Euro Troubles: Wea K

THE NEW
DARK
TRADER MAGAZINE
AGE
i n t e rv i e w
300% return
i n 9 0 d ay s
KNOW YOUR
CURRENCIES
OPTIONS
BLACK SWANS weak dollar
VOLATILITY
SMI L ES
e ur o tr o ub l e s
Greek tragedy in three acts
F X SOCIA L Looking beyond a short-term solution
NET W ORK
APRIL - JUNE 2010
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CONTENTs FX
WEAK DOLLAR
EURO TROUBLES
TRANSFORMING
$250K IN $940K IN
Greek tragedy in III 90 DAYS
Acts.
Symptomatic lack
Interview with Jason
of a shared European
Stapleton, who generated
plan.
short of 300% return at a
Looking beyond a
recent trading challenge. He
short-term solution.
explains the reasons he entered
the challenge and the method
22 he teaches on the FX.
12
WELCOME TO
THE NEW DARK
AGE:
Economic stagnation,
Wars, Pandemics.
Is our industrial
30 civilization entering
a period of decline?
05 EDITOR’S NOTE INTERVIEW: TECHNICAL ANALYSIS:

56 Ugo Lancioni, FX manager, explains 64 Majors’ Trends and Targets
SOCIAL NETWORKS what it takes to be a good investor and
46 Interview with Dave Lemont - CEO the importance of a diversified strategy 65 Currency Outlook:
of Currensee Inc – Forex trading social based on fundamentals GBP/USD, EUR/CZK
network NZD/JPY, EUR/GBP
STRATEGY: OPTIONS:
07 Building Robust FX Trading 42 Volatility Smiles and Black Swans: INTERNATIONAL DATA:
Systems - Know your currencies the effect of varying volatility and 68 FX Spot Monitor
extreme events on the pricing of options 69 Central Bank Rates
FUNDAMENTAL ANALYSIS: 70 Economica Data - FX Poll
52 LatAm Currencies and the MARKET WATCH: 71 Markets View
Dollar: Fundamental analysis and 62 The private banker’s analysis.
future projections for the main Analysis of the current international 72 ECONOMIC CALENDAR
LatAm currencies and the USD macro economic scenario.
FX TRADER MAGAZINE April - June 2010

FX CONTRIBUTORS
Alessandro Balsotti, worked for several newly launched technical analysis service.
years as market maker of Italian Lira, www.tradermade.com/InterpreTA.asp
Greek Dracma and Czechoslovak
Koruna in JP Morgan. He was then in Caspar Marney, started his trading career,
charge of the FX trading desk in Abax as a spot currency trader and technical
Bank and Caboto. He is currently analyst with HSBC in London. He then
responsible in JW Partners for the FX moved to SBC Warburg (later UBS) as
Single Manager strategies. a proprietary trader and global head of
technical analysis for FX and precious Editor :
Elite E Services is an electronic boutique metals, where he became one of the bank’s Emmanuelle Girodet
brokerage specializing in currency most successful traders and a regular editor@fxtradermagazine.com
trading, intelligence and technology commentator on financial television.
surrounding foreign exchange markets.
Elite E Services offers FX trading systems Giorgio Martini has been a forex trader
Advertising manager:
for clients and investors, FX consulting, since 2000 and has worked for leading Isabella Lamera
technology and tools for trading, system Italian banking groups. His articles ad@fxtradermagazine.com
development, custom programming, are regularly published on the Italian
and FX solutions for businesses. The financial portal www.smartTrading.it. Webmaster:
company offers it’s Forex blog at He also collaborates with Age Italia, an Hristo Katzarski
http://www.eliteforexblog.com and a independent financial consultancy firm. webmaster@fxtradermagazine.com
forex forum at http://www.eesfx.com
Nicolò Nunziata is Equity Portfolio Graphic design:
Steffen Gregersen has played a leading Manager at JC&Associati SIM
Preslav Dobrev
role in Saxo Bank’s Quantitative Analysis (www.jcassociati.it). He worked for
and Advance Research Department in Banca Profilo, Euromobiliare, Akros,
its development of the bank’s option Credit Suisse First Boston and UBS, Editorial support:
pricing models. He holds a degree in as responsible for trading and arbitrage Jacopo Visetti
Mathematics and Economics from the on Government bonds and derivatives. Lorenzo Lorenzi
University of Copenhagen where his He is also an appreciated lecturer in Luca Di Bari
thesis was on the effects of jumps in the fields of finance fundamentals. Simon Holmes
underlying prices on option prices.
Kevin Sollitt is an FX Portfolio
JW Partners is an independent Manager using a top-down discretionary
FX solution provider, based model to achieve absolute returns. Trading carries a high level of risk, and may not be
in Milan, with a strong FX Previously, he acquired an extensive FX suitable for all investors. The objective of FX Trader
Magazine is to give readers the tools, training and
specific know-how. JW supports trading background in Europe, Asia and information which will help them be better prepared
institutional investors and HNWI North America, managing three bank to trade on the foreign exchange. However, any analysis,
news, research, strategy, or other information contained
in building quality FX multimanager trading teams. His understanding of on this magazine is provided as general market
portfolios, and FX underlying interplay between different asset classes information and does not constitute investment advice.
structures. provides a valuable framework to serve
FX Trader Magazine, will not accept liability for any
in his current role. Kevin’s longevity loss or damage, including without limitation to, any loss
Steve Jarvis, from TraderMade in the FX world has been assisted by a of profit, which may arise directly or indirectly from use
International has over 20 years’ willingness to embrace a collaborative of or reliance on such information.
experience of providing technical approach at all levels. Combining

analysis to FX professionals. Formerly this with his clear grasp of market
Chief Technical Analyst at MCM dynamics & by using a wide range of
Currencywatch and Informa Global disciplines has achieved positive results Subscriptions:
Markets, Steve now heads the technical in many different circumstances and www.fxtradermagazine.com
analysis at InterpreTA, Tradermade’s market conditions over the years.

EDITOR’s note FX
IT’S ALL ABOUT

RESULTS
The growth of the retail forex who can teach you techniques and and the opportunity to become
market - where daily volumes trade set-ups in order to accelerate a successful trader. Mentors must
are currently estimated at the learning process and help you have a track record demonstrating
approximately $200 billion - is become successful. that the techniques they teach are
based on the shared message The main problem which new profitable. New social networks
communicated by the entire and traders communities have
forex industry, that it is to show that they have leading
possible to achieve a sustained traders who are reliable and able
capital appreciation by trading to generate real profits. In short,
currencies. the market requires first and
This idea to invest in forex as part foremost results.
of a diversification strategy has In this issue we interview Dave
been well received by the existing Lemont, CEO of Curensee Inc,
forex traders’ community, and is a forex social network, where
also appealing for people starting traders can only sign up if they
in this market. However, achieving have a real live trading account. To
a sustained capital appreciation is gain credibility Curensee recently
a goal which often collides with launched a campaign to invite
reality: most retail traders who expert traders - who must show
start trading currencies lose their ongoing positive results - to join the
capital in less than a month. Only FX Trader Magazine is now on the iPhone network and to enable the traders’
a fraction of traders survive and community to follow them and gain
subsequently become profitable. traders face today is to filter and experience more quickly. We believe
These traders, who often go manage the infinite quantity of that this is an interesting and useful
through different paths, generally information, opportunities and initiative, which will probably be
manage to build up a coded offerings available on the market replicated by others, because it
trading system, which generates when they start trading currencies. reflects a real market demand. In
profits and therefore contributes Companies who offer training this same spirit of transparency,
to their capital appreciation. and other services to traders now Currensee’s platform now allows
One of the right routes to becoming have to be able to demonstrate, traders to publish their trades
a profitable trader is to follow a through tangible results, that in real time on Twitter.
mentor or an experienced trader, they can actually offer quality We also publish the second

FX EDITORIALE
of a series of inter views with trainer, and explains his method live trading room 24/5. We will
professional coaches, who tell to train successful traders. notify you via email about this
us about their views on how To support the growth of the initiative.
to train traders and to become retail market, professional In the next editions FX Trader
profitable. In this issue Jason education is necessary and Magazine will continue to present
Stapleton, head coach and CEO fundamental, in our opinion, and interview professional mentors
at 4xTradersLive - who achieved in order to train tomorrow’s and quality training schools.
just under 300% return in 3 forex traders. We are also pleased to announce
months during the Varengold We are pleased therefore to that FX Trader Magazine is now
Trading Challenge - explains have partnered with YTR (Your available on iPhone - and will
that the main reason why he Trading Room - a professional be available on iPad in the near
participated in the challenge training school), and negotiated future - with zoom and Landscape
was to show how his trading special conditions only available layout features, which enable easy
method can actually generate to FX Trader Magazine readers, reading even on a reduced screen.
positive results. Jason presents for a professional training
his perspective as a trader and package including access to a Emmanuelle Girodet
TRADING SYSTEMS FX
Building Robust FX
Trading Systems
Know Your Currencies
In the last article we looked at the commonality of volume Time Zones

distribution and ranges across currency pairs. We examined
how similar they are throughout the 24 hour trading day, We know that the London afternoon has the largest
with even currencies such as the Australian Dollar and ranges and volumes for all currency pairs; however, we
Japanese Yen having the largest volumes and hourly ranges also know that news events and economic data affecting
during the London afternoon, when the three major trading a certain currency will almost always occur during that
centres of Europe, London and the US are all active, as currency’s native time zone.
opposed to their own native time zones. We also know that currencies are traded in pairs, so a
Having explored the commonality, this article now explores move in GBPJPY at 2am is more likely to be a Yen move
the key differences between each currency pair, which can and a move at 10am is more likely to be a Sterling move.
be broadly categorized into: time zones, liquidity, volatility Currency pairs can therefore be broadly broken down
and interest rates. into three categories:
An understanding of these differences, that give each
currency pair its unique characteristics, is important in
determining whether using different parameters is ‘curve
fitting’ or genuinely taking account of the unique and
quantifiable characteristics of each market.
If the data during a back test was trending, then different
parameters will likely appear to be better than a currency
pair that was moving sideways during the test period.
However, that is no indication that the currency pairs will
continue trending, or moving sideways in real trading, so
a good understanding of why a system works is vital, if it’s
going to be robust and continue to work in the future.
All times are expressed in local London time, unless stated
otherwise.

FX TRADING SYSTEMS
1/ Currencies sharing the same native time zone: If one were to express a view in Sterling at
Currency pairs such as EURSEK, EURNOK, EURCHF, 10am against the US Dollar, or Japanese Yen,
USDCAD, and within an hour of each other; GBPCHF, that position would be far less likely to be
AUDJPY and USDMXN, all share the same native trading affected by news in the other currency, than
hours. trading against the Euro or Swiss Franc, which
This gives these currency pairs particularly good liquidity may have their own news, or economic data,
during their native trading sessions, particularly those released during that time, affecting the position.
whose native trading sessions occur during the London Similarly, taking a view on the Pound at 3am
afternoon. against the Japanese Yen is more likely to be
2/ Currencies with overlapping native time zones: affected by news or economic data in Japan at
Currency pairs such as GBPUSD, EURCAD, that time of day and has more of a Yen exposure.
USDCHF, EURUSD, AUDUSD and Therefore, any trading system must
NZDUSD have native time zones that overlap. also take into account the time it is
Therefore a move occurring at 5am in EURCAD is being executed for each currency pair.
more likely to be order driven, as there is little volume, Fig ure 1 illustrates the native trading hours for
news, nor economic data likely to have come out each currency expressed in GMT.
affecting that pair during those hours and would make
such a move less likely to be a genuine market move. Liquidity
3/ Currencies with separate time zones:
Currency pairs such as EURAUD, GBPJPY and Some pairs are more actively traded than others
CHFJPY operate in two very distinct sessions, with and this has a direct relation not only to their
their native trading hours not overlapping at all. spreads, but also their behaviour. Although each
pair may have the highest volume during the
Local Time in London London afternoon, as we saw in the last article,
Currency GMT Start End some currency pairs are still far more liquid than
others, throughout the day.
New Zealand (NZD) +13 18:00 04:00
Fig ure 2 lists the currency pairs in approximate
Australia (AUD) +10 21:00 07:00 order of liquidity, with EURUSD, USDJPY and
Japan (JPY) +9 22:00 08:00 GBPUSD accounting for 52% of all FX volume
Hong Kong (HKH) +8 23:00 09:00 (source : Bank of International Settlements,
Singapore (SGD) +8 23:00 09:00 Triennial Central Bank Sur vey of Foreign Exchange
Turkey (TRL) +2 05:00 15:00 and Derivatives Market Activity, April 2007).
This makes the spreads, and therefore slippage
Europe (EUR) +1 06:00 16:00
and cost of execution, much smaller in the more
Switzerland (CHF) +1 06:00 16:00 liquid currency pairs. Therefore a strateg y that
Norway (NOK) +1 06:00 16:00 is equally profitable in EURUSD and AUDCAD
Sweden (SEK) +1 06:00 16:00 without slippage will not be nearly as profitable
Great Britain (GBP) +0 07:00 17:00 in AUDCAD in live trading , when spreads
Canada (CAD) -5 12:00 22:00 and slippage are factored in, due to the much
wider spreads and relative lack of liquidity in
United States (USD) -5 12:00 22:00
AUDCAD.
Mexico (MXN) -6 13:00 23:00 It’s also usually better to trade an illiquid cross via
Figure 1
its components. For example, selling AUDUSD

TRADING SYSTEMS FX
and selling USDCAD results in a net short Volatil it y

AUDCAD position. Trading via the components
in this way usually captures a better spread than Vo latil it y is a mea sure of how much a c urren c y
the trade being done ‘direct’ in relatively illiquid p a ir is moving , usua l ly mea sure d by ta king th e
crosses. standard de viation of movement, o ver a g i ven
time p erio d and expresse d a s a p erc enta g e .
Turnover in Billions (USD) % Share Traders wil l of ten refer to ‘1 month vo l .’ a s a
EURUSD 840 27 standard mea sure of vo latil it y.
Essentia l ly it expresses how much a marke t i s
USDJPY 397 13
moving over a g iven time p erio d . A marke t
GBPUSD 397 12 with a low vo latil it y is exp e cte d to have sma l l er
AUDUSD 175 6 moves on a g iven day than those wi th a h i g h
USDCHF 143 5 vo latil it y.
USDCAD 115 4 For the trader, h ig her vo latil it y is usua l l y g o o d ,
USDSEK 56 2 a s profits tend to b e made from m o vem ent ,
with a fe w exc eptions such a s som e op ti ons
USD/Other 572 19
strate g ies .
EURJPY 70 2 Vo latil it y a lso ha s a d ire ct imp act on wh e th er
EURGBP 64 2 a strate g y is viab le. If a currenc y p a ir ha s an
EURCHF 54 2 average slippage per trade of 3pts but an average
EUR/Other 112 4 return p er trade of 10pts, then sl ipp a g e wo u l d
Other Pairs 122 4 re duc e the profits by 30%.
If the same strate g y were trade d on a c urren c y
Total 3 081 100
p a ir with a t wic e the vo latil it y, but th e s am e
Source, BIS Triennial Survey 2007
slippage of 3pts, it may yield an average return of
Figure 2
20pts p er trade, a s the avera g e da ily m o vem ent
wou ld b e h ig her. Sl ipp a g e wou ld th en on l y
Unfortunately that also doubles the brokerage costs re duc e the profits by 15%; ha lf the am o unt .
per million, versus being
able to execute the trade
‘direct’ in AUDCAD, as two
trades are done instead of
one. This effect is even more
pronounced if the strateg y
was executed during relatively
illiquid times of day.
Further exacerbating the
situation is the fact that stop
loss orders can only be left
‘direct’, without the use of
an API, usually resulting in
much more slippage when
orders are e xe c ute d in the
marke t .

