trader Magazine Group
mailto:[email protected]:[email protected]:[email protected]:[email protected]

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ADVANCED STRATEGIES

Think back to the first time you saw Chile on amap of the world. If your first reaction wasntsomething on the order of, What an unusualshape for a country, chances are that was your

second reaction. Just as terrain determines tactics in the military equation,geography determines destiny for countries such as Chile.Oddly enough, its not the presence of the worlds driestdesert, the Atacama, in the north or the mountainous forestsof the southern third sweeping down to Tierra del Fuegothat has determined Chiles destiny.

The real determinant lies offshore under thousands of feet of water the subduction zone of the Chile-Perutrench, where the tectonic plate of the Pacific Ocean is slid-ing underneath the westward-moving South Americanplate. As the plate sinks, water

carried downward into the man-tle becomes super heated andrises through cracks in the crustforming the base of the AndesMountains. The minerals carriedupward form some of the largestdeposits of copper anywhere onthe planet, including one of thelargest open-pit copper mines inthe world, Chuquicamata.

As an aside, Chile used to havea second great source of mineralwealth: nitrates. Eons of guanodeposition by seabirds were com-pressed into sodium and potassi-um nitrates. Prior to the develop-ment of the Haber process for cat-alyzing nitrogen from the air withhydrogen to form ammonia,Chilean nitrates were the worldslargest source of both explosivesand fertilizers.

Chile and copper Prior to the 1973 overthrow of the

socialist Salvador Allende government, Chile had becomedangerously dependent on its copper earnings. As anycountry with a commodity dependency can attest, this isalways a mixed blessing because the countrys well being is

dependent on an external market it cannot control.After the overthrow of Allende and a free-market turn inChilean economic policy under the so-called ChicagoBoys, disciples of the University of Chicagos free-marketeconomic philosophy, the country diversified its export base to take advantage of its central growing region and itslocation in the Southern Hemisphere. Many of the freshfruits available in the U.S. during the winter are exportedfrom Chile, and the country has moved up the value-addedcurve to add wine to its export mix as well.

But copper still dominates the export mix, and is by far

Chilean pesomakes exceptions to currency rules

Between May 2006 and May 2008, copper prices entered a highly volatile, long-term congestion and the link between copper and the CLP broke.

FIGURE 1 CHILEAN PESO NOT LINKED STRONGLY TO COPPER

BY HOWARD L. SIMONS

Chiles currency ignores the primary forex drivers.

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the countrys leading export earn-er. Does this create a strong link tothe Chilean peso (CLP)? Or, as wesaw last month with the case of South Africa and gold (see Cry,the beloved currency, March2010), is the connection largelyabsent?

The answer is strangely mixed.Prior to the adoption of low inter-est rates in the U.S. in 2001-2002,the link between copper pricesand the exchange value of the CLPwas largely absent. Once U.S.interest rates helped trigger both amanic expansion of Chinesedemand for copper starting in2003, the CLP followed copperprices higher (Figure 1). Thensomething strange happened,highlighted by the orange rectan-gle: Between May 2006 and May2008, copper prices entered a high-ly volatile, long-term consolida-tive top and the CLP-copper link

broke. It re-emerged during the2008-2009 financial crisis (as com-modity investors fled the metaland financial investors fled emerg-ing markets) and continued into2010. The net result is a link thatworks only some of the time andunder certain conditions; we can-not consider it an intrinsic relation-ship as much as a series of anec-dotes.

If not copper, then what?If copper is not a driver of CLPrates, we have to turn to a checklistof what else might be. The curren-cy doesnt appear to be driven bylarge swings in its excess volatili-ty, which is the ratio of impliedvolatility to high-low-close volatil-ity less 1.00 (Figure 2). We haveseen how this indicator tends tolead many other currencyexchange rates by three months onaverage, but Figure 2 simply

Relative CPI doesnt seem to affect the Chilean peso at all. The CLP fell whenChilean inflation started to outpace its American counterpart in 2008, but this had more to do with the global financial crisis than relative CPI.

FIGURE 3 CHILEAN PESO LARGELY INDEPENDENT OF

RELATIVE CONSUMER INFLATION

The CLP doesnt appear to be impacted by excess volatility, and implied volatility tends to be expensive regardless of the currencys movement.