FX TRADING SYSTEMS
Slippa g e can be such a hug e factor that some

hig h fre quenc y strateg ies, which look excellent
before slippa g e is ta ken into account, can actua lly
produce a sig nificant loss if actua lly trade d under
rea l market conditions. Therefore you of ten se e
volatilit y filters adde d to strateg ies and these
are of ten simply a f unction of the minimum
volatilit y the market ne e ds to be trading at, for
the strateg y to overcome costs and to be viable ;
this will var y both from currenc y pa ir to currenc y
pa ir and e ven by time of day.
Therefore, if a strateg y is found to be a losing
one af ter slippa g e is adde d, but was profitable
before, then a simple volatilit y filter may be a ll
that is re quire d, to trade only when the expe cte d
movement is above a certa in amount.
Interest R ates
Interest rates are another known, and

quantifiable, factor affe cting currenc y markets.
Table 3 shows the current interest rates of the
major currencies.
Currency Interest Rate

New Zealand (NZD) 2.50%
Australia (AUD) 4.00%
Japan (JPY) 0.10%
Hong Kong (HKH) 0.50% Trading strateg y simulation software has tended
Singapore (SGD) 0.25% to overlook the effect of interest rates on currency
trading, as that is not something that affects many
Turkey (TRL) 6.50%
other markets. However, for a longer-term strateg y,
Europe (EUR) 1.00% the effect can be particularly significant, hence the
Switzerland (CHF) 0.25% ‘carry trade’.
Norway(NOK) 1.75% If one were to hold a long AUDJPY position overnight,
Sweden(SEK) 0.25% then that position would have a positive yield, or
Great Britain (GBP) 0.50% ‘carry’, overnight as the position was rolled. This
tends to give carry trade currency pairs an underlying
Canada (CAD) 0.25%
trend, often characterized by sharp corrections, not
United States (USD) 0.25% dissimilar to the price action of a stock market.
Mexico (MXN) 4.50% It’s therefore vital to know if a strateg y is working
As of 2nd March 2010 because of an underlying interest rate differential,
Table 3 as these can change dramatically over time and even
invert.
10 FX TRADER MAGAZINE April - June 2010
TRADING SYSTEMS FX
to the pric e a c ti on . It
may b e that th e s y stem
worke d p ar tic u larl y we l l
in a trend ing marke t , or
a side ways marke t , i f i t
wa s mean re ver ting in
nature.
Just b e cause a s y stem
work s on on e c urren c y
p a ir and not an o th er, d o e s
not mean it i sn’t ro b ust .
It may just me an that on e
currenc y p a ir e x h i b i te d a
strong trend during th e
test p erio d an d th e o th er
d id not and that may have
b e en due to a s h o c k n e w s
e vent such a s 9 / 1 1 , an
underlying intere st rate
Tr a d ing Sy s tem R obustness d ifferentia l or a ste a d i er
sh if t in market f undamenta ls .
W h en te sting a trad ing s ystem, one sig n of
ro b ustn e ss i s that it work s across a bro ad C onclusion
rang e o f instr uments . Howe ver, when testing
a c urren c y strate g y across a bro ad numb er of The currenc y markets share many s im i lar
c urren c y p a ir s , it’s imp or tant to appre ciate characteristics in terms of b eing a g l o b a l
why i t may s h ow ver y d ifferent resu lts and to market, with sim ilar eb bs and flows in vo lum e
re a l l y un d er stan d the sim ilarities, a s wel l a s the and rang es, a s each c entre op ens and c l o s e .
d i f f eren c e s b e t we en each currenc y p a ir. Howe ver, the y a l l have their own in d i vi dua l
characteristics in terms of time zones wh en n e w s
For e x amp l e , currenc y p a irs with strong may affe ct that currenc y, l iqu id it y, vo lati l i t y
intere st rate d i fferentia ls are more l ikely to and interest rates . Even thoug h t wo c urren c y
s h ow tren d ing c haracteristics . Howe ver, other p a irs may share many of these chara c teri sti c s ,
c urren c y p a ir s may trend e ven with l ittle e ven data relea ses for one currenc y wi l l n o t
intere st rate d i f ferentia l ; the underlying rea son a lways o c cur on the same date an d tim e a s
f or th o s e tren d s wil l l ikely b e d ifferent and another. Therefore, at any g iven tim e , hard l y
n e e d s to b e c ons idere d . any currenc y p a irs are identica l in nature b ut
Th ere f ore y o u have to lo o k at the resu lts of any their d ifferenc es are usua l ly quantif i a b l e .
s imu lati on to d e term ine whether there is a va l id Therefore, when testing trad ing strate g i e s , a l l
re a s on f or th e resu lts b eing d ifferent, b efore these f actors shou ld b e ta ken into a c c o unt to
b e ing a b l e to tr u ly de cide whether a s ystem is b e ab le to determ ine whether a s ystem , an d any
ro b ust or n o t . g iven set of p arameters, is tr u ly ro b ust .
On e a l s o ha s to lo o k at the pric e action itself
an d c omp are th e e qu it y cur ve of the s ystem Caspar Marney
FX TRADER MAGAZINE April - June 2010 11

FX TRADING
options PERFORMANCE
content * content * content

“Winning traders treat “My personal belief is that
their trading like a trading is 99% emotional and
business” 1% technical”
E XC LUS I V E I N T E RV I EW J A S O N S TA P L E T O N A N S W E R S T O F X T R A D E R M A G A Z I N E
Jason Stapleton
CEO and head trading coach at
4xTradersLive
Jason recently turned $250.000

into $940.000 in 90 days during the
Varengold Trading Challenge
Jason Stapleton explains to FX Trader new way of thinking, of looking at the market
Magazine the reasons why he decided to and at themselves.
participate in a trading challenge: to provide Jason explains why, once you have a system that
evidence, as CEOand head trading coach at has a positive expectancy, 100% of your success
4xTradersLive, of what he and the trading falls on your ability to trade it day in and day
style he teaches can produce. out, which is why he focuses a lot on psychology.
To become a successful trader, he says, you Although he has a passion for economics and
should follow the advice of a successful trader politics, he has developed a purely technical
and treat your trading as a business. approach to trading and explains why there
His number one advice as a coach is to stay is no possible way for a private trader who
away from chat rooms, web forums and social hasn’t got a team of people to make educated
networks, to make sure his traders focus on a decisions based on fundamentals.

FX TRADING PERFORMANCE
FXTM: Can you tell us about your I wasn’t focusing on what the real started to work really heavily on my
story? How did you get interested in issue was, which is: psychology. One psychology, being disciplined and
trading? How long have you been has to get hold of the psychology of fixing in a set of rules. Following
trading for? What is your experience the market and their own personal all those rules, I began to grow and
in trading? psychology in order to be effective. now instead of constantly losing,
JS: I started out managing my own It doesn’t really matter whether the I’m consistently winning, which is
investments. I started to put some systems are profitable or not, if you the ultimate goal for anybody who’s
money away, I was beginning to don’t have the discipline to trade day trading.
build up a nest egg and
I wanted to manage FXTM: You recently
that myself. I had the finished 4th at the
belief that nobody Varengold Trading
cared more about my Challenge. First, why did
money than me and I you decide to participate?
did not want to give A lot of trainers preach
it to somebody to put but they don’t “walk the
it into mutual funds. walk”...
I wanted to be able to JS: Because of my
do the research myself. business, I get hit with a lot
That quickly turned of people who are asking
to “Hey, I could use me for things like: “Show
some of this money me your performance
to trade with!”. And records” so, for a long
I started out trading time, I used to say “here is
some options. I ended what our trading systems
up losing quite a lot are producing, here is
of money trading what we are doing in the
options. But I had live room” and what was
the belief that I could coming back was: “How
figure out how to do Jason finished 4th at the Varengold Trading Challenge generating can I make sure your
it. So I continued short of 300% return in 3 months numbers are truthful?”, or
to study, buying “Let me see your personal
all the books, going to seminars, in and day out, under a set of rules statements”. But I’m not giving
then I thought “let’s go ahead and and conditions that you’ve layed out, my personal trading records, those
trade stocks”. But the market was you’re not going to be successful. are very private. And if I provide
running on the short side, so I And the more I studied and the the records, they say: “How can I
decided to have a look at futures. So more I read and the more I talked to validate that they are actually true?”
I rolled from options, to stocks, to successful traders, that’s what they or “you’re hiding your losses, there
futures and had very little success. are saying. Richard Dennis said it the is no way you can be achieving such
Over the course of many years of best, he said: “Anybody can create a results.” So, when the challenge came
practice, trial and errors, I came to trading system that is 80% good and out I thought “this is my chance to
the conclusion that what I’m really is the best one ever written. The provide evidence of what I personally
doing is bouncing from system to question is whether or not they’ll and the trading style that I teach
system, from market to market and have the discipline to follow it.” I can produce.” It’s over a set period

TRADING PERFORMANCE FX
of time. It’s third party regulated. and trading style? Is it only a matter try to eliminate as much subjectivity
They track the results. So I stepped of experience? out of our trading as possible. And
in and I traded for 3 months. I used JS: What I did is I went to find that’s what I tried to do when I was
a longer term swing trading system, somebody who was successful and learning to be successful. I didn’t
that I developed. And this is what who had an outline of “This is how want emotion to play any kind of
I do now. I get role in my decision
about 10 to 15 making. Once I
trades a month. got on the path, it
The system took some time, it
itself, with took months and
the position- months of trial and
sizing model error, continuing
that I used in to trade and
the trading continuing to lose
challenge, money, before I
generated just finally got things
short of 300% thought out. I
return over the would love to tell
course of these you that I’m 100%
3 months. The cured of emotional
high water mark response on the
at that traders market now, but
challenge was I’m not. Nobody
about 309% ever is. But I do
in 3 months, know how to
so a little over trade now. And
100% a month.
Should that
Winning traders treat their it came through
a long process
be expected by trad ing l ike a business of self reflection
traders who and study, along
are coming with the help of
in? Absolutely not. I was trading it should be done. This is how you someone that I knew was successful.
aggressively. I’ve been doing this become a professional trader”. And I
a very long time. And we want to listened to every single thing that he FXTM: In your opinion, what is
shoot for consistent profitability. told me to do. He said “This is how the difference between a winning
That’s my ultimate goal for people you write out a trading plan”, and this trader and a losing trader?
that I teach to or work with. is how I wrote out my trading plan. JS: Winning traders treat their
He said “This is how you test your trading like a business. In the forex
FXTM: You said you started with system, this is how you strategize markets, brokers are making it easier
options then stocks and futures, and on a development process”. I use an and easier to open these 500$ or
that after many trials and errors, you “If-Then” syntax for all the strategy 1.000$ accounts. Those are price
finally found the right discipline and development that I do. And it’s very points that people used to go gamble
psychology. How did you reach that simple, for example, IF the market with, on a week-end or when taking
step? How did you find your niche does this, THEN we do this. And we a trip to Vegas. So trading for a lot

of people is nothing more than I had already written out. Ultimately project and your role in it?
gambling. They come in, they don’t I could have had a million dollar JS: I was trading full time from
have a plan, they don’t know what strategy put together and I would home and I was getting lonely. I
they are doing and they’re taking have blown that strategy up! Because thought, “why don’t I start offering
signals without knowing why they are I wouldn’t have followed it, I didn’t some training and open a live trading
taking them, and all of that adds up. have any discipline. I hadn’t spent room for people to come in, see what
Winning traders have a plan. They any time working on the real issues I do and may be trade along with me”.
treat their trading like a business that were causing me to lose money, So I put together a little and cheap
and they are extremely disciplined which were emotional. But I knew website - I think we spent 2.000
in what they do. They have taken the that I loved trading. I absolutely dollars to put the website together -
time and the effort to develop a plan love it! I can spend all day every day and I opened up a virtual room using
that they know is effective and every watching the market, teaching about a software system where I can show
single day they focus on nothing what I’ve learned and studied. I have my computer screen to people. I just
more than trading that plan. They a real passion for it. And I had a core said “it’s free for a week, come on in
don’t deviate from and see what we do”
it. It is not a game. and I started getting
They’re very serious My goal is to take traders from people to say “would
about it. Those are
the kind of traders conscious incompetence to a you work with me?”, so
I started building up a
that I like to see
coming to me, or
place of conscious competence core network of traders
that I mentored. And
people who say that has grown and
“look I’m not successful, I’m losing belief that, if I had such a passion for developed into the business that you
money, I know I’m doing something it, there had to be a way for me to be now see.
wrong but I’m committed to figure successful at it. So I made a decision I think people see in our company
this out and I want to do whatever is to be successful. I don’t care what it something different from what they
necessary to be successful.” takes. I don’t care what is costs me. see in other places and especially in
FXTM: You mentioned that, I’m going to figure this out and I’m the Foreign Exchange world. Because
when you started, even though going to be successful. What you see forex is so unregulated. There are a lot
you were not successful, somehow in the Varengold Trader Challenge of swindlers out there that are looking
you had the belief that you could and in what I do now, in the trading to take your money and nothing
become a successful trader. How do and teaching, is a reflection of the more. But I have a vested interest in
you explain that conviction? Is this years of hard work that it took me seeing my clients be successful. I don’t
typical of successful traders? to get from point to point. And take just anybody. People have to fit
JS: I don’t know. I thought: “I’m an my goal now of course is just to cut a profile, they have to build a place
intelligent person. So this is not an down on the amount of time that it where they are financially solvent,
issue of me not being smart enough to takes for traders to get from point A they have to be ready to do what’s
understand what I need to do, this is to point B. For those who want to necessary to make the change. The
me not understanding what I need to be successful, I want to make that course is very expensive compared to
do and not understanding how I need transition as quickly as possible. what else is out there on the market.
to go about doing that.” So I sought So in return I have to give a lot of
out someone to help me to figure FXTM: You’re CEO of information, a lot of counseling and
that out. And I found out that it had www.4xtraderslive.com training a lot of work.
nothing to do with the systems that company. Did you create the
I was using or the trading plans that company? Can you tell us about this FXTM: What about results?
JS: My goal is to take traders from FXTM: How much time do you matter which instrument or time
conscious incompetence to a place think a trader should spend on frame you’re looking at, pattern
of conscious competence, where training everyday? And does training formations work. And we focus
they say “I understand now what I really make a difference in terms of 100% on technical analysis. Being
need to do to be successful and I’m trading performance? part of the live trading room and of
working everyday with the support JS: We know scientifically that in the private client group that I have
of you and your training program order to break habits and reinstall is extremely beneficial to them
in order to become consistently new habits, it is a 60 to 90 day because it helps reinforce what I
profitable.” And many of them are process. If for years you believed that teach in the program. We have to
now. I worked with a wide variety the markets are crooked and that continue to reinforce these core
of traders, so the course in itself has the game is squewed in the favor beliefs so that we can change our
been widely successful, just in the of large banks and institutions, it’s perception of the markets and our
amount of people and the response going to take some time to realize perception of what success is.
we are getting from the program. that all charts are the same, no
FXTM: What do you think
comes first: to have the right
All charts are the same, no matter trading system or to have the right
psycholog y?
which instrument or time frame you’re JS: You have to have a system that
has a positive expectancy and that’s
looking at, pattern formations work maths terminolog y that says that “if
you follow this system, over time it’s
going to produce more money than
it loses.” If you don’t have that, I
don’t care how disciplined you
are, you’re going to be disciplined
to trade a losing system. And
that’s not going to be effective.
But once you have a system that
has a positive expectancy, 100%
of your success falls on your
ability to trade it day in and day
out. And that falls completely on
psychology. My personal belief is
that trading is 99% emotional and
1% technical. Once you learn the
skills, once you understand how
to write your trading plan, how to
trade your trading system, then all
you have to do is focus on trading
the system. I understand that there
is a lot of debate on that. Some
people will say “it has all to do with

the system that you have”, and I

disagree because if simply having a
good trading system was adequate
for producing successful traders -
there are great free trading systems
out there, you could trade Richard
Dennis’s Turtle system right now -
a 21 day breaokut system - MACD
Crossover produces really great
results too. If it was just about the
system why don’t we have 90%
success rate instead of 90% failure
rate? It’s because it has nothing to
do with your system. It has to do
with your psychology, your ability
to be disciplined in the market.
FXTM: As a trainer, what is
the most important advice or the My personal belief is that trading
one you give more often to your
students? is 99% emotional and 1% technical
JS: First thing I tell them is to
stay away from the chat rooms and
the web forums. That’s an absolute corrupting the minds of traders who you think a trader is ready for this
disaster. They started springing have a genuine interest in learning important step?
up as a way for traders to come what they need to be doing. So that’s JS: It has to do ultimately with
together and learn from each other the first thing I tell them: “You are money. Let’s say you open a 25.000
and now you see social networking no longer allowed to spend anytime dollar account and you are doing
groups for currency traders, and I there”. The information that you very well generating 10% a month.
get emails everyday from people get will come from me, from our Now you have to look at the kind of
inviting me to join their social program, or from other legitimate job you’re doing and the salary you’re
networking group or find a way to sources. And I provide them with getting. Are you a doctor making
collaborate so that I can share my these legitimate sources. And that’s 300.000 dollars a year? The amount
knowledge and experience with a condition before they sign up for of capital you’re going to need to go
other traders. I think it is a terrible my course, that for the next 3 to 4 full time with your trading is very
place for new traders and those who months they are going to do nothing different from someone who’s a
want to learn to be successful to be. but what I tell them to do. Because plumber and makes 50.000 dollars
You don’t see these social networks I want them focused on a new way a year. So that’s a very individual
and chat forums full of highly of thinking, a new way of looking at decision and it has to do ultimately
successful traders who are sharing the market and at themselves. with the size of your account
years of knowledge and wisdom. balance.
It’s a bunch of other traders who are FXTM: Many traders dream to
losing money, who are unsuccessful become professional traders in a FXTM. What kind of system do
and complainers, users and takers, short period of time. When do you teach in your course?