FIGURE 2 INSURANCE ON A STRONGER PESO TENDS TO BE EXPENSIVE

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ADVANCED STRATEGIES

shows a volatile series implied volatility tends to beexpensive regardless of movement in the currency, and the

currency doesnt appear affected by excess volatility. Weshould scratch this off the list of factors.

What about relative purchas-ing power as determined bymovements in the respectiveconsumer price indices (CPI) of Chile and the U.S.? The ChileanCPI numbers have a short histo-ry, but between January 1999 and January 2008, the two countriespurchasing power declined atrelatively the same rate (Figure3). The CLP both weakened between January 1999 andFebruary 2003 and strengthenedinto March 2008 with little or norelationship between it and therelative exchange measures. The

CLP fell once Chilean inflationstarted to outpace its Americancounterpart in 2008, but thisclearly had more to do with theglobal financial crisis than rela-tive CPI. The CLP strengthenedvis--vis the USD through mid-2009, even though the two coun-tries rates of consumer inflationmoved parallel to one another.Finally, a better CPI picture inChile relative to the U.S. con-

tributed to a stronger CLP in thesecond half of 2009, but did noth-ing to prevent a sell-off in theCLP during January 2010. Onceagain, relative CPI doesnt seemto affect the currency at all.

The relative attractiveness of acountrys financial assets, asmeasured by the return on itsnational stock market, often isreflected in its currency rate. Thiscertainly was the case with the

South African rand and the rela-tive performance of SouthAfrican stocks. Here, too, therelationship is frustrating.Chilean stocks have outper-formed their American counter-parts almost continuously sinceMarch 1999, yet both the CLPspot rate and the carry return of borrowing USD and lending inCLP have moved higher andlower during the period (Figure4). Even when both the peso and

The Chilean-USD six-month simple interest-rate spread didnt match up in 2001-2003, but it started to do a better job afterward.

FIGURE 5 CHILEAN PESO NOW MOVING WITH ABSOLUTEINTEREST RATE DIFFERENTIALS

Chilean stock-market performance offers no insights into the CLPs behavior.

Chilean stocks have outperformed their American counterparts almost continuously since March 1999, but both the CLP rate and the USD-CLP carry return have moved higher and lower during the period.

FIGURE 4 CHILEAN PERFORMANCE DIVERGED FROM PESO IN MID-2008

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the peso-carry collapsed in 2008, the Chilean stock marketsimply churned sideways relative to the U.S. stock market.We have to cross this one off the list, too.

Short-term interest ratesOne of the more common determinants of currency rates,

expected interest-rate differentials, is nearly impossible tocalculate for the CLP at the six- to nine-month horizon weuse typically. Chilean deposits at the three- and six-monthhorizons are active, and the one-year is available, but wecannot calculate the six-month/nine-month forward-rateratio for the CLP. This is the forward rate between six andnine months divided by the nine-month rate itself, and itdetermines reinvestment prospects at the end of a three-month non-deliverable forward.

We can, however, use a simple interest-rate spread muchas we did for the Mexican peso (see Mexican peso: Whosyour padre? February 2007). There, the three-monthspread between the peso (MXN) and USD was a good indi-cator. Here, its the six-month simple interest rate spread(Figure 5). While this didnt match well during the first

period of low interest rates in the U.S., 2001-2003, it startedto match well against the CLP thereafter.Still, this is unsatisfying somehow. Currency rates almost

always can be linked to carry spreads, expected interest-ratedifferentials, key commodity prices, or relative assetreturns. In the case of the Chilean peso, none of these apply.Its a group of exceptions to the rules.

For information on the author see p. 4.

Cry, the beloved currencyCurrency Trader , March 2010.

Analysis reveals a surprising source of momentumin the South African rand.

Islamic currencies: Whats for dinar?Currency Trader , February 2010.Does having a tradable currency make an economy developmore quickly, or is development a precondition for a tradablecurrency?

Currency carry and yield-curve tradingCurrency Trader , January 2010.Examining the currency-bond connection.

A parody of purchasing powerCurrency Trader , December 2009.Is there such as thing as a currency fair value?

The hidden cost of illiquidityCurrency Trader , November 2009.Evidence mounts that we actually failed to learn the lessonsof the Great Depression.

How Eastern Europe got carried awayCurrency Trader , October 2009.The Swiss National Banks move to quantitative easing inMarch reopened the Swiss franc-Eastern Europe carry trade.

Hungarys Blue Danube WaltzCurrency Trader , September 2009.

A look at a unique currency slated to be absorbed bythe Euro in the next few years.

Post-bubble ruble trouble and reversalCurrency Trader , August 2009.Which rate matters most, the Russian ruble vs. the dollar,or the ruble vs. the Euro?

Won flew over the carrys nestCurrency Trader , July 2009.For better or worse, Koreas currency seems to function as abasic risk barometer.

Currency volatility and long-term treasury returns

Currency Trader , June 2009.The belief that higher currency volatility leads to steeper yieldcurves and negative bond returns has been challenged by the2008-2009 financial upheaval.

A cross rate to bear, Currency Trader , May 2009.The Euro/yen pair isnt just a currency cross rate its agauge of global risk.

And its one, two, three what are we trading for?Currency Trader , April 2009.They dont call them frontier markets for nothing. A look at

Vietnams currency and stock market over the past few years.

Sovereign credit risk and currenciesCurrency Trader , March 2009.Government actions are perversely rewarding the guilty: As anations credit rating deteriorates, its borrowing costs fall andits currency, at least temporarily, rises.

Howard Simons: Advanced Currency Concepts, Vol. 1 A discounted collection that includes many of the articleslisted here.

Related reading: Other Howard Simons articles

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24/32

CURRENCY FUTURES SNAPSHOT as of 3/30/10


LEGEND:

Volume: 30-day average daily volume, in thou-sands.

OI:30-day open interest, in thousands.

10-day move: The percentage price move fromthe close 10 days ago to todays close.



The % rank fields for each time window (10-day moves, 20-day moves, etc.) show the per-centile rank of the most recent move to a certainnumber of theprevious moves of the same sizeand in the same direction. For example, the %rank for the 10-day move shows how the mostrecent 10-day move compares to the past twenty10-day moves; for the 20-day move, it shows howthe most recent 20-day move compares to thepast sixty 20-day moves; for the 60-day move, itshows how the most recent 60-day move com-pares to the past one-hundred-twenty 60-day

moves. A reading of 100% means the currentreading is larger than all the past readings, whilea reading of 0% means the current reading issmaller than the previous readings.

Volatility ratio/% rank:The ratio is the short-termvolatility (10-day standard deviation of prices)divided by the long-term volatility (100-day stan-dard deviation of prices). The % rank is the per-centile rank of the volatility ratio over the past 60days.

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.

Market Symbol Exchange Volume OI 10-day move/% rank 20-day move/% rank 60-day move/% rank Volatility ratio/rank

Eurocurrency EC CME 313.2 186.8 -2.44% / 78% -1.32% / 31% -6.37% / 61% .24 / 53%

British pound BP CME 131.1 120.0 -1.10% / 29% 0.72% / 11% -6.75% / 76% .26 / 22%

Japanese yen JY CME 108.5 109.6 -2.77% / 100% -4.45% / 87% 0.35% / 7% .79 / 97% Australian dollar AD CME 92.1 111.0 0.33% / 13% 0.95% / 16% 2.20% / 26% .36 / 45%

Canadian dollar CD CME 78.5 112.6 -0.45% / 50% 1.64% / 21% 2.60% / 54% .35 / 20%

Swiss franc SF CME 48.8 35.5 -1.04% / 100% 0.97% / 27% -2.95% / 52% .25 / 40%

U.S. dollar index DX ICE 23.1 45.8 2.18% / 80% 1.44% / 44% 4.99% / 61% .35 / 67%

Mexican peso MP CME 20.8 111.5 1.26% / 71% 2.17% / 72% 5.67% / 97% .25 / 25%

New Zealand dollar NE CME 9.2 17.0 0.24% / 18% 1.57% / 53% -2.19% / 45% .24 / 7%

E-Mini eurocurrency ZE CME 3.9 3.1 -2.44% / 78% -1.32% / 31% -6.37% / 61% .24 / 53%

Note: Average volume and open interest data includes both pit and side-by-side electronic contracts (where applicable).

Managed money: Barclay Trading Groupscurrency trader rankings for February 2010

Top 10 currency traders managing more than $10 millionas of Feb. 28, ranked by February 2010 return.