JS. I have several systems to cater Foreign Exchange, because not only FXTM: But do you use your
to individual traders. We have a do I get to study the politics that fondamental knowledge and
day trading system that’s called we are doing in the US but also information in your trading or do you
“Trend Trader”, the “T Squared” what the European Central Bank have a purely technical approach?
system, which gets traded basically and the Bank of Japan are doing. JS: No, I don’t use any of it in
Tuesday through Thursday. Then How their economies are going my trading. That’s what’s funny
we have a swing trading system to be affecting currency prices. is that I read all this economic
that I call a “CTS system”, which is Some of the benefits of trading information all the time. But when
a countertrend divergence model foreign exchange is that it is an I sit down at my computer, I’m
system. Then we have a longer term, unregulated market. It’s a spot 100% a technical trader. I don’t care
like day trader positions system, for market. You can trade micro lots and whether everybody else in the world
those people who work full time jobs, mini lots, which means that if you says that the European Central
and of course I have the system which only have 5.000 or 10.000 dollars Bank is going to raise interest rates.
I used in the Varengold Challenge you can start trading whereas in the If my charts are telling me that I
that I show traders and that I offer futures market you need 30.000 to need to be long or short, that’s what
them as a course of study. But it 50.000 dollars of starting capital, I’m going to do. I know several
requires a very high level of technical just because of the cost of buying fundamental analysis traders, I’m not
analysis and knowledge as it uses a the contract. So in the forex market, suggesting by any means that you can’t
lot of Fibonacci and ratio patterns more people can participate. be successul as a fundamental trader,
in order to determine price action.
And because it is hard to learn, I
created a private client group, where Stay away from chat rooms,
I take them every day through the
trade setups, I show them how I’m web forums and social networks
drawing in the Fibonacci patterns,
I show them what we would expect
to see, I offer them trading calls
and really give them a blueprint for
success. And my goal is that, one day,
they’ll be successful enough so that
they won’t feel the need to use the
services anymore.
FXTM: Why do you trade Forex
and what can you tell us about this
market? What are the advantages and
disadvantages of trading currencies?
JS: I can tell you why I trade
forex. I love politics and I’m very
interested in economics, in what
our Federal Reserve is doing and
how that’s going to affect business.
And as I started looking at my two
main passions - politics and trading
- one of the best outlets for me was
trading system and you run into a

drawdown? What happens when
that system generates 3 or 4 losses in
a row? What typically happens is that
the trader comes in and starts cutting
trades short, stopping the automated
trader just before it runs back into 2
or 3 winners that would have made
up for all the losses. Whether you are
using an automated trading system
or your own trading plan, you have
to be disciplined about it. I advise
my traders to stay away from any
automated system, simply because
if you’ve got a million dollar system,
there are hedge funds and banks who
would pay millions of dollars for it.
So why are you selling it for 99.99$ on
the internet?
I don’t care whether everybody else in
the world says that the European Central FXTM: Would you like to give any
other important piece of advice to our
Bank is going to raise interest rates. readers?
If my charts are telling me that I need to be JS: I would just say that if you’re not
a successful trader right now, but you
long or short, that’s what I’m going to do. want to be, make a decision that you
want to be successful, and then find
somebody that you know is successful,
but what I can tell you is that every all that subjectivity and we focus and listen to what they are going to
fundamental trader that I know has exclusively on technical analysis. teach you. That’s the best advice I can
a team of people that do nothing all give because this is the advice that led
day long but research. But if you’re FXTM: What do you think about me to where I am. Continue to learn
an individual trader, working from fully automatic algorithmic trading? and grow. Spend some time working
home, not only do you not have JS: Most of the systems that people on traders psychology. There is a great
access to the information that you are going to run across online - these book called Market Wizards by Jack
need in order to make an intelligent 99$ to 200$ systems - are just junk. Schwager - it’s one of the required
decision, but even if you did, you You’re probably going to lose every readings for my courses - and it’s just a
couldn’t go through it all. There is single penny that you put in there. list of about 20 great traders and how
no possible way, in my opinion, for Systems can be automated and we are they became successful. One of the
a private trader who doesn’t have a working on automating a couple of best things that you can do as a trader
team of people, to make educated ours, but again it comes back to this is to emulate those who have already
decisions based on fundamentals. issue of psychology. What happens been successful.
So what we do is that we eliminate if you start using a fully automated

click here to ask for your
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FX MACROECONOMics
Greek Tragedy: “Those who have knowledge, don’t

predict. Those who predict, don’t have
Symptomatic lack of knowledge.”
a shared European plan Lao Tzu
(Chinese philosopher, VI sec. BC)
W eak D ollar , E uro in troubles
S
trong Dollar, Weak Moreover the US capital flow causes of weakness (rates and
Dollar picture remains fairly weak, capital flows), the future is
suggesting that a structural dollar looking increasingly harsh for
recovery is unlikely. Developing the Euro.
In the past few weeks, we have countries’ central banks keep
E
noted the striking divergence buying US Government bonds uro Crisis
between Eur/Usd and the dollar’s but flows into agencies, corporate
performance in other crosses. credits and equities seem to be
The dollar has strengthened by hit by disinvestment dynamics
more than 10% versus the euro, from overseas players. But, if the The topic on which markets
but it has remained very weak in US Dollar is facing two structural focused on in the first quarter
most other crosses and is at or
close to cycle lows versus Cad,
Aud, Mxn and Krw, to name
just a few important crosses. US
rates are still at very low levels
and will likely remain ultra-low
for the next several months;
indeed, recent comments from
Fed officials support this notion
and despite recurring interest
rates mini-spikes after single
better than expected economic
figures, it is very unlikely the
central bank will try to surprise Chart 1. There is more than one US Dollar (Nomura Chart)
the market on the hawkish side.

FX MACROECONOMics
16.0%
g overnment announced that
fiscal deficit would be 12.7% of
14.0%
Greece Fiscal Deficit
GDP for 2009 (up from about
12.0% 6% in the latest estimates from
the previous government). Apart
10.0% from the disastrous economic
substance, the issue of reliability
% GDP
8.0%
and truthfulness ( past and
6.0%
present) of budget information
provided by Greece was raised
4.0% Maastricht Limit
decisively. A serious problem
of credibility (since 1980 the
2.0% greek government deficit has
never been below 3% of GDP as
0.0%
requested from the Maastricht
1980
1984
1988
1992
1996
2000
2004
2008
Chart 2. No respect of Stability&Growth Pact
Treaty) was compounding into
a not rosy economic situation.
of 2010 has been for sure the Following the October 2009 In the following weeks 5yr
explosion of concern about elections (at a time when the CDS on sovereign Greek debt
the Greek sovereign debt and, market was closely following rose from levels around 150bp
in a broader sense, about the another crisis on sovereign debt into a volatile rang e between
sustain ability of the European in Dubai), won by Georg e approximately 250bp and
Monetar y Unit project. Papandreou (PASOK), the new 400bp ( levels already touched
more than a year ag o, at the
heig ht of the financial crisis,
by Irish CDS, and now back
to lower levels between 150bp
and 200bp) with widening and
narrowing of spreads following
reliefs and tensions g enerated
by the constantly chang ing
mechanisms of protection that
the Euro area would be willing
and / or able to supply.
G
reek tragedy in three
acts
In an interesting piece of research

on Januar y 7th, “Greek Drama :
Act 1”, BCA Research (in the
weekly European Investment
Chart 3. Credit Default Swaps of Euro area Sovereigns Strateg y), outlined a potential

MACROECONOMIcs FX
in exchang e for have witnesse d the unravel ing

a rene we d of the script a s describ e d by
c omm itment (to acts I and I I. Cer ta in ly not
be c onstantly in a l inear f a sh ion and in a
scre ene d ) to somehow recursive way between
fiscal austerity. scenarios of uncertainty and
• Act I I I : a rea l reassuring solutions to come.
Gre ek tra g e dy. A On Febr uar y 11th the EU
se vere e c onom ic summ it (me eting of the 27 EU
downturn wou ld c ountries heads of g overnment)
b e ine vitab le in outl ine d a supp or t pro g ram for
the face of severe Gre e c e ( lacking most deta ils)
fisca l mea sures c ond itione d to appropriate
after years of lost and rea l istic fisca l mea sures .
productivity and In the words of Jean- Claude
lower relative Juncker (Prime Min ister of
competitiveness Luxemb ourg ): “ It’s not mone y
accompanied for nothing. It’s mone y in the
by re duc e d eve nt Greece would have take n
domestic saving all the requested mea sures
ratios Sucha and financial markets are not
b a c k d r o p reacting in the way we are
wil l prove e x pecting the m to react.”
de va stating to On March 3rd, Papandre ou
e vo lving s c enari o of the crisis
the so cia l f abric. announce d the long -awa ite d
a s f o l l ow s :
Inde e d in re c ent we ek s we package of fiscal austerity (VAT
• Ac t I : an in itia l p erio d
o f intens e un c er ta int y. Stil l
Greece Sovereign Bond Redemption Schedule
incentives to find a solution to 12 000
avo i d traumati c e vents wou ld

significantly outweigh costs for 10 000
p ar ti e s invo lve d (EU: dom ino

e f f e c ts sp i l l ing over to other 8 000
nati ons ; G re e c e : in the e vent

Millions (Euro)
o f d e f au lt or exit from the 6 000
Euro, economic measures even

more draconian and unpopular 4 000
than those ne cessar y to g a in

th e EU supp or t ). 2 000
• Ac t I I : an EU- Gre e c e
a g re em ent a b l e to define 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
supp or t eng a g ement r u les Medium Long Term Short Term

ena b l ing G re e c e to refinanc e
Chart 4. Greece redemption schedule. Source: Datastream
the debt at an acceptable price

FX MACROECONOMics
increase and bonus cuts in public vision by the major founding due course. For various reasons,
sector employment), with the states (Germany and France). however, this evolutionar y
stated objective to bring the Recently, in a contribution to process has been stopped in
deficit/GDP ratio down to 8.7% the FT, George Soros recalled the bud and the Eurozone has
for 2010 (from the cited 12.7% a meaningful judgment from remained frozen in its initial
of 2009). Otmar Issing (German economist, state. Only now, facing the
The idea that a solution is to be from 1990 to 2006 member of first real test for the sing le
found and will be found (Act Bundesbank board and later on currency, the hybrid nature of a
I> Act II) appears to have solid of the ECB governing council, monetary unit that has no fiscal-
foundations. Let me be clear: it considered one of the fathers of economic mandate, apart from
is ver y likely to be a short-term the Euro): “... the euro area was the continuously disregarded
solution. established as a monetary union Stability & Growth Pact rules, is
The urg ent problem is indeed but not politics. The participating debated with some conviction.
to allow Greece to refinance the States have established a common To show difficulties in working
debt coming due over the next central bank but were not willing the project and maintaining
two months and to refinance to cede the right to tax their a long -term vision, it could
it at an acceptable cost (the citizens to a common authority.” be useful to underline the
premium Greece is oblig ed As Soros points out, the symptomatic lack of a shared
to pay at current spreads over European Monetar y Union plan on the rig ht steps to
German rates amounts to about (and the European Union itself ) take in order to exit from a
1.6% of GDP per year). was created by putting the cart situation of low economic
In fact April (April 20th about before the horse, setting limited growth and high and increasing
8 billion of medium-long term but achievable goals, knowing debt. Germany highlights the
debt and 3 billion of short- that they were insufficient but importance of debt and fisca l
term paper) and May (May 19th with the will to expand them in austerity policies, radical cuts in
another 9 billion of medium
long term securities) will be
the most problematic period in
2010 (for the rest of the year
there are only about 5 billion in
total maturities).
L
ooking beyond a likely
short term solution
What is more worrying, looking

beyond a quick solution to
allow Greece to conveniently
refinance, it is the emerg ence
of structural problems for
the Eurozone projects and,
especially, the lack of a shared

MACROECONOMIcs FX
recursion bet ween Act I

and Act II, uncertaint y and
solutions) even in the short
term. The most evident
example is the eventual role
of the IMF in supporting
Greece.
- Fe b . 1 1 ( R e u t e r s ) - I M F s a y s
ready with te chn ica l supp or t
for Greece
- Fe b . 2 0 ( R e u t e r s ) – E C B
exec defends non-use of IMF
for Greece – paper
- Fe b . 2 6 ( R e u t e r s ) – E U
w a n t s t o d e a l w i t h G r e e c e ’s
problems - IMF chief
- Ma r c h 1 ( R e u t e r s ) - G r e e c e
s h o u l d g o t o I M F, n o t E U –
public spending possibly using is that a large part of the problem G e r m a n y ’s Is s i n g
pressure from the markets to lies in the German economic - Ma r c h 1 2 ( R e u t e r s ) – Eur o p e ,
force changes politically difficult policies that have generated high Greece made clear IMF aid
to accept. Angela Merkel in a rates of domestic savings and not needed – Lipsky
recent speech to the Bundestag exag g erated trade surplus (“ To - Ma r c h 1 7 ( R e u t e r s ) -
lower house : “An immediate act dance the tango it takes two. The Germany seeks IMF role for
of solidarity is certainly not the only solution cannot be imposing Greece in reversal - German
answer. R ather, the answer is to the principles of fiscal austerity”). l a w m a ke r s a y s A s w e w r i t e
capture the problem at source, so The lack of a shared vision will the EU is quite divide d on
there is no alternative to a cost not prevent a solution, a make the issue : G ermany, Holland,
cutting program in Greece.” shift solution, on the Greek Fi n l a n d , It a l y w o u l d b e i n
France certainly has a softer debt refinancing issue in the favor of an involvement of the
approach, somehow more similar coming months. Strong common Washing ton base d institution
to recent U.S. fiscal reactivity: interests, which we have already i n c a s e ‘o f f i c i a l ’ f u n d s n e e d
public expenditure should spoken about, to prevent a to be used for Greece.
expand in times of economic presently avoidable debacle Fr a n c e (also be cause
crisis, generating growth and (default or exit from the Euro, Strauss- Kahn, IMF head,
employment and over time or both, for Greece) should turn w i l l b e t h e n e x t S a r ko z y
reduce deficits through increased out to be more than enough. opp onent in the next French
tax revenues. Hence a request presidential elections),
C
from French Economy Minister onf usion (e ven shor t t h e Eu r o p e a n C o m m i s s i o n ,
Christine Lagarde to Germany term ). IM F no, IM F Tr i c h e t ( b u t p r o b a b l y n o t
to be far more stimulative of yes all the ECB Council ) are
domestic demand in order to strong ly ag ainst a solution
help trading partners. A clear This lack of vision is any way not completely European and
implication of such a statement causing confusion (and the with an IMF role which g oes

FX MACROECONOMics
fixed with some kind of resolution.