2010 $ Under Feb. YTD mgmt.

Rank Trading advisor return return (millions)

1. Dacharan Capital (High Exposure) 17.86% 16.19% 20.0

2. MIGFX Inc (Retail) 6.70% 4.55% 13.03. Aurapoint Asset Mgmt (Calypso1) 6.34% 11.40% 250.04. QFS Asset Mgmt (QFS Currency) 4.59% 2.95% 632.05. IKOS FX Fund 3.70% 7.18% 472.76. Goldman Sachs (Fund. Currency) 3.21% 4.84% 447.47. Friedberg Comm. Mgmt. (Curr.) 3.19% 15.47% 68.78. Metro Forex Inc (Tri Gl FX) 2.66% 3.96% 113.29. Metro Forex (Cable Forex Fund) 2.66% 3.96% 20.0

10. FX Concepts (Multi-Strategy) 2.40% 2.14% 3111.0

Top 10 currency traders managing less than $10 million and more than$1 million as of Feb. 28, ranked by February 2010 return.

1. Smart Box Capital (Leveraged FX) 23.81% 54.03% 1.52. Excel Capital Mgmt. (FX) 8.22% 31.72% 1.83. QuantFX AM (Managed Account) 8.19% 13.30% 2.14. Gables Capital Mgmt (Global FX) 3.16% 1.05% 8.65. Smart Box Capital (FX) 3.10% 7.80% 56. Valhalla Capital Group (Int'l AB) 3.05% 3.55% 1.27. Blue Fin Capital (Managed Currency) 2.33% 0.99% 3.38. Rove Capital (Dresden) 1.99% 2.11% 2.29. Vaskas Capital Mgmt (Global FX) 1.56% -2.88% 3.5

10. Overlay Asset Mgmt. (Emerging Mkts) 1.49% -0.03% 7.6

Source: BarclayHedge (www.barclayhedge.com). 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.
http://www.barclayhedge.com/http://www.barclayhedge.com/http://www.barclayhedge.com/

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TRADING STRATEGIESINTERNATIONAL MARKETS

Currentprice vs. 1-month 3-month 6-month 52-week 52-week Previous

Rank* Country Currency U.S. dollar gain/loss gain/loss gain/loss high low rank

1 South African rand 0.13465 4.03% 1.22% 0.08% 0.1383 0.1014 13

2 Canadian dollar 0.974195 2.46% 1.97% 6.50% 0.9935 0.7861 1

3 Indian rupee 0.02215 2.05% 3.50% 7.19% 0.02215 0.01905 6

4 Thai baht 0.030855 1.90% 2.99% 3.64% 0.03095 0.02763 5

5 Australian dollar 0.90422 0.98% 1.96% 4.39% 0.9405 0.6769 12

6 Swiss franc 0.939685 0.87% -2.71% -3.02% 1.0087 0.8515 15

7 New Zealand dollar 0.703475 0.77% -0.65% -1.70% 0.7635 0.5484 14

8 Russian ruble 0.033765 0.69% 0.18% 1.75% 0.03497 0.02911 11

9 Taiwanese dollar 0.03132 0.47% 1.13% 1.57% 0.03179 0.02927 9

10 Singapore dollar 0.71252 0.21% 0.20% 1.06% 0.7256 0.6553 10

11 Brazilian real 0.54991 0.02% -3.95% -1.55% 0.5882 0.4206 8

12 Hong Kong dollar 0.128825 0.01% -0.09% -0.16% 0.1291 0.1286 2

13 Chinese yuan 0.146475 -0.01% 0.04% 0.01% 0.14660 0.1458 4

14 Euro 1.341845 -1.54% -6.74% -8.30% 1.5144 1.2885 16

15 Swedish krona 0.138205 -1.80% -0.13% -3.44% 0.148 0.1143 3

16 British pound 1.490455 -2.18% -6.71% -6.03% 1.7042 1.4109 17

17 Japanese yen 0.010815 -3.82% -1.01% -3.35% 0.01179 0.00986 7

CURRENCIES (vs. U.S. DOLLAR)

ACCOUNT BALANCERank Country 2008 Ratio* 2007 2009+

1 Norway 88.008 19.478 61.811 51.412 Singapore 26.983 14.831 39.209 20.5013 Hong Kong 30.621 14.219 25.529 22.2884 Sweden 37.279 7.783 39.054 25.4035 Netherlands 65.746 7.497 59.598 55.6486 Germany 235.257 6.405 250.263 94.2487 Taiwan 24.894 6.361 32.975 28.2168 Japan 157.079 3.199 210.967 96.8919 Switzerland 12.065 2.412 43.032 29.73110 Canada 7.606 0.507 14.53 -34.30911 Korea -6.406 -0.69 5.876 26.979

12 UK -46.457 -1.733 -75.483 -44.735

As of March 29 *based on one-month gain/loss

Rank Country 2008 Ratio* 2007 2009+13 Belgium -12.891 -2.547 7.772 -4.45514 Czech Republic -6.669 -3.083 -5.483 -4.07515 Italy -78.812 -3.406 -51.208 -52.4216 Australia -46.605 -4.599 -57.305 -29.8917 U.S. -706.068 -4.889 -726.572 -369.78718 Ireland -13.886 -5.189 -13.876 -3.92519 Spain -153.665 -9.592 -144.435 -86.701

Totals in billions of U.S. dollars*Account balance as percent of GDP +EstimateSource: International Monetary Fund, World Economic OutlookDatabase, October 2009.

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GLOBAL STOCK INDICES

GLOBAL BOND RATES

Country Interest rate Rate (%) Last change Sept. 2009 March 2009United States Fed funds rate 0-0.25 0.5 (Dec. 08) 0-0.25 0-0.25Japan Overnight call rate 0.1 0.2 (Dec. 08) 0.1 0.1Eurozone Refi rate 1 0.25 (May 09) 1 1.5England Repo rate 0.5 0.5 (March 09) 0.5 0.5Canada Overnight funding rate 0.25 0.25 (April 09) 0.25 0.5Switzerland 3-month Swiss Libor 0.25 0.25 (March 09) 0.25 0.25

Australia Cash rate 4 0.25 (March 10) 3 3.25New Zealand Cash rate 2.5 0.50 (April 09) 2.5 3Brazil Selic rate 8.75 0.5 (July 09) 8.75 11.25Korea Overnight call rate 2 0.5 (Feb. 09) 2 2Taiwan Discount rate 1.25 0.25 (Feb. 09) 1.25 1.25India Repo rate 5 0.25 (March 10) 4.75 5South Africa Repurchase rate 7 0.5 (Aug. 09) 7 9.5

GLOBAL CENTRAL BANK LENDING RATES

1-month 3-month 6-month 52-week 52-weekRank Country Index March 29 gain/loss gain/loss gain/loss high low Previous

1 Italy FTSE MIB 23,104.97 8.37% -1.16% -1.95% 24,559 15,269 152 Japan Nikkei 225 10,986.47 8.01% 3.28% 8.77% 11,001.60 8,084.62 143 Germany Xetra Dax 6,156.85 7.76% 2.42% 7.76% 6,172.85 3,987.39 94 South Africa FTSE/JSE All Share 28,705.82 6.22% 3.80% 15.49% 28,806.14 19,798.43 85 France CAC 40 4,000.66 6.13% 1.36% 4.89% 4,088.18 2,719.34 136 UK FTSE 100 5,710.70 5.64% 5.02% 10.68% 5,737.10 3,762.90 67 India BSE 30 17,711.35 5.60% 1.78% 5.09% 17,793.01 9,521.76 128 Singapore Straits Times 2,929.14 5.59% 2.07% 9.98% 2,947.08 1,658.04 109 Mexico IPC 33,416.10 5.20% 2.42% 13.54% 33,474.90 19,288.40 1

10 U.S. S&P 500 1,173.22 5.15% 4.18% 10.62% 1,180.69 779.81 5

11 Australia All ordinaries 4,907.20 4.52% 1.04% 3.37% 4,984.00 3,503.80 1112 Brazil Bovespa 69,939.00 4.03% 2.41% 14.21% 71,068.00 40,256.00 413 Canada S&P/TSX composite 12,029.72 2.57% 2.80% 5.57% 12,129.30 8,453.09 314 Switzerland Swiss Market 6,850.60 0.87% 3.66% 8.45% 6,943.50 4,714.00 215 Hong Kong Hang Seng 21,237.43 0.86% -1.22% 1.07% 23,099.60 13,411.80 7