Still, the problem of how to
rebalance very different economies
(for growth, productivity, current
account dynamics) in the absence
of exchange rate adjustment and/
or fiscal transfers (not loans),
remains unscathed. Germany and
the group of countries with serious
current account deficits (the
famous PIIGS but also France)
have deeply different economic
paths. A sort of rebalancing may
be imposed by forcing divergent
Dodecanese Islands. inflationary regimes (deflation
Josef Schlarmann and Frank Schaeffler (German CDU lawmakers) have in the second group, more or less
suggested Greece could sell its islands to reduce public debt.
what Mrs. Merkel calls for, high
f or m ere te c hn i ca l supp or t. 10 billion the weig hted averag e inflation in Germany, that is Mrs.
If in th e c om ing we ek s the would be about 2.7%, certa inly Lagarde’s request on the other
marke ts wo u l d ma ke a id cheaper than current market side), but the social costs, especially
to G re e c e unavo idab le and rates (5 years) around 6%. for the significance of accumulated
G ermany re f us e d (the la st imbalances, would probably be
S
s i g na l s g o in th is d ire ction) tructural problems. No unacceptable.
to ta ke th e la st step eng a g e strategic solution. At present the only solution
directly in the form of bilateral policy makers are able to propose
loans to Greece (or g uarantees and, amid a thousand difficulties,
on G re e k d e b t ), I M F d ire ct This phase of uncertainty on the should be able to implement is a
inter vention would be at that parachute solution that Greece makeshift and temporary patch
point much more likely than it may need with a certain immediacy to Greek refinancing. For more
were a m onth a g o. (deadlines of April and May) will be structural problems there seems
Th e I M F may l end up to 12
tim e s ( a s wa s re c ently the ca se
in Iceland ) the borrower IMF-
quota (which is proportiona l
to i ts e c on om i c weig ht, 927
m i l l i on Euro s a s f ar a s Gre e c e
i s c on c ern e d ) . A lo an of 10
b i l l i on Euro s wou ld then b e
re a l i sti c . Currently the c ost
o f an I M F l o an up to thre e
tim e th e qu o ta ( in the ca se of
Greece about 2.8 billion Euros)
i s 1 . 2 6 % , f or the amount in
e xc e ss i t g o e s up to 3.26%. On Chart 5. Eur/Usd. Big drop and timid bounce

MACROECONOMIcs FX
to be not much more than a optima l to o l to express th is with a shor ter term horizon,
willingness to ‘kick the can down the vie w : U.S. fisca l dynam ics are f a ile d to g ive a c onvincing
road’ or ‘live to fight another day’ (as f ar from so l id a s wel l . impression of being capable of
Bernard Connolly has brilliantly put Recent weeks broug ht a stream interr upting the desc ent.
it). In this strive to gain time all players of de c ent to p ositive ne ws on One p o int that deser ves
will happily agree (governments, EU, Gre e c e (an officia l stand of attention is the re c ently
ECB, rating agencies, the private supp or t from Europ e at the relea se d data on the Ba lanc e
banking system). 11th of Febr uar y EU summ it of Payments . The y c onfirm
that the outbreak of the Greek
crisis is g enerating an ong oing
sig n ificant deterioration in
the a sset a l lo cation flows
into Europ ean fixe d inc ome
se curities . These flows
are g enera l ly ind icative of
chang es in attitu des among
investors with long er time
horizons c omp aratively to the
sp e cu lative flows mentione d
ab ove. Those are sh if ts in the
dynamics of capital flows which
may c ontinue for months,
re g ard less of the temp orar y
stab il ization of the crisis of
the Europ ean p erip her y we are
l ikely to witness in the next
fe w we ek s .
It is a lso p ossib le that in
c om ing months authorities
wil l c ome out with some form
of reg ulation in the derivatives
Chart 6. Fixed income flows into Euro area market on risk of def au lt
prote ction (C D S). Th is wou ld
F
orex imp l ications and the announc e d austerit y c omp l icate, if not ma ke it
Gre ek p acka g e, wel l re c eive d by outrig ht impossible, to use
the market, on March 3rd ). The these instruments to bet on the
market stab il ize d , spread and, worsen ing crisis on the Euro
In th i s s c enari o we do not find at least partially, narrowe d . The peripher y. In this case the FX
i t hard to rema in b earish on Euro ha s attempte d a re c over y market (a ka the Shor t Euro)
th e e uro , e ven a f ter a drop of (from a m in imum of 1.3434, wou ld b e c ome an e ven more
1 0 % f rom th e h i g hs, esp e cia l ly March 2nd , to 1.3820, March common tool to express such a
tr y ing to g a z e b e yond an 17th) but, although admittedly vie w.
in c om ing temp orar y so lution . in a short (Euros) market, at least
Perhaps the Eur/Usd is not the in the sp e cu lative c omp onent Al essandro B al sotti

FX MACROECONOMics
Economic Stagnation, Wars, Pandemics,
Welcome to the The New

MACROECONOMIcs FX
Modern humans take pride in the Dark Ages, a period of little to the perceived period of cultural
themselves and their society due documented innovation, writing, decline or societal collapse that
to its perceived superiority. It scientific discover y, and general took place in Western Europe
is contrasted most starkly with backwardness. between the fall of Rome and the
a period in Europe known as The Dark Ages is a term referring eventual recover y of learning.
Increased understanding of
Dark Age
the accomplishments of the
Middle Ages in the 19th centur y
challenged the characterization
of the entire period as one of
darkness.Thus the term is often
restricted to periods within the
Middle Ages, namely the Early
Middle Ages, though this usage
is also disputed by most modern
scholars, who tend to avoid using
the phrase.
During this time, little changed,
the economy stagnated, small wars
were fought, and disease spread.
Sound familiar ? (Swine Flu,
Credit Crisis, Iraq / Afghanistan)
What has changed in America
in the last 10 years ? We hear
about advances in science and
discoveries happening every day,
how has this been implemented
or impacted our daily lives ?
As an example, computing has
advanced by leaps and bounds,
128-bit Cell processor technolog y
enables supercomputing for the
masses . Yet the total broadband
penetration in the US is falling
behind 20 nations including
Estonia . America is not being
singled out, but as a leader, it is
unique in its class. If we didn’t use
the USA as an example, it could be
argued that change is happening
in China. In fact what they are
doing in the rest of the world is
“Americanizing ” about 20 – 30
years behind the US.

FX MACROECONOMics
glee, scenes of torture and death

which might have shocked an
audience in the Roman Coliseum.
Music is everywhere, almost
unavoidable—but it does not
uplift, nor even tranquilize—it
claws at the ears, sometimes spitting
out an obscenity. Our plastic arts
are ugly, our architecture is ugly,
our clothes are ugly. There have
certainly been periods in history
where mankind has lived through
similar kinds of brutishness, but
our time is crucially different.
Our post-World War II era is the
first in history in which these
horrors are completely avoidable.
Our time is the first to have the
Why is this significant ? Because Most of us have become so inured, technolog y and resources to feed,
the internet was invented, that the death of millions from house, educate, and humanely
designed, and implemented starvation and disease draws employ every person on earth,
originally in America. Making from us no more than a sigh, or no matter what the growth of
a statement about being a a murmur of protest. Our own population. Yet, when shown the
leader in innovation, cannot city streets, home to legions of the ideas and proven technologies that can
be rebuked without hard data homeless, are ruled by Dope, Inc., solve the most horrendous problems,
such as broadband penetration. the largest industry in the world, most people retreat into implacable
It is known for a long time that and on those streets Americans now passivity. We have become not only
the US educational system has murder each other at a rate not ugly, but impotent.
fallen behind many countries. seen since the
But it is still thought, to a large Dark Ages. At
extent, that the US is a leader the same time,
of innovation. Why then, is the a thousand
broadband penetration declining s m a l l e r
for the first time ? horrors are so
This decline in society was seen commonplace
as early as 1992 (and perhaps as to go
much earlier) and is documented unnoticed. Our
in an article published by the children spend
Schiller Institute : as much time
The people of North America and sitting in front
Western Europe now accept a level of television
of ugliness in their daily lives which sets as they
is almost without precedent in the do in school,
history of Western civilization. watching with
MACROECONOMIcs FX
The above is from “The New Dark Age” What are the implications of this Comparison
by Michael Minnicino. To keep things chart? Inflation adjusted earnings
in economic perspective, we will on the S&P 500 are nearly $1, The contemporary historians of
look at this from the perspectives compared with a near $100 only 5 science David C. Lindberg and
of energy and the markets, drivers years ago. The same hockey stick Ronald Numbers discuss the
of the economy (vs. a political or chart has been used as an argument widespread popular belief that
philosophical viewpoint which is by climatologists suggesting we are the Middle Ages was a “time of
difficult to quantify.). entering a new ice age (or global ignorance and superstition”, the
The following ‘hockey stick’ chart warming ) the point is, this chart blame for which is to be laid on
of inflation-adjusted S&P earnings indicates a ‘game changer’ – in the Christian Church for allegedly
illustrates that we are in a ‘new’ other words, we are entering a new “placing the word of religious
market. Previous fluctuations were economy which is not connected authorities over personal experience
relatively stable, while they were in to the previous 100 years at all. In and rational activity”.
an overall uptrend since 1935, there this light, we can say, economically In the last 10 years, a similar trend has
were periods of decline but the speaking, we are in the beginning been forming. More and more decisions
overall trend was up. This chart is process of entering “The New Dark are being made in public based on
earnings, not stock price. Age.” personal opinion instead of policy or
law. For example, the previous Bush
administration created the “Reality
We are entering a new economy which is not Based Community”:
... “That’s not the way the world really
connected to the previous 100 years at all works anymore,” he continued. “We’re
an empire now, and when we act, we
create our own reality. And while you’re
studying that reality—judiciously, as
you will—we’ll act again, creating other
new realities, which you can study too,
and that’s how things will sort out.
We’re history’s actors…and you, all of
you, will be left to just study what
we do.”
Ignorance and stupidity is also
a trend, as explained in a recent
documentary “Stupidity,” which
espouses the view that very few
studies have been done on Stupidity,
and very little is understood about
the topic, while it is possibly the
largest threat to man’s existence
(personally and as a whole), and
possibly the largest impediment
to innovation and progress. The
documentary finishes with an
expose of the popular show Jackass,
FX MACROECONOMics
culminating, after a Malthusian

catastrophe, in a world population of 2
billion circa 2050. The Olduvai Theory
divides human history into three
phases. The first “pre-industrial” phase
stretches over most of human history
when simple tools and weak machines
limited economic growth. The second
“industrial” phase encompasses modern
industrial civilization where machines
temporarily lift all limits to growth.
The final “de-industrial” phase
follows where industrial economies
decline to a period of equilibrium
with renewable resources and the
natural environment. The decline
of the industrial phase is broken
into three sections:
• The Olduvai slope (1979–
1999) - energy per capita
a show where the participants when energy production per capita ‘declined at 0.33%/year’
perform humiliating and self- rises from 37% of the peak value • The Olduvai slide (2000–2011) -
injuring stunts such as running to when it falls to below 37% of its ‘begins ... with the escalating warfare
into a wall while sitting in a cart peak value (1930-2030) i.e. the peak in the Middle East... marks the all-
at high speeds. In previous times, in energy production per capita is in time peak of world oil production’.
such behavior would have been an between these two endpoints and these • The Olduvai cliff (2012–2030) -
embarrassment, now we are proud two endpoints have values of 37% of ‘begins ... in 2012 when an epidemic
to display who can hit themselves the peak value.
in the head with a larger, heavier The Olduvai
object. theory claims
that exponential
Olduvai g r o w t h
of energy
The Olduvai theory states that production
industrial civilization (as defined by per ended in 1979,
capita energy consumption) will have that energy use
a lifetime of less than or equal to 100 per capita will
years (1930-2030). The theory provides show no growth
a quantitative basis of the transient- through 2008,
pulse theory of modern civilization. and that after
The name is a reference to the 2008 energy
Olduvai Gorge in Tanzania. Industrial growth will
Civilization is defined in Duncan’s become sharply
paper as the time approximately from negative,
MACROECONOMIcs FX
All of our recent ‘advancements’ are

simply man burning a big oil-fire

FX MACROECONOMics
of permanent blackouts spreads the intelligent, creating , over

worldwide, i.e. first there are the course of five centuries, an
waves of brownouts and temporary irredeemably dysfunctional
blackouts, then finally the electric society. Demographic superiority
power networks themselves expire’. favors those least likely to advance
This theory implies that all of our society. Consequently, the children
recent ‘advancements’ is actually of the educated élites are drowned
man simply burning a big oil- in a sea of sexually promiscuous,
fire. We have convinced ourselves illiterate, alcoholic, degenerate
that this is not the case, actually peers.
man is smarter and has developed People who cannot read are
significant technolog y which is illiterate. What do we call those
the cause of our economic success. who choose not to read, especially
However studies show that the those warning labels on batteries
human brain has not evolved much “Do Not Eat”.
for the last 100,000 years.
The Breakdown
Functional Illiteracy
What signs would we find that
There are college graduates are tangible, not ‘theory’? Spelling A driver who sees a SOTP sign may
who ‘don’t read’, an anecdotal mistakes in professional, completed thing many things but not STOP.
observation. Someone said, “It’s projects. The below is from Microsoft
great that they made a movie about Server 2003:
this topic for people like me who (See right button ‘cancle’)
don’t actually read.” It’s easy to
brush off statements like this as
individual dumb statements, off
the cuff remarks with no meaning.
But what if this is part of a larger
trend? What if there is a growing
mass of college graduates who
‘don’t read’? We can see this trend
on sites like Fark.com, here: They will say ‘it doesn’t matter’ and Devo
http://www.fark.com/topic/dumbass ‘you’re nit-picking’... A spelling
In a recent movie “Idiocracy,” Mike mistake can mean the difference The concept that man is declining is
Judge dramatizes the ‘dumbing between winning or losing a legal not a new concept, it was popularized
down’ of modern man: case. For example, if you are in pop-culture by rock band Devo:
A narrator (Earl Mann) explains arrested and the officer misspells The name “Devo” comes “from their
that in modern society, natural your name, it can be grounds for concept of ‘de-evolution’ - the idea
selection has become indifferent dismissal (unless they have other that instead of evolving, mankind has
toward intelligence, so that in evidence that it was you). Joe and actually regressed, as evidenced by
a society in which intelligence Joel are 2 different people, and a the dysfunction and herd mentality
is systematically debased, ‘reuable’ wine bag could have many of American society.” This idea
stupid people easily out-breed implications. was developed as a joke by Kent

MACROECONOMIcs FX
State University art students Gerald financial system. “The public has lost ones pop up. Is this collapse really any
Casale and Bob Lewis as early as the all confidence in your ability to do the different? It is for those of us who have
late 1960s. Casale and Lewis created job,” said Rep. Kevin Brady, Republican grown accustomed to a relatively safe
a number of art pieces in a vein of of Texas. Mr. Geithner, in an unusual and certain life. An economic collapse
devolution satirically. At this time, public display of pique, fired back. that involves the collapse of the USD as
Casale had also performed with the “What I can’t take responsibility for is a world reserve currency will produce
local band 15-60-75. They met Mark the legacy of crises you’ve bequeathed this a lot of instability and uncertainty.
Mothersbaugh around 1970, who country,” he told Mr. Brady. Although What will that economic future
introduced them to the pamphlet several Democrats defended Mr. look like?
Jocko Homo Heavenbound, which Geithner at the hearing, some liberal “There is no new model” – no one
includes an illustration of a winged Democrats have been complaining that has a model now that works. In
devil labeled “D-EVOLUTION” and the Obama administration isn’t doing the traditional model-building,
would later inspire the song “Jocko enough to combat unemployment.... observers would monitor economic
Homo”. “Quite frankly, all the gambling on Wall data and build a model. In a new
Is modern society collapsing? Or are Street is doing nothing to put people world, data is limited and it’s
humans simply de-evolving? back to work in America and rebuild quality questionable, as the collapse
Evolutionary theorist Oliver Curry our economy,” said [Rep. Peter DeFazio will take decades to happen, and
of the London School of Economics (D., Ore.), who earlier this week urged in the process of collapsing it
expects: Geithner to resign]. will cause other events to happen
a genetic upper class and a dim-witted What does economic collapse really which would not otherwise have
underclass to emerge. The human race mean? Economies seem to be constantly happened, making the data not
would peak in the year 3000, he said collapsing throughout history, yet new pure. A traditional problem of
- before a decline due to dependence
on technology. People would become
choosier about their sexual partners,
causing humanity to divide into sub-
species, he added. The descendants of
the genetic upper class would be tall,
slim, healthy, attractive, intelligent,
and creative and a far cry from the
“underclass” humans who would have
evolved into dim-witted, ugly, squat
goblin-like creatures.
Economic Collapse
The Wall Street Journal gives some

color:
At the Joint Economic Committee, a
couple of House Republicans called for
the resignation of Mr. Geithner, who,
as president of the Federal Reserve Bank
of New York, played a major role in last
fall’s moves to prevent the collapse of the

FX MACROECONOMics
An economy is a measure of resources,

by some measures a metric by which
to analyze a civilization. At least,
it provides data points, whereas
culture is less precise (how do we
compare the value of Shakespeare
vs. Norman Mailer?)
Investors are losing money simply
by following the old model, and
not being willing to accept that
the world has changed. Interest
rate parity theory doesn’t work,
the Chicago school has collapsed,
GDP doesn’t have meaning like it
had when a currency can inflate and
deflate an economy by the press of
a button, while official statistics are
‘revised’ months after (meaning you
can never trust any release for face
economics (which many do not 2. Soil problems (erosion, value).
believe is a serious science) is that salinization, and soil fertility For the smart and informed, there
there is no control, no sugar pill. losses) is no doom and gloom. For those
In other words, there isn’t another 3. Water management problems willing and capable to adapt, this
Earth in a parallel universe that uses 4. Overhunting change presents many opportunities
state controlled planning vs. totally 5. Overfishing and exciting challenges. Fund
unregulated free markets. It’s not 6. Effects of introduced species on manager John Paulson made billions
fair to say that America’s decline is native species by realizing the credit bubble was
due to capitalism, just as it is unfair 7. Overpopulation a house of cards. Many success stories
to say Russia collapsed because of 8. Increased per-capita impact of abound, mostly relating to thinking
Communism as a system. It could people different, technology, the internet,
be, in both cases, a combination Further, he says four new factors and alternative investing.
of factors such as bad leadership, may contribute to the weakening
environmental factors (such as lack and collapse of present and future How does this pertain to Forex?
of resources), demographic changes, societies:
or bad luck. 1. Human-caused climate change Many ask for a ‘dumbed down’
In a book titled creatively “Collapse,” 2. Buildup of toxins in the explanation of what is Forex, what
author Jared M. Diamond points environment is a strategy. Finally, when you boil
to factors causing the collapse of 3. Energy shortages it down that it cannot be simplified
societies. 4. Full human utilization of the to a lower level, an automated Forex
Diamond lists eight factors which Earth’s photosynthetic capacity system is a ‘money making machine’.
have historically contributed to the Diamond also writes about cultural Of course if an investor was told
collapse of past societies: factors, such as the apparent we are selling a money making
1. Deforestation and habitat reluctance of the Greenland Norse machine they would either laugh,
destruction to eat fish. leave the meeting, or think we are
MACROECONOMIcs FX
bubble burst.
Unfortunately, this crisis will
teach many a lesson in finance the
hard way, and many are learning.
Every currency is backed by a central
bank, which is usually backed by a
country (with rare exceptions such
as the Vatican central bank ). A
country determines the rules and
modus operandi which its central
bank operates. Any central bank is
backed by its countries resources,
the sum of it’s economy.
Automated strategies are evolution
in its purest form. The financial
environment is similar to an
electronic testing ground, as it is
artificial.
All financial transactions end
up in the Forex markets, in some
sense Forex is a description of our
entire global society. Forex is the
Forex is a constant flux of changes and Matrix, described by Morpheus
reflects the events in the real world in the movie “The Matrix” – it
is a constant flux of changes and
reflects the events in the real
crazy. Money managers and those when banks collapse or the market world, as much as can be defined
in finance deal with this regularly: goes down, it’s the government, it’s and recorded. Seeing the decline
explaining the differences between corrupt executives, it’s never the or rise of society as a whole or
investing and gambling. It’s like investors fault. individual nations can be seen in
explaining the differences between Let’s imagine the scenario where the Forex markets, for example
reading Plato vs. The National the financial literacy in the world the recent rise in the Norwegian
Enquirer at the checkout stand. was tripled overnight, what Crone, related to Norway’s stable
It could be argued that the reason impact would that have on the banking system and comparatively
that bankers rule the world, and the crisis and the economy in general? stable economy.
reason for the crisis, and the reason Any bubble requires participants. The Euro has been presented as a
that more families are struggling to Obviously, without cheap and seemingly natural opposite of the
make ends meet, is largely due to available money, the real estate US Dollar – but this is inaccurate.
financial illiteracy. This is not to bubble and credit derivatives It is like the choices of Coke vs.
blame them, there are few places one bubble would have not existed, Pepsi, Democrat vs. Republican.
can obtain unbiased information or at least been mild. However we There is even talk that the Euro
about finance. So they think it’s like agreed to take the money, with no could collapse if the economic
gambling, like playing cards – and plan for any consequences if the situation deteriorates further, seen

FX MACROECONOMics
as early as 2006 . Holding Euros as spirit of care and concern, the Giving all human beings the right
a US Dollar alternative is not an more capable intelligent humans to life, liberty, property, and the
alternative at all. Europe is highly protect the less enlightened from pursuit of happiness doesn’t imply
connected to the US and the Euro creating a situation that could that any human is qualified to be
as a currency is very similar to the prove catastrophic for billions, and President or CEO of a bank.
US Dollar in that it is controlled endanger the survival of the
by bankers and backed by nothing human race? Conclusion
tangible. In Government, and in many
corporations, it is not easy to fireWe are entering a world that no
Negative Selection someone for various reasons. So longer follows rules of logic and
the easiest way a team can get rid order. Things that simply should
Jim Rogers recently stated in an of an incompetent and inefficient not happen are happening on a
interview “Money is regular basis. The
being taken from the 100-year storms are
competent and given happening every year.
to the incompetent.” Anomaly is the norm.
What happens to In our modern
a democracy when definition of the ‘new
participants are not dark age’ – many
capable of making cannot see the obvious
decisions for themselves? paradox defining our
Parents watch age: Hurry up and
children to protect wait. Save by buying
them from serious a second item and
hazard, a parent get 50% off. We need
will let his child to save the economy
explore the world in by bailing out the
the safety of their banks (who were
home, but even in responsible for the
the home danger exists crisis). Information
such as a hot stove, has never been
a filled bathtub, and historically more
household poisons accessible, yet literacy
such as Windex and education rates
could prove dangerous to a child manager is simple: you promote are declining.
that doesn’t know the difference them. Or else, in the famous movie Unlike the previous Dark Age,
between ‘fun experimenting’ ‘Office Space’ – you may face an we have abundant technolog y
and ‘creating a highly explosive angry Dilbert who finally burns and widespread communications
chemical mix’. down the building. systems (computers and the
A parent will allow a child to There is a big difference between internet) so we have a front row
make a mistake but not one that slavery and hiring an incompetent seat for the greatest movie ever
will injure him severely, such as manager to run the business. produced.
walking into traffic or playing with Human rights should not be
matches. Should not, in the same confused with effective leadership. Elite E-Services
FX options
Volatility Smiles and Black Swans
From our previous articles we know model for pricing but does this by inception at the strike. That is, the
that an essential parameter when varying the volatility parameter for volatility risk will have disappeared.
pricing options is the volatility. different options. The further we move away from the
The volatility is a measure of the The at-the-money strike, placed at-the-money point the higher the
price fluctuation around an average around the current spot level, probability that we have moved
trend movement. In this article we will usually trade with the lowest into a higher volatility regime and
will look at the effect of varying volatility parameter. This reflects the therefore the volatility is quoted
volatility and extreme events on the fact that if the spot price stays in the higher. Looking at the volatility as
pricing of options. vicinity of the at-the-money strike a function of the strike price, we
In our article about pricing we recall the volatility is low. Furthermore, get a curve resembling a smile, see
that the standard Figure 1, and as
option pricing consequence we
tool is the Black refer to this as the
Scholes model. volatility smile of
However, the a specific currency
model does not pair and tenor.
make a correct The smile is, of
assumption about course, different
the market as it for different
uses a constant currency pairs
volatility across and tenors. Some
time. As the smiles are evenly
recent credit distributed on
crisis has shown both the put and
this appears far the call side while
from true. The others are skewed
market switched to one side. A
between regimes skew indicates
of quiet action that the market
before the credit sees an increased
crisis to high likelihood of a
volatility seen in the credit crisis if the volatility should increase the stampede on that side of the at-
or even extreme moves in the case spot most likely will have moved, the-money strike. This could, for
of currency pegs being broken or resulting in the option having an example, be in a currency pair
sovereign default. These scenarios become far out-of-the-money and used for carry trading. A rise in
need to be priced into the options thus worthless or moved far in-the- the funding currency might force
across strike and maturity. The money resulting in the option price liquidation and a subsequent strong
market uses the Black Scholes being equal to a spot position with move with high volatility.
Options FX
To describe the smile the FX market one might consider going long the
has adopted the standard of quoting risk reversal. The deal will obviously
the strangle/butterfly and the risk make money if the EUR starts to rally.
reversal strategy at certain strikes However, the deal could also be made
compared to the at-the-money strike. profitable by the spot price going
The strikes used will usually be based nowhere, in which case the put leg
on the delta (the sensitivity of the would most likely start to fall in price,
option price to a move in the spot or the spot might fall at a slower rate
price). The most traded delta is the than the volatility suggested by the
25 delta. That is the strike where the put leg thus opening up for a gamma
out-of-the-money option has a delta of scalping strategy by delta hedging the
25%. The strangle, see Figure 2, deals further fall in the spot. The option
Figure 2 The figure shows the payoff
with two long positions on each wing function for the strangle (red) together strategy thus leaves more opportunities
and thus represent the average price with the payoff of the underlying com- for a profitable trade than the simple
at these wing points above the at-the- ponents a long put (blue) and a long spot position.
money level in volatility terms. (The call (green) position.
To describe the smile the FX market
option market referrers to each side has adopted the standard of quoting
wings. The risk reversal quote can be
of the at-the-money as wings. The the strangle/butterfly and the risk
seen as an expression of the skewness
put wing is where the puts are out- reversal strategy at certain strikes
of the smile, see Figure 1.
of-the-money. That is, the strikes are compared to the at-the-money strike.
An option trader can use the smile
below at-the-money. The call wing is The strikes used will usually be based
quotes both to understand the Market’s
the opposite side.) The strangle quote on the delta (the sensitivity of the
view on a specific currency pair and
can be seen as an expression of the option price to a move in the spot
to trade against it. The strangle deals
steepness of the smile, see Figure 1. price). The most traded delta is the
in particular with the volatility and is
The risk reversal, see Figure 3, is the 25 delta. That is the strike where the
non-directional. Therefore, it is best
combination of being long a call and out-of-the-money option has a delta
used as a gamma scalping strategy, as
short a put and thus represents the of 25%.
described in the previous article. That
difference in price between the two
is going long the strangle and delta
hedging in anticipation of a higher
volatility regime and getting a higher
leverage than simply trading the at-
the-money. Or one can short the
wings if the market is overpricing the
regime change risk. The risk reversal
on the other hand always becomes a
directional trade, giving the trader a
long gamma position on the one side
and a short one on the other side. For
example, one could be of the opinion
that the market is overdoing the
Figure 3 The figure shows the payoff
Figure 1 The figure shows an exam- downside risk in the EURUSD. For function for the risk reversal (red) to-
ple of a volatility smile and how the at- example at the writing of this article gether with the payoff of the under-
the-money, strangle and risk reversal there is a skew that favours a weaker lying components a short put (blue)
quotes interact. and a long call (green) position.
EUR stronger USD and therefore,
FX options
The strangle, see Figure 2, deals with long gamma position on the one side scalping strategy by delta hedging the
two long positions on each wing and and a short one on the other side. For further fall in the spot. The option
thus represent the average price at example, one could be of the opinion strategy thus leaves more opportunities
these wing points above the at-the- that the market is overdoing the for a profitable trade than the simple
money level in volatility terms. (The downside risk in the EURUSD. For spot position.
option market referrers to each side example at the writing of this article The price risk of changes in the volatility
of the at-the-money as wings. The put there is a skew that favours a weaker regime is captured by the quotes at
wing is where the puts are the delta points. However,
out-of-the-money. That is, as the delta describes the
the strikes are below at-the- possibility of the market
money. The call wing is the moving to a certain strike
opposite side.) The strangle in the Black Scholes world,
quote can be seen as an these are not good at
expression of the steepness describing extreme events.
of the smile, see Figure 1. The point here is that such
The risk reversal, see Figure events would either require
3, is the combination of a huge volatility to fit in
being long a call and short the Black Scholes world
a put and thus represents or they would simply have
the difference in price zero probability and thus
between the two wings. no value. Therefore, these
The risk reversal quote can options on Black Swans
be seen as an expression of will often be priced in pip
the skewness of the smile, terms, where each pip above
see Figure 1. An option zero can be interpreted as
trader can use the smile the market seeing a risk
quotes both to understand of the currency making
the Market’s view on a an extreme move to that
specific currency pair and particular strike. Shorting
to trade against it. The these options will probably
strangle deals in particular lead to nice little profit,
with the volatility and is most of the time. However
non-directional. Therefore, should push come to
it is best used as a gamma scalping EUR stronger USD and therefore, shove and the option becomes in-the-
strategy, as described in the previous one might consider going long the money the outcome will most likely
article. That is going long the strangle risk reversal. The deal will obviously be catastrophic, as the notion of a
and delta hedging in anticipation of make money if the EUR starts to rally. normal functioning market with good
a higher volatility regime and getting However, the deal could also be made liquidity is probably farfetched and
a higher leverage than simply trading profitable by the spot price going thus hedging opportunities would be
the at-the-money. Or one can short the nowhere, in which case the put leg small. Options of this calibre should
wings if the market is overpricing the would most likely start to fall in price, thus only be viewed as pure bets on
regime change risk. The risk reversal or the spot might fall at a slower rate extreme events.
on the other hand always becomes a than the volatility suggested by the
directional trade, giving the trader a put leg thus opening up for a gamma Steffen Gregersen