NON-U.S. DOLLAR FOREX CROSS RATES

Rank Country Rate March 29 1-month 3-month 6-month High Low Previous1 UK Short sterling 99.30 -0.04% 0.00% -0.11% 99.52 98.52 22 Australia 10-year bonds 94.18 -0.35% 0.04% -0.56% 95.68 94.11 43 Germany BUND 122.97 -1.19% 1.22% 1.01% 124.53 117.47 14 Japan Government Bond 138.15 -1.25% -1.00% -0.90% 140.32 135.45 55 U.S. 10-year T-note 115.94 -1.33% 0.24% -1.99% 124.28 112.90 3

Currency 1-month 3-month 6-month 52-week 52-weekRank pair Symbol March 29 gain/loss gain/loss gain/loss high low Previous

1 Canada $ / Yen CAD/JPY 90.11 6.56% 3.03% 10.23% 90.4395 77.9037 42 Aussie $ / Yen AUD/JPY 83.635 5.02% 3.01% 8.03% 86.194 46.508 103 Franc / Yen CHF/JPY 86.925 4.91% -1.69% 0.38% 91.549 81.73 154 New Zeal $ / Yen NZD/JPY 65.07 4.80% 0.39% 1.74% 69.5573 53.87 125 Canada $ / Real CAD/BRL 1.77232 2.45% 6.21% 8.22% 1.8546 1.6003 36 Euro / Yen EUR/JPY 124.12 2.40% -5.77% -5.09% 139.2 119.63 197 Pound / Yen GBP/JPY 137.87 1.73% -5.73% -2.74% 163.057 132.45 188 Aussie $ / Real AUD/BRL 1.64502 0.97% 6.19% 6.08% 1.6978 1.5256 99 Euro / Pound EUR/GBP 0.90027 0.65% -0.04% -2.42% 0.9411 0.8399 6

10 Euro / Real EUR/BRL 2.44117 0.47% -2.87% -6.82% 3.0779 2.3905 1611 Aussie $ / New Zeal $ AUD/NZD 1.28477 0.19% 2.57% 6.14% 1.3125 1.1931 212 Aussie $ / Franc AUD/CHF 0.96226 0.11% 4.80% 7.64% 0.9833 0.7854 113 Aussie $ / Canada $ AUD/CAD 0.928175 -1.45% -0.01% -1.98% 0.9895 0.8541 1114 Franc / Canada $ CHF/CAD 0.96458 -1.56% -4.59% -8.94% 1.1074 0.9539 1715 Euro / Franc EUR/CHF 1.42794 -2.40% -4.15% -5.45% 1.5383 1.4229 716 Euro / Aussie $ EUR/AUD 1.48393 -2.51% -8.54% -12.16% 1.9465 1.4594 1317 Pound / Franc GBP/CHF 1.586105 -3.02% -4.11% -3.11% 1.8112 1.5778 818 Pound / Aussie $ GBP/AUD 1.64833 -3.13% -8.50% -9.98% 2.0859 1.6328 1419 Yen / Real JPY/BRL 0.019665 -3.86% 3.07% -1.85% 0.0238 0.01865 520 Euro / Canada $ EUR/CAD 1.37739 -3.91% -8.54% -13.90% 1.6739 1.3614 2021 Pound / Canada $ GBP/CAD 1.529935 -4.53% -8.51% -11.77% 1.9173 1.5212 21

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continued INTERNATIONAL MARKETS

LEGEND:Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.

As of March 31

GDP*

Release 1-year NextPeriod date Change change release

MERICASArgentina Q4 3/17 4.8% 10.7% 6/18

razil Q4 3/11 2.0% 4.3% 6/8anada Q4 3/1 2.4% -0.7% 5/31UROPErance Q4 2/12 0.7% -0.2% 5/12ermany Q4 2/12 -0.1% -0.6% 5/12K Q4 3/30 1.2% -1.7% 6/30FRICA. Africa Q4 2/23 2.5% 6.7% 5/25SIA AND SOUTH PACIFIC