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FX SOCIAL NETWORKS
Dave Lemont
CEO of Currensee Inc.
New social network for currency traders
explains what are the objectives
and current developments at Currensee.com
INTERVIEW
Currensee.com, the first Forex trading social network which connects traders worldwide to share
real-time trades and strategies, was officially launched in October 2009.
Under the direction of CEO Dave Lemont, Currensee Inc. raised a total of $12 million in funding
which will help accelerating expansion in the UK, Europe, and Asia and pursuing the development
of Currensee Market Watch, a series of Social Indicators aimed at measuring the market sentiment
among the community members, which Dave describes as a new category of social data that can
compliment the technical and fundamental data that traders might already be using.
Currensee platform currently supports 100 brokers and connects FX traders from over 70 countries.
FXTM: What makes Currensee the trader network by aggregating Forex traders who told us that Forex
different from other Forex trading real-time data on the trades our trading can be isolated and lonely
social networks and online members are making and serving and it’s tough to know who to trust.
communities? that information back to the entire On a forum or chat room, it’s easy
DL: Currensee Inc. is the first network in the form of innovative to portray a picture of success that is
Forex trading social network that Currensee Social Indicators™. often false but it’s impossible to tell
connects traders from around the who’s being authentic and who’s not.
world based on real-time trades. FXTM: How was the idea born We built Currensee to be the first
We bring trust and transparency to create a “traders-only” real-time Forex trading social network where
to Forex trading collaboration by trading and sharing community? traders put their money where their
enabling members of our trader DL: Forex trading is plagued mouth is. In order to join, members
network to see each other’s actual by scammers who thrive off the create a Currensee account that links
trades in real-time, including anonymity of the Internet and the directly to their brokerage account.
trading strategies and performance, fact that they don’t have to back up This secure connection to a traders
to make more informed trade the claims they make about their brokerage account enables traders to
decisions. Currensee gives back to trading prowess. We talked to many see their own trades and positions as

SOCIAL NETWORKS FX
they happen and to share them with strategies from what other members through our trader network. As
their trading friends on Currensee in are doing. I am also using one of the the interest in Forex continues to
real-time. We are all about bringing signal products we offer through grow, so do the number of scammers
trust and transparency to the world Currensee called Spot Euro to help promising quick success and making
of Forex trading. me see the good opportunities to claims they can’t support. So just
trade and they give me the trade the way the TripAdvisor has brought
FXTM: You are well known for set-up, which has been a great way trust and transparency to the travel
your business performance, but how to learn. My best advice for Forex market, Currensee brings the same
about your trading performance? traders is to have patience. Believe trust and transparency to currency
Do you have time to trade? What me, it’s not easy and I want to learn trading by sharing real-time trade
are the lessons you learned from fast and be successful fast. But one of data on the trades our members are
trading? the most important lessons I have making with the entire network.
DL: I just started trading Forex. learned in business is patience. You Connecting traders based on live,
I trade pretty much every day – can’t build a successful company actual trades and positions is what
even if it’s only one position – but overnight and, even though there sets us apart from the scores of Forex
am by no means a savvy trader yet. are plenty of people out there telling forums and chat rooms where traders
S o c i a l trad ing is a ne w,
e f f e c tive way of trad ing Forex
It’s important for me to share the you different, you can’t become a
perspective of our traders and I successful trader overnight either.
use the platform every day and Luckily, I have the Currensee trader
experience what our traders do. I will network to help me as I learn to be
tell you that I’ve gained new respect a better Forex trader.
for the successful Forex traders
on Currensee. It takes discipline, FXTM: What is the main goal of
consistency and measurement to this initiative? You talk about trust
get good and to see the reward. and transparency. Do you believe
Many Forex traders think it’s a get there is a real need for transparency
rich quick scenario and my trades on the forex retail trading market
are living proof that it just doesn’t at the moment?
work that way! It’s easy to get too DL: Trust and transparency is at
aggressive to fast or hold a losing the core of what makes us different
trade too long. I’m getting better here at Currensee. We are the
at knowing where to place my stops trusted place where real traders
and, most importantly, when to get come to collaborate with each
out. I leverage my trading friends other, share, learn and improve
on Currensee and can see the trades their trading performance.
they are taking in real-time and can Transparency is crucial to the Forex Currensee Market Watch measures market
pick up some good trading ideas and trading market and we bring that sentiment among the community members

FX SOCIAL NETWORKS
can make unsubstantiated claims fundamental data that traders FXTM: Apart from the free
about their strategies and trading might already be using. These new benefits of getting connected
successes. We have zero tolerance real-time social insights create to other FX traders in real-
for get-rich-quick schemes and exciting new ways to analyze the time, sharing trading strategies,
that’s why we are providing market and the widget is one of positions and trades, and following
traders with a new way to the most popular and interesting Currensee social indicators,
collaborate and trade together. data points that we post about on what are the other advantages
our Twitter and Facebook account. and services that traders can get
FXTM: Currensee created We will also be launching another through Currensee?
an innovating series of Social widget in the next few months
Indicators to measure the market that will deliver social data DL: In Q4 of 2009, we
sentiment among the community related to market depth. introduced our innovative rewards
members. Can you explain what program, which provides rewards
they are, and how they can help FXTM: You’ve recently released points, called Currensee Bucks,
traders make better trading the Tweet My Trades feature, which to traders for participating in
decisions? allows traders to automatically the trader network. Currensee
publish their trades on Twitter. members receive Bucks for active
DL: Currensee Market Watch™ Another step towards trading participation in our platform
is the first- and additional
of-its-kind rewards for
S o c i a l We have zero tolerance for get-rich-quick schemes opening an
Indicator account with one
widget, which and that’s why we are providing traders with of our broker
provides our
traders real-
a new way to collaborate and trade together partners
currensee
with
as
time visibility the Introducing
into the amount of volume long transparency. Are traders ready to Broker (IB). We also announced
or short on each currency pair publish their trades and use this the Currensee Marketplace, the
along with detailed information feature? trusted source for Forex products
about the average entry prices and services. The Marketplace is
and real-time graphical feedback DL: Definitely. Twitter exclusively for members and they
regarding which side of the integration is actually something can use their Bucks to purchase
trade is winning or losing at that that our traders have been asking education-related goods and
moment for the entire network. for, and there has been a lot of services.
The volume data we are providing excitement around the launch We are planning to launch our Trade
is very hard to come by for Forex of this particular feature. We are Leaders program in Q2 of 2010. The
traders. We aggregate all of the the first to enable Forex traders Currensee Trade Leaders program is
trades the community is taking at to automatically tweet their real the first Forex social trade automation
that particular moment and deliver trades in real-time. This exciting service that allows trader to follow
the data back to the community new feature gives traders the ability the most successful Trade Leaders
through the Market Watch social to extend their trade collaboration in the Currensee platform. The
indicators. We have created a new beyond the Currensee platform, program enables successful Trade
category of social data that can furthering the idea of transparent Leaders to leverag e the growing
compliment the technical and social trading. Currensee trader network and be

SOCIAL NETWORKS FX
compensated for what they do best we can continue to offer our social were recently at the Traders Expo in
– trade – without the tedious effort of network as a free service for our New York and were excited to be the
recruiting customers, managing money traders. break-out financial services company
and reporting results. We are currently at the event. Traders wanted to hear
recruiting the top traders in the world FXTM: Since the official launch more about what we’re doing next
to be the first group of Trade Leaders of currensee.com in October 2009, and we had tremendous buzz at our
to be followed. Currensee members have made over booth.
500,000 trades. How fast is the
FXTM: What is Currensee’s network currently growing? FXTM: Have new traders actually
business model? Do you get revenues DL: We are on track to grow our improved their trading performance
mainly from value- over time? Is there a way
added services. If a you can measure the
trader opens a new efficiency of following
trading account, do expert traders or
you also act as IB? working in a group of
DL: Please keep in friends?
mind that the core DL: Our growth
Currensee platform numbers are a testament
is free to the traders to the fact that social
that join our social trading is a new,
trading network. The effective way of trading
Currensee business Forex. More than half
model is based on of our traders log in
a combination of every day and see value
subscription services in connecting with
for advanced social other traders to get new
analytics, revenue ideas and strategies.
from IB relationships We have hundreds of
with Forex brokers We built Currensee to be the first Forex strategies set-up by
and transaction fees traders on Currensee.
from the Currensee trading social network where traders Our traders use the
Marketplace,
which provides
put their money where their mouth is strategies feature to set a
strategy and measure its
additional revenue performance over time.
opportunities Another new way we’re
for partners and a variety of new network of active Forex traders to helping traders is through our new
products and features for traders. over 10,000 traders by year-end Trade Leaders program, which is the
Our new Trade Leader program will and look forward to realizing over first Forex social trade automation
create a new revenue stream through 3 million trades on our platform. service that allows trader to follow
the automated trading feature. Our Our growth has been exponential the most successful Trade Leaders in
goal is to offer differentiated services since our public launch this past the Currensee platform.
to our traders and provide valuable October. Traders are telling other FXTM: Members are joining
trading products and features. Our traders about us and we continue from all over the world. Are they
revenue streams are important so to get great press and coverage. We creating groups by country of

FX SOCIAL NETWORKS
origin, exchanging ideas in their invite experienced and successful features coming this year. We’ll be
own language? Forex traders to become Trade supporting additional brokers, which
DL: We have found that traders Leaders. What will be their role in is important to growing the trader
look for other like-minded traders, Currensee and what are the benefits network. Our proprietary market
regardless of their place of origin for them? depth social data widget will launch
– this is one of the most fascinating DL: By becoming Currensee Trade soon along with a groups feature.
aspects of building a social network Leaders, experienced Forex traders We are also working on a social
that facilitates such cross-country and can be followed by traders from the charting package that will launch
cross-continent connections. Right Currensee trader network. The Trade later on this year, providing live-
now over 70 countries are represented Leader program is a great fit for traders chart collaboration and sharing of
and, though the majority of the who are confident in their success, and team member trades and community
conversations are in English, some looking for a way to be compensated sentiment in real time. We release
traders are using the chat feature in for trading successfully without new features very frequently and use
their local languages the feedback we get from
Soon, we’ll be our community to help
launching a groups You can’t build a successful company us decide the priorities
feature and I can
see members from
overnight and you can’t become of what comes first. We
pride ourselves on the
particular countries a successful trader overnight either innovative technology
or who trade certain we deliver and look
sessions forming forward to an exciting
groups to collaborate. all of the administrative headaches. year of new, value-added features
for our members and for the Forex
FXTM: How do you value the FXTM: How do you select Trade market.
capacity to offer training and Leaders?
coaching services in various DL: We are looking for Forex traders FXTM: Currensee is a registered
languages. Is it part of your business with a minimum of one year 10% member of the NFA. What is your
strategy? per annum ROI in a Forex account. personal view on the stricter industry
DL: The language question is one Once a trader’s account is linked to regulations and the way the FX retail
we discuss quite often. Because their Currensee account, we require business will evolve in the near future?
our traders come from virtually that they need 90 days of net positive DL: Careful regulation can
every country in the world, we are performance tracked in the account. be important to build a business
constantly assessing the languages We carefully review the Trade environment that is safe for traders.
we’d need to support. As we move Leaders both from a performance and However, we feel that some of the
into other countries like China and compliance perspective and, based latest proposed regulation by the CFTC
Japan we will need to provide a way on their results, we accept successful goes overboard and can result in driving
for these traders to communicate reliable traders to be Trade Leaders. US Forex business offshore. In particular
with each other in their native the proposals to reduce leverage to 10:1
language. It’s on our roadmap and we FXTM: What are the next features and asking IBs to be guaranteed by only
know it’s important to our growth or improvements that FX traders can FCM are recommendations we are
and to offering products and services expect to find on Currensee in the vehemently opposing and we are hoping
that new markets will find valuable. near future? that the CFTC will consider other
DL: In addition to the Trade solutions to the concerns they have.
FXTM: You recently started to Leaders program, we have some great

FX LATAM CURRENCIES
Lat Am Currencies
and the Dollar
Forex update
2010 opens with a dose of risk aversion
accompanied by cautious optimism
USD strengthens
The roller coaster ride that was 2009 continued with an tactics perhaps being to wait on the sidelines for clarity.
emphasis on further downward momentum for currencies Interestingly, the Dollar had been strengthening mostly
in the first 2 months of 2010 as we go to print, with the on risk-aversion before the rate rise but since then
USD reaching some of its best levels for several months attention has gradually turned towards generally better-
against major and emerging markets. than-expected US data in other instances, for example
Based on observations and price action, our analysis with employment deterioration showing signs of a modest
indicates thematic overtones such as liquidity, behavioral slowing, evidenced by upward revisions to Non-farm
unpredictability of the ‘human element’ and over-reaction Payrolls & the backing-off to 9.7% unemployment, away
to basic fundamentals are likely to keep FX market from the dreaded double-digits.
participants firmly entrenched and involved in what could The Euro in particular rode some choppy seas during
be another dynamic yet unpredictable year ahead. this two-month time frame leaving many participants
January & February saw continued unwinding of USD wondering how it could have fallen so relatively
weakness as many currencies came under selling pressure,
notably the EUR itself as the Greek & associated “PIIGS”
dramas unfolded, resulting in an additional and somewhat
unexpected bout of USD strength against most currencies,
given a further boost towards the end of February as
the Federal Reserve raised its discount rate by 0.25% to
0.75%.
We were a little surprised at the market’s reaction to
buy USD on the back of this move, after all it had been
telegraphed in the previous day’s FOMC minutes. That
said, we respect the price action and realise that such
momentum cannot easily be resisted without deep pockets
or patience, preferably both if resisting, with the best

LATAM CURRENCIES FX
precipitously; from 1.50 in December to 1.35 in February, should the trade become crowded, as it seemed to be the
around 10 percent in just under two months and quite a case with long EUR positions.
significant move given unchanged commercial interest As many readers are aware, traditionally in FX the markets
rates in both regions. Ironically, the Eurozone still enjoys love to hate the Dollar and quite simply it seems that in
an interest rate advantage over the US of around 1 typical FX-style, the speculative positions did in fact
percent. become crowded into the end of 2009 from a short Dollar
With the severity and brevity of the EUR’s collapse, perspective, resulting in a global currency sell-off.
we think the 1.3400 region should provide support, Naturally this phenomenon of Dollar strength may yet
although market rumours are rife that hedge funds are prove to be an excessive correction in itself as time goes
in collaboration to force the rate much lower due to the by, as questions continue to arise over the fiscal position
ongoing issues with debt and deficits, as was the case with of the United States - newswires from the recent Davos
hedge funds and the British Pound in the early 1990s. summit report that President Obama renewed the pledge
Time will tell. to make job creation his number one priority in 2010, but
that it was also critical to rein in a record budget deficit
Irrational movements in LatAm FX markets that threatened economic recovery. Bottom-line, the
USD is still potentially under threat and therefore may
Although this article is primarily focused on LatAm, we quickly revert to being perceived as relatively overvalued,
wanted to illustrate at least until such time
how a move in a as policy decisions
major currency become vindicated
such as the EUR by a return to higher
illustrates perfectly employment rates,
how extreme levels meantime the positive
of sentiment & $ move in December
positioning can through February
dictate play over and may eventuate as
above fundamentals corrective in nature.
when it comes to Much like the
Forex, which further currencies of Europe
serves to explain and the Anglo-Saxon
some of the more regions in December
irrational movements through February,
in LatAm FX markets Latin American
- irrational because currencies also gave
those economies themselves have witnessed relative up many of their recent gains, despite what could arguably
stability and structural improvements over the last few be described as unchanged governing fundamentals, with
years, yet still seem to be punished habitually when things the exception of Argentina whose currency, equity markets
in the more established markets go awry. and bonds all fell amidst market perceptions of discord
One of the reasons why LatAm currencies have recently between its Central Bankers, resulting in the resignation
shown such strength is related to market perception and of Central Bank chief Redrado at the end of January. In a
an increasingly common view that the USD with zero “flight-to-quality” situation, ARS-denominated bonds fell,
interest rates enables the $ to become the carry trade with yields rising to some 7.5% percentage points over US
currency, although we remain mindful that this vehicle is Treasury bonds, quite a gap.
not always the best means with which to express a view, From the standpoint of unchanged fundamentals though,

FX LATAM CURRENCIES
behavioral unpredictability
comes into focus in such
instances because markets are
reacting somewhat counter-
intuitively to news and
economic events. As a portfolio
manager, this particular facet of
trading remains one of the most
challenging, both during analysis
& research but particularly when
making allocation decisions.
Consequently we find that
retaining a focus on macro
or “top-down” issues is best,
rather than micro or “bottom-
up”. We feel this is relevant as
this approach in the long run
allows positions to be held albeit
with a smaller allocation, but
Henrique Meirelles
importantly reducing negative
returns, thus often being able to carry-trade and if it were not for the perceived risk in
ride out the downward fluctuations of the market for the LatAm markets we remain convinced that the BRL would
most part until profit-targets are reached. be trading much more forcefully than its current 1.78,
Credit markets were a main driver of pricing and liquidity therefore we still look for a potential move to the low
in 2009 and recent reports of announcements (again from 1.50s, especially given the budget deficits being run by
the Davos summit) by the Brazilian Central Bank chief more established economies.
Henrique Meirelles are indicative of Brazil’s economic We have focused more on Brazil specifically this month
conditions being perceived by officials as returning to not only because the Argentinean situation is still in
normal. Of course if this is true we can expect some phasing process of resolution but also as it is the region’s biggest
out of tax cuts/breaks that were originally implemented economy and because the Real had also suffered one of the
to stave off recessionary forces as the crisis hit last year. most significant downturns earlier in 2010.
Naturally such measures could be further tweaked by These recent news reports underscore our belief & reasons
reserve tightening in the region that would serve to increase for remaining bullish on LatAm and if the BRL is about
interest rates, much as China did in January 2010, causing to resume its upward trend against the Greenback it’s
Yuan strength. Brazil’s official interest rates at 8.75% almost a sure bet that whatever happens in Brazil will
are remarkably higher than the zero interest rates of the have a significant and similar impact on Argentina, Chile
US and the UK, yet remain at record lows domestically & Mexico, the other major traded currencies.
speaking. This has helped the BRL recover almost all of Aside from Brazil’s potential measures in the future,
its losses from December, trading back at 1.78 from 1.72 Chile’s supervisory authorities announced changes to its
and much stronger than the flirtation with the 1.90 level pension fund hedging rules at the end of January that
seen in February. effectively allow the very large players in the market to buy
Backed by Brazil’s budget surplus of around 65bio BRL in back currency hedges which immediately resulted in some
2009 (1.25% of GDP) this situation is almost a textbook downward pressure on the CLP to around 550, some 10

LATAM CURRENCIES FX
percent below its best levels in December 2009. that all this good news could be a false dawn for
Once the 90-day adjustment period comes to be the USD given the extremity of the situation in
recognized by the market ( previously 10 days) 2009 and the likelihood that the market’s focus will
we would expect again turn to its
some smoothing preferred approach
to occur, pushing of USD bearishness
the CLP stronger in the short-term,
once again and underscored by
notwithstanding the probability
the effects of the of continued
earthquakes in reser ve asset
late Februar y that diversification and
tragically saw over just what the future
two million people may hold in terms
affected-our of the ultimate
thoughts go out to effects of today’s
the many families quantitative easing
and communities programmes.
that have been devastated by this terrible natural Plenty of food for thought and as always FX
disaster. remains a two -way street, providing room for
So to reiterate our macro perspective and opposing views yet also opportunities ever y day
particularly with the diametrically opposing to produce profits no matter which side of the
initial viewpoints emanating from Davos when respective arg ument one takes.
comparing the US with Brazil, our projections for Good luck.
a more bullish currency environment for LatAm
remain intact. Future projections for LatAm currencies and the
In conclusion we foresee a bearish USD outlook USD.
with rising LatAm currencies over the next few
months, at least until the Fed raises US interest ARS (Argentinean Peso) - last 12 months trading range 3.44 / 3.90
rates which we believe will occur sometime late in Forecast average
H2 2010 leaving some room for USD appreciation, Current Q2 2010 Q3 2010 Q4 2010
although we do feel that the market will have 3.86 3.6 3.5 3.4
anticipated any such move by the Fed and any
USD topside will be short-lived, buy the rumour/ BRL (Brazilian Real) - last 12 months trading range 1.69 / 2.45
sell the fact. Even at that point LatAm currencies Forecast average
may ultimately continue further appreciation due Current Q2 2010 Q3 2010 Q4 2010
to growing demand from its Northern neighbors 1.78 1.64 1.54 1.54
for commodities and trade-related purposes.
In summar y, the first two months of 2010 may MXN (Mexican Peso) - last 12 months trading range 12.48 / 15.58
have given us a taste then of things to come with Forecast average
a resumption to financial normality in the US Current Q2 2010 Q3 2010 Q4 2010
and rising global equity markets and therefore the 12.72 11.9 11.6 10.8
whole financial system being back on track
That said we also think that a latent risk remains Kevin Sollitt

FX FX MANAGERS
Ugo Lancioni
manager of the Diversified Currency Fund and of the Currency
Overlay assets at Neuberger Berman
explains what it takes to be a good investor and the importance
of a strategy based on a diversified approach and macro
economic fundamentals
Interview by JW Partners for FX Trader Magazine INTERVIEW
Manager Ugo Lancioni

Strategy Diversified Currency Strategy
Location London / NY
Diversified Currency Fund: 28 Mln Usd
Assets Under Management Active Currency Overlay Management: 410 Mln Usd
Passive Currency Overlay Management:727 Mln Usd
Type Discretionary
Style Fundamental
Instruments FX Spot/Fwd/options
Currencies G10 & Selective EM
JW: How long have you traded JW: What do you particularly like trading other financial instruments?
foreign exchange and what first about your job? UL: Currency trading is continuous.
attracted you to this industry? Tell us UL: The challenge. The currency Except for weekends, the markets
about your career evolution. market is exciting. It is a market full of are always open and currencies never
UL: I started my career at JP opportunities and, of course, risks. Any stop moving. Currency volume worth
Morgan as an assistant trader in the new story can have a direct or indirect several trillion US Dollars go through
rates and FX department in 1996. I impact on currencies and every time the over-the-counter market every day,
worked as trader and market maker in there is new information you need to traded against the USD, the EUR or in
FX forwards and rates before moving quantify its effect on exchange rates. different currency crosses. The massive
to JP Morgan Asset Management People always have different views trading volumes executed both by
(“JPMAM”), which at the time was a and interpretations, which leads to currency professionals and a variety of
pioneer in currency management. At volatility. You have to work constantly market participants make this market
JPMAM I performed a numbers of to evaluate new information and the most liquid in the world.
roles ranging from trading to currency reassess its potential FX impact before
strategist and portfolio manager. In the opportunity disappears. JW: When was Neuberger Berman
2007 I left JPMAM to develop the born?
currency capabilities at Neuberger JW: Is FX a unique market? In what UL: Neuberger Berman was
Berman. trading currencies is different from established in 1939 in the US to

FX MANAGERS FX
manage money for individuals and (FSA). We have a number of key policies implement a truly diversified portfolio.
families. The firm thrived and grew, and procedures that all employees must We also have multiple time horizons to
earning a reputation for excellent follow. capture dynamics in the short, medium
performance and integrity. Today, our We take regulatory requirements and long term, implemented using
capabilities include traditional equity, and operational risk very seriously. As a different trading strategies to translate
fixed income and alternative strategies, result, the currency team has developed relative value opportunities into
in addition to portfolio advice and a highly automated and efficient process currency positions in portfolios.
wealth planning services. to ensure that trades comply with limits
and restrictions. Prior to trade execution, JW: How and when did you develop
JW: How is the company structured portfolio holdings changes are filtered your current FX management strategy?
today in terms of headcount and offices/ through a pre-trade compliance module UL: Our investment process today
geographic distribution? in order to ensure that the portfolio is the result of our trading and risk
UL: The firm currently employs managers comply with the guidelines. management experience. You simply
over 1,600. Our global headquarters The compliance rules are maintained get wiser over the years as you learn
are located in New York, with and monitored independently from the from good or bad experiences. During
regional headquarters in London portfolio management team. my career, I gradually came to the
and Tokyo. Investment Management conclusion that in order to be able to
representatives are located in London, JW: You are in charge of the currency add value consistently you need to get
New York, Chicago, Tokyo, Hong program. How would you describe your organized and follow a disciplined
Kong, Melbourne and Singapore. investment strategy? approach. In my opinion, there is
UL: Our Diversified Currency no single currency strategy that can
JW: What are the key positions in an Strategy is based on a fundamentally consistently deliver attractive risk-
FX Management company? driven, relative value investment adjusted returns. Investors tend to
UL: Portfolio managers and traders approach. The strategy is discretionary focus on different dynamics over time
are obviously the people responsible in nature but we make extensive use of and the market environment changes
for generating the returns and quantitative indicators and tools in order continuously. Unfortunately, there is
implementing portfolio strategies, to maintain discipline and consistency no magic formula. You need to employ
but there are also a number of key in the investment process over time. a diversified approach and follow the
control functions. At Neuberger We continually improve and enhance macro economic fundamentals which
Berman, we have independent Risk and our framework of indicators, used as ultimately define currency equilibrium
Compliance groups that oversee the the basis for the analysis; however, the levels.
clients’ portfolios independently of qualitative judgment remains the key
the investment team. element of our process. This discretion JW: Risk, an exciting yet dangerous
enables us to take into account word. How do you manage risk it?
JW: Which authority regulates information and events that cannot UL: In my view, in order to be a good
Neuberger Berman? Do you keep be easily quantified. Diversification is investor you need to be a good risk
and update procedure manuals and central to our investment philosophy manager first. Before implementing any
compliance and risk management and it is achieved at various levels trade we always ask ourselves a number
policy? How time consuming, and within the portfolio. Our fundamental of questions: How much are we
how important, is it to comply with approach analyses a large number of prepared to lose if we are wrong? What
regulation requirements on one side, variables and factors or drivers; we do could be the P&L impact in the worse
and internal procedures on the other? not simply rely on a limited number case scenario? What impact would the
UL: The company is regulated by of factors such as carry or momentum, new trade have in the portfolio?
the UK Financial Services Authority meaning that ultimately we are able to We normally perform simulation

FX FX MANAGERS
analysis and stress tests in order to assess team produces separate risk analyses fact. When you don’t fully understand
the potential impact on portfolio risk for each currency on an isolated and what is behind a move, it’s better to wait
before implementing changes; portfolio contributory level providing robust and trade when the picture becomes
managers use a variety of tools to overall control. clearer.
monitor risk and to ensure that the level
of risk falls within the limits defined JW: Could you give an example of JW: Do you use a blend of strategies
by the guidelines of every currency a trade you did in the past but would for diversification or one only?
portfolio. For example, at a portfolio never repeat today, and what did you UL: Diversification is at the centre
level we monitor risk measures such as learn from it? of our portfolio construction process
Value at Risk (VaR) and tracking error, UL: In certain cases, you may be so we aim to build portfolios that
which we control on a daily basis. tempted to buy a currency because it has are diversified on a number of levels:
Additionally, at Neuberger Berman fallen in value; the currency may look by fundamental factor or drivers
the risk control function does not cheap and the trade appear attractive. incorporated in our analysis, by time
report to the business and therefore the Over the years, I have learned that even horizon (short, medium and long term
independent Risk Management team if sometimes the market seems to act inputs) and by trading strategies that
generates additional extensive daily irrationally, it should be respected as are used to implement our views
risk reports, which cover and monitor there is always a good reason behind This diversification allows us to
size limits, tracking error and VaR (1- a certain price action, and often that construct portfolios that are not reliant
day, 5-day and 1-month figures). The reason becomes evident only after the on a single idea or theme and are not

FX MANAGERS FX
unduly exposed to a small number (or JW: Do you also use less mature also recommend considering other
single) dominant risk factor. We believe currencies? Or do the relative lack of factors: we prefer trading in currency
that this diversified approach enables us liquidity and wider dealing spreads markets that offer transparency,
to generate more consistent returns for outweigh any potential gains from being limited political interference and
our clients over the long term. able to capture more inefficiencies? reliable macroeconomic data. Our
UL: In order to be able to offer fundamental analysis is also based on
JW: How has your performance been daily liquidity to our clients, we take historical data and, for this reason,
over time? currency exposures mainly in the G10 we prefer countries that have good
UL: Since we implemented the currencies. Even if the majority of the quality data over several economic
Diversified Currency Strategy, it has portfolio risk is normally taken in G10 cycles.
produced an annualized rate of excess currencies, our investment universe
return of 3.35% with an annualized also includes the most liquid emerging JW: How much time do you
volatility of 5.87%. Due to the market currencies. When you move allocate to research and development
diversified nature of the strategy and to the less liquid end of the spectrum, of existing or new trading strategies?
the low correlation to other asset classes, you often find attractive investment UL: We are always working to
our performance was not negatively opportunities but also more variable improve our investment process and
impacted by the market crash in late market conditions. The liquidity you we have ongoing projects to develop
2008. We have designed the investment see today may not necessarily be there additional strategies and analysis in
process in a way that the strategy should tomorrow and this is a factor we take order to further diversify our portfolio
perform across all market conditions. into account before implementing any construction process.
strategy.
JW: Can you give us an example of JW: Do you believe in ever-valid
one of your winning decisions? JW: Do you think some of the less rules, or every strategy loses its accuracy
UL: During the second half of 2008, mature currency pairs are viable for sooner or later? Have you ever found
we avoided most of the unwinding individual traders, who don’t have to strategies that come back into phase
of the popular carry trade as we felt worry so much about huge liquidity? after a long time in negative?
uncomfortable with running positions Would you suggest to trade them? UL: Some technical strategies
in currencies which were heavily UL: I would suggest trading them, but might lose their accuracy as trading
overvalued from a long-term perspective. in addition to good liquidity I would patterns can change over time. As for
fundamental strategies, the currency
markets are constantly shifting focus
from one driver to another. Hence,
there are no strategies that consistently
make positive returns. Every strategy
will have its period of bad performance
as markets might be paying attention
to other dynamics. However, with
the constantly shifting focus, previous
losers can become winners. One great
example is the long-term valuation
strategy (PPP) which was generally
not performing from 2004 to 2007
but then took off as the carry strategy
went out of favour among investors.