ustralia Q4 3/3 1.9% 1.3% 6/2

ong Kong Q4 2/24 5.7% 2.6% 5/14

ndia Q4 2/26 8.8% 11.9% 5/31

apan Q4 2/28 1.1% 4.6% 5/20

ingapore Q4 2/19 -1.2% 4.0% NLT 5/21

Final estimates, at current prices, seasonally adjusted

Unemployment

Release 1-year NextPeriod date Rate Change change release

AMERICAS

Argentina Q4 3/15 8.4% -0.7% 1.1% 5/2Brazil Feb. 3/25 7.4% 0.2% -1.1% 4/29

Canada Feb. 3/12 8.2% -0.1% 0.2% 4/9

EUROPEFrance Q4 3/4 9.6% 0.5% 1.8% 5/12

Germany Feb. 3/31 7.5% 0.0% 0.1% 4/29

UK Nov.-Jan. 3/17 7.8% -0.1% 1.2% 4/2

ASIA AND SOUTH PACIFIC Australia Feb. 3/11 5.3% 0.1% 0.0% 4/8

Hong Kong Dec.-Feb. 3/18 4.6% -0.3% -0.4% 4/2

Japan Feb. 3/31 4.9% 0.0% 0.5% 4/30Singapore Q4 1/29 2.1% -1.3% -0.4% 4/30

CPI


AMERICAS

Argentina Feb. 3/12 1.2% 4.1% 4/14Brazil Feb. 3/5 0.8% 4.8% 4/8

Canada Feb. 3/19 0.4% 1.6% 4/23

EUROPE

France Feb. 3/16 0.6% 1.3% 4/13

Germany Feb. 3/10 0.4% 0.6% 4/13

UK Feb. 3/23 0.4% 3.0% 4/20

AFRICA

S. Africa Feb. 3/24 0.6% 5.7% 4/28

ASIA AND SOUTH PACIFIC

Australia Q4 1/27 0.5% 2.1% 4/28Hong Kong Feb. 3/22 1.0% 2.8% 4/22

ndia Feb. 3/31 -1.2% 14.9% 4/30

apan Feb. 3/26 -0.1% -1.1% 4/30

Singapore Feb. 3/23 0.4% 1.0% 4/23

PPI


AMERICAS

Argentina Feb. 3/12 1.3% 13.2% 4/14Brazil Feb. 3/8 1.1% 2.1% 4/8

Canada Feb. 3/30 0.0% -0.6% 4/30

EUROPE

France Feb. 3/31 0.1% 1.0% 4/30

Germany Feb. 3/19 0.0% -2.9% 4/20

UK Feb. 3/5 0.3% 4.1% 4/9

AFRICA

S. Africa Feb. 3/25 0.4% 3.5% 4/29

ASIA AND SOUTH PACIFIC

Australia Q4 1/25 -0.4% -1.5% 4/27Hong Kong Q1 3/12 1.8% -0.3% 6/14

India Feb. 3/15 0.7% 9.9% 4/15

Japan Feb. 3/10 0.1% -1.5% 4/13

Singapore Feb. 3/29 -0.2% 11.4% 4/29

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CPI: Consumer price index

ECB: European Central Bank

FDD (first delivery day): Thefirst day on which delivery of acommodity in fulfillment of afutures contract can take place.

FND (first notice day): Alsoknown as first intent day, this is

the first day on which a clearing-house can give notice to a buyer of a futures contract that itintends to deliver a commodity infulfillment of a futures contract.The clearinghouse also informsthe seller.

FOMC: Federal Open MarketCommittee

GDP: Gross domestic product

ISM: Institute for supplymanagement

LTD (last trading day): The finalday trading can take place in afutures or options contract.

PMI: Purchasing managersindex

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.ISM 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.

April

1 U.S.: March ISM manufacturing report

2 U.S.: March employment report

3

4

56

7 Japan: Bank of Japan interest-rateannouncement

8 Australia: March employment reportBrazil: March CPI and PPIMexico: March 31 CPI and March PPIUK: Bank of England interest-rateannouncementECB: Governing council interest-rate

announcement9 Canada: March employment report

UK: March PPILTD: April U.S. dollar index options(ICE)