FX FX MANAGERS
JW: Do you agree that one way to in our strategies. These timeframes JW: What are your average and
react to the ever-changing market is to obviously have different trade maximum leverage used?
adjust parameters? Do you already use durations. The shorter the timeframe, UL: Our strategy is implemented on
changing parameters based on volatility the shorter the trade duration. Some a variety of accounts at different levels
measures or filters? trades are tactical and might only be of risk. The Diversified Currency Fund,
UL: When constructing investment in portfolios for a few days, whereas a UCITS III fund has an expected
strategies or investment processes, we other trades reflect longer-term macro volatility of about 7% p.a. and is allowed
always use fundamental and sound economic views and can be in place for to use leverage up to a maximum of 150%
assumptions for parameters. We do not months. We usually adjust portfolios per currency. There is however a Value at
believe in optimizing parameters as that once per day but when a significant Risk limit which is an appropriate way
can lead to data mining. Our idea is that amount of new information becomes of controlling overall exposure. In any
over the long run, a good strategy with available we may review the portfolio case, we normally do not use leverage
fundamentally determined parameters more frequently in order to assess the (i.e. normally no position exceeds 100%)
should produce positive returns. With impact of the new data. even though the Fund’s prospectus
that said, measures based on volatility allows for it.
and expected returns constantly re- JW: What should an inexperienced
parameterize but that is an automatically trader watch when choosing the time JW: How many execution brokers do
dynamic process. frame to trade on? you use? How do you split execution
UL: Time horizons, size of the between electronic and phone orders?
JW: Do you favour any particular trade and expected volatility are UL: The currency team has the ability to
time frames in your strategies, or do you all interconnected. Traders should execute with most of Neuberger Berman’s
diversify across a range of them? What carefully define the time horizon and approved counterparties, always major
is your average trade duration, and how the sizing of the trades, taking into banks. However, in order to minimize
high is the trading frequency? account the expected volatility, their transaction cost, a fewer number of
UL: We tend to use several time frames price targets and their stop-loss levels. “top” counterparties are usually used. We

FX MANAGERS FX
under management grow, this could

become a concern. We estimate that
we can grow the product up to several
billion USD without incurring any
major efficiency issues.
JW: What is the biggest strength of

your team?
UL: The primary advantage of our
team is that it is small and flexible
and, thus, capable of taking efficient
decisions and reacting to market
movements. While decisions are
made by a small group of investment
professionals, the team is supported by
the wider fixed income and alternatives
businesses and benefits from research
and information sharing.
JW: How do you see the EurUsd

evolving over the next 6/12 months?
UL: The sharp Euro depreciation
seen in January and February can,
without any doubt, be associated
with the concerns around the debt
in peripheral Europe. The market is
estimate that we execute about 90% of JW: Which tools do you use in now very short and the bad news is
all trades electronically and 10% of all the strategy development process? A probably in the price. We see the Euro
activity over the phone. generic trading/strategy development higher in the short term but in the
platform, or specific statistical/ absence of significant improvement on
JW: What historical data do you use quantitative tools as well? Proprietary the macroeconomic front we expect
when developing your strategies? How or third party software? Euro weakness to persist in the long
important is that ? UL: We have developed a framework run.
UL: Reliable historical of tools that enables us to analyse and
macroeconomic data and market data standardise a large amount of data. JW: What’s the best advice you’d give
is crucial for our analysis. New and to an individual trader and to a semi-
historical data is gathered on a daily JW: How does liquidity impact the professional traders who want to enter
basis using a framework of quantitative efficiency of your strategies? Have the FX fund management industry?
tools. This enables the portfolio you already explored to what AUM UL: Individual traders often have
management team to incorporate limit the strategies would allow you gut feeling and good trading ideas but
a large quantity of data into their to grow to? in my view, on top of that, you also
investment decision-making process. UL: Liquidity is not a major need to work hard on three key areas:
Data is gathered across fundamental concern for the efficiency of the investment process, discipline and
factors for short, medium and long- strategy since we mainly take views risk management.
term time horizons. in the G10 space. However, as assets

FX MARKET WATCH
THE PRIVATE
BANKER’S ANALYSIS
The macroeconomic scenario BRIC countries could represent processes states that the more
continues to highlight significant a possible concern for the world capital-intensive industries ought
differences between geographic economy. There is also a rather to reduce their structural capacity
areas. high degree of uncertainty in countries with high labor costs
In the emerging markets the surrounding the United States and increase it throughout the
economic growth rates seem and especially the Eurozone. emerging markets.
increasingly Hence, this is
tied to internal not a process
dynamics rather of net job
than to exports. destruction but,
Even though just a way to re-
many economists allocate jobs to
c o n s i d e r economic areas
emerging market where costs are
economies’ impact lower and/or tax
on the world rates are more
GDP marginally favourable.
significant, they However, such
may well act as a a potentially-
substitute force a d v e r s e
for the stagnant effect on the
growth of some industrialised
industrialized economies could
countries. be balanced
Thanks to the by the higher
growth in the profit margins
emerging markets, of multinational
the world economic outlook The US seems to be bound to deal companies, and will lead to
remains still positive. with a stagnant housing market greater investment and business
For the time being, unexpected and a high unemployment rate. diversification.
and adverse events for one of the The concept behind delocalization Europe has indeed missed a great

MARKET WATCH FX
opportunity to even out tensions

and speculative pressures on
Greece and the weakest countries
of the Eurozone.
This is an understanding that
mirrors “fogg y” agreements
such as bilateral loans and a
possible IMF intervention and
emphasizes a structural inability
to set national interests aside in
favour of a more coordinated
fiscal policy.
The recent crises have also
stressed the shortcomings of the
Maastricht Treaty as it does not
address the possibility of default
by a Member State and most
importantly, it does not outline
any intervention process. concrete. quarters.
A system of bilateral loans based From a rational point of view, Meanwhile the money market is
on market rates might therefore we may arguably expect the not particularly appealing ... and
remain an idea rather than become consolidation phase to last untill the same goes for corporate bonds.
an operative fix in case of need. Autumn 2010 and then give way Spreads have narrowed, hence
On the contrary, a European to a new bull market. However, moving towards government debt
Monetary Fund could be the right it is known that the market might be deemed appropriate. Yet,
step to develop effective monetary rarely meets the expectations… in a recovery scenario the low-
and fiscal policies within the As far as interest rates are rating securities tend to become
Eurozone. concerned, at present fixed income more valuable both in terms of
Investing in such a scenario is securities - in particular those coupon and spread.
rather challenging. positioned on the high-duration Finally, let us discuss the prospects
Given the very low interest rates, segment of the curve - should be of commodities – an asset class that
equities are still the favourite considered primarily as a hedge has been performing rather poorly
component of the portfolio. In against adverse fluctuations of the in the early 2010.
particular if sector multiples equity component. Most commodities have not been
remain rather low and the profit US longest-maturity securities able to take off due to the lack of
margins increase. are already discounting a rise in a catalyst. For some (agriculturals,
For the time being it is hard to inflation. The same goes for the natural gas) supply exceeds
forecast a unidirectional uptrend, German Bunds which discount a demand. As soon as the markets
since many macroeconomic prolonged economic stagnation gain more confidence in the
variables are still hard to interpret/ in the Eurozone. recovery, the commodities will be
show contrasting signals. Yet, the An economic recovery is indeed a headed towards new highs.
chance that the main stock market threat for fixed income securities
indexes will close higher is rather but it might well take several more Nicolò Nunziata

FX TECHNICAL ANALYSIS
Technical outlook
MAJOR TRENDS AND TARGETS FOR THE MAJOR FX RATES
Current level Major trend Major target Trend change level

EUR/USD 1.3900 Down 1.3093 & 1.2888 1.4194
USD/JPY 90.50 Sideways 87.36 / 93.75
USD/CHF 1.0725 Sideways 1.0375 / 1.1021
GBP/USD 1.5150 Down 1.4400 & 1.3659 1.6276
USD/CAD 1.0250 Down 1.0005 & .9547 1.0780
AUD/USD .9100 Up .9680 & .9847 .8579
NZD/USD .7000 Up .7633 & .7937 .6593
EUR/JPY 123.50 Down 118.47 & 112.08 131.30
EUR/CHF 1.4625 Down 1.4402 & 1.4322 1.4901
EUR/GBP .9020 Sideways .8658 / .9154
EUR/NOK 8.0300 Down 7.6256 & 7.5438 8.2627
EUR/SEK 9.6900 Down 9.4825 & 9.3360 10.2880
MAJOR TRENDS AND TARGETS FOR FX EMERGING MARKETS
Current level Major trend Major target Trend change level

EUR/CZK 25.650 Down 25.370 & 24.971 26.330
EUR/HUF 266.50 Down 262.89 & 249.11 275.14
EUR/PLN 3.8750 Down 3.7792 & 3.6094 4.0367
EUR/RON 4.0950 Down 4.0149 & 3.9111 4.1548
USD/ILS 3.7650 Sideways 3.6852 / 3.8424
USD/RUR 29.750 Sideways 29.283 / 30.896
USD/TRL 1.5325 Up 1.5857 & 1.6312 1.5035
USD/ZAR 7.4000 Sideways 7.2292 / 7.8901
Data: 8th March 2010

TECHNICAL ANALYSIS FX
EUR/czk
EUR/CZK retraced just under 50% of day (1 year) moving averages ( in red,
the 9 year 38.705 to 22.925 decline green & blue) becoming bearishly
(March 1999 to Ju ly 2008), reach ing aligned and falling. Furthermore,
a recover y peak at 29.671 in Februar y weakness has been confirmed by
2009. A steady retreat followed, this MACD which is breaking down from
eventually bottomed at 24.971 in a narrowing band. A move towards
September 2009, between the 61.8% the November 2009 hig her low at
& 76.4% retracements of the previous 2 5 . 3 7 0 i s u n d e r w a y. This offers
22.925 to 29.671 rise. Attempts to next key support, an eventual break
move higher from 24.971 were capped of which will increase the likelihood
at 26.614 in October 2009, just under of an eventual breakdown through
the 38.2% retracement of the 29.671 the September 2009 low at 24.971 to
to 24.971 decline, and failed to see a head in the direction of the October
lasting break back over the (blue) 260 2 0 0 8 h i g h e r l o w a t 2 3 . 7 1 1 . To a v e r t
day (1 year) moving average. Since then, a medium-term bearish outlook, we
a succession of slightly lower highs will need to see a recovery first gain
has emerged and the recent breakdown a foothold over the (blue) 260 day (1
t h r o u g h J a n u a r y ’s 2 5 . 7 7 4 h i g h e r l o w year) moving average and then pierce
has been accompanied by the 22 day the line of lower tops from 26.614 to
(1 month), 65 day (3 month) and 260 26.330.

FX TECHNICAL ANALYSIS
NZD/JPY
NZD/JPY recorded an all-time traded hig h averages (in red and green) combined with
at 9 7 . 7 8 in Ju l y 2 0 0 7 a n d th en s e ttl e d in a weakening MACD indicator add to fears
a downtrend which eventually bottomed t h a t 6 9 . 7 0 / 6 8 . 6 6 m a r k s a d o u b l e t o p . We
out at 44.27 in Febr uar y 2009, a l ittle see the risk of a breakdown throug h the
over 5% above the all-time traded low 59.90 / 60.51 lows over coming weeks to
of 41.97 from October 2000. A choppy trig g er a bearish phase which is likely to
recover y phase, lasting 8 months, topped se e a de ep er retracement of the Febr uar y-
out at 69.70 in October 2009, this being O c t o b e r 2 0 0 9 4 4 . 2 7 - 6 9 . 7 0 r e c o v e r y.
just under the 50% retracement of the 56.89-56.98 is the initial target area on a
previous 97.78-44.27 decline. A sideways break of 59.90-60.51 and the 52.93-53.98
to slightly lower range has developed since and 49.34-50.27 regions are possible
then, the lows so far of 59.90 & 60.51 f u r t h e r o u t . To a v e r t t h e i m m e d i a t e r i s k
being just over the 38.2% retracement of of further losses, we will need to see a
t h e 4 4 . 2 7 - 6 9 . 7 0 r e c o v e r y. A t t e m p t s t o sustained rebound over the recent lower
develop a higher low at / over the (blue) t o p at 6 4 . 4 9 . Howe ver, we f avo ur th e
260 day (1 year) moving average appear emergence of a lower top below there
to be failing and a dead-cross of the 22 in preparation for a breakdown throug h
(1 month) and 65 day (3 month) moving 59.90-60.51.

TECHNICAL ANALYSIS FX
GBP/USD
GBP/USD extended losses from the blue). Just over 61.8% of the 1.3500-
November 2007 peak at 2.1158 (the 1.7041 recovery phase has already been
highest level since the reversal from retraced and with the 22 day (1 month)
the November 1980 peak at 2.4546) to and 65 day (3 month) moving averages
form a double bottom at 1.3500 / 1.3659 (in red and green) heading strongly
in Ja nua r y / Ma rc h 2 0 0 9 . Th i s wa s lower the likelihood is for a continued
completed by a break above the Februar y period of weakness, with the 1.4480
2009 lower top at 1.4975 and set up a & 1.4400 lows seen either side of the
retracement of between 38.2% and 50% 1.3500 / 1.3659 double bottom the next
of the entire 2.1158-1.3500 decline, ma j o r s up p o r t a r e a t o a i m f o r. A c l e a n
topping out at 1.7041 in Aug ust 2009. breach of 1.4400-1.4480 will increase
A sideways to slightly lower correction the likelihood of a return towards
then lasted many months, with hopes of 1.3500-1.3659 over coming months.
the 1.5708 / 1.5833 range lows marking We n o w s e e t h e f o r m e r r a n g e l o w s a t
a higher base for a renewed recovery 1.5708 / 1.5833 reverting to resistance
b e i n g d a s h e d b y F e b r u a r y ’s b r e a k d o w n on initial recovery attempts.
through those lows and the 260 day
(1 year) moving average (shown in Steve Jarvis

FX INTERNATIONAL DATA
FX SPOT MONITOR
Country Flag USD Spot Last vs USD % Ch 3M % Ch 12M 12mth High 12mth Low
Eurozone EUR= 1.3477 -6% 2% 1.5987 1.2457
UK GBP= 1.5087 -6% 6% 2.008 1.3746
Japan JPY= 92.55 0% -5% 110.49 87.31
Switzerland CHF= 1.0614 2% -8% 1.2241 0.9843
Australia AUD= 0.9201 3% 35% 0.9787 0.6018
Canada CAD= 1.0197 -3% -19% 1.2995 0.9832
New Zealand NZD= 0.7115 -1% 27% 0.8097 0.4923
Sweden SEK= 7.2454 1% -13% 9.2927 5.838
Norway NOK= 5.9636 3% -12% 7.2227 4.953
Iceland ISK= 128.19 2% 4% 147.55 71.67
Israel ILS= 3.697 -3% -12% 4.236 3.213
South Africa ZAR= 7.3663 0% -24% 11.62 7.2025
Egypt EGP= 5.501 0% -2% 5.694 5.2825
Saudi Arabia SAR= 3.75 0% 0% 3.7685 3.7115
Czech Rep. CZK= 18.866 2% -10% 23.438 14.404
Poland PLN= 2.8741 0% -19% 3.9003 2.0221
Hungary HUF= 197.27 4% -16% 251.64 143.19
Russia RUB= 29.416 -3% -13% 36.3438 23.1531
Turkey TRY= 1.524 1% -9% 1.806 1.1512
China CNY= 6.8258 0% 0% 7.083 6.8108
Hong Kong HKD= 7.7639 0% 0% 7.8142 7.7483
Singapore SGD= 1.3982 0% -8% 1.5562 1.3476
Taiwan TWD= 31.8 -1% -7% 35.21 29.996
India INR= 45.08 -3% -12% 51.96 39.75
South Korea KRW= 1130 -3% -19% 1570.1 973.5
Thailand THB= 32.32 -3% -9% 36.26 31.04
Malaysia MYR= 3.267 -5% -10% 3.726 3.1305
Indonesia IDR= 9085 -4% -21% 12100 9070
Philippines PHP= 45.27 -2% -7% 49.94 41.3
Mexico MXN= 12.4132 -5% -13% 15.555 9.858
Brazil BRL= 1.7907 3% -23% 2.511 1.5591
Chile CLP= 525.9 4% -10% 682.5 430.6
Venezuela VEB= 2144.6 0% 0% 2144.6 2144.6
Colombia COP= 1933.3 -5% -24% 2608.15 1655.9
Levels Date: 30-Mar-10 Source: Thomson Reuters

INTERNATIONAL DATA FX
CENTRAL BANKS
Country Flag Central Bank Rate Name Actual Previous
USA FED Fed funds 0-0.25 0-0.25
Eurozone ECB Refi 1.00 1.00
UK BOE Bank Repo 0.50 0.50
Japan BOJ O/N Call 0.10 0.10
Switzerland SNB 3 mth Libor 0.25 0.25
Australia RBA Cash 4.00 3.50
Canada BOC O/N Funding 0.25 0.25
New Zealand RBNZ Cash 2.50 2.50
Sweden Riksbank Repo 0.25 0.25
Norway Norges Bank Depo 1.75 1.50
Iceland CBI Policy 9.00 9.50
Israel BOI Short Term Lending 1.50 1.25
South Africa Reserve Bank Repurchase 6.50 7.00
Egypt CBE O/N Depo 9.75 8.25
Czech Rep. CNB 2 Week Repo 1.00 1.00
Poland