10

11

12

13 U.S.: February trade balanceFrance: March CPIGermany: March CPIJapan: March PPI

14 U.S.: March CPI and retail sales; Fedbeige book

15 India: March PPI

16 U.S.: March housing starts

17

18

19 U.S.: March leading indicators

20 Canada: Bank of Canada interest-rateannouncementGermany: March PPIHong Kong: Q1 employment reportUK: March CPI

21 UK: February employment report

22 U.S.: March PPIHong Kong: March CPIMexico: April 15 CPI

23 U.S.: March durable goodsCanada: March CPIMexico: March employment report

24

25

26

27 Australia: Q1 PPI

28 U.S.: FOMC interest-rateannouncementAustralia: Q1 CPISouth Africa: March CPI

29 Brazil: March employment reportGermany: March employment reportSouth Africa: March PPI

30 U.S.: Q1 GDP (advance)Canada: March PPIFrance: March PPIIndia: March CPIJapan: March employment report andCPI

May

1

2

3 U.S.: April ISM manufacturing reportand March personal income

4

5

6 Brazil: April PPIUK: Bank of England interest-rateannouncementECB: Governing council interest-rateannouncement

7 U.S.: April employment reportBrazil: April CPICanada: April employment reportMexico: April 30 CPI and April PPIUK: April PPILTD: May U.S. dollar index options(ICE)

The information on this page issubject to change. Currency Trader isnot responsible for the accuracy of

calendar dates beyond press time.

APRIL 2010

27 28 29 30 1 2 3

4 5 6 7 8 9 10

11 12 13 14 15 16 17

18 19 20 21 22 23 24

25 26 27 28 29 30 1

APRIL/MAY

MAY 2010

25 26 27 28 29 30 1

2 3 4 5 6 7 8

9 10 11 12 13 14 15

16 17 18 19 20 21 22

23 24 25 26 27 28 29

30 31 1 2 3 4 5

GLOBAL ECONOMIC CALENDAR

8/8/2019 Ctm 201004

30/32

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in TradeLog. The software will import defined securities asfutures in the type column for proper reporting as section1256 contracts. Version 8 now includes an embedded userguide, making it easier for users to access TradeLogs quick start and comprehensive user guides.

CQG has integrated its hosted market data servers andexchange gateways with MATLAB from The MathWorks, amathematical computing software developer. By combin-ing MATLAB into CQGs solutions, CQG now gives tradersand market analysts the ability to analyze global financialmarkets and make intelligent analysis-based trading deci-sions. The integration of MATLAB and CQGs software is

incorporated at no additional charge in CQG IntegratedClient, CQGs flagship trading and analytics program. TheMathWorks joins a growing list of companies participatingin CQGs Certified API Partner Program, while CQG has joined The MathWorks Connections Program. MATLAB isa widely used, high-level environment for algorithm devel-opment, data visualization, analysis, and mathematicalmodeling. MATLAB users can now receive real-time andhistorical analytical data from more than one hundredCQG-supported exchange and financial sources world-wide, enabling fast and powerful analysis, trading strategydevelopment, and testing. The link also enables MATLABto execute orders, creating an appealing offering for MAT-LAB users simply wanting to send orders directly to mar-ket or those developing algorithm-powered automatedtrading systems. The integration allows MATLAB-calculat-ed values to be imported into CQG and charted next to theunderlying financial values. This gives customers theopportunity to append MATLAB analytics in trading sys-
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tems developed on the CQG Integrated Client. CQGs Dataand Trading APIs are available as part of its flagship prod-uct, the CQG Integrated Client, and can be used with anyobject-oriented programming language, includingMicrosoft Excel VBA, Visual Basic, C#, and C++. CQG alsoprovides direct connectivity to its Hosted Exchange

Gateways using the industry standard FIX protocol viaCQGs FIX 4.2 API.

TradingScreen has integrated with FMO, the onlineportfolio management system for global hedge funds withindustry leading reporting and attribution analysis func-tionality. The certified integration of TradingScreen andFMO links the front and middle/back office to offer a newlevel of trading efficiency built on the combined multi-assetclass capabilities of both systems. Institutional traders usingthis FIX-based best-of-breed EMS-OMS solution will lever-age TradingScreens global order routing and advance exe-cution management functionality coupled with the FMO

portfolio management system to manage post trade andmiddle office processes with brokers and custodians, recon-ciliations, reporting, as well as fund accounting. The latestFMO release features improved-real time and historicreporting of fund performance across multiple prime bro-kers and custodians to manage counterparty risk and pro-vide clients additional process transparency.

Interactive Data Corporation has expanded itsInteractive Data 7ticks ultra low-latency trad

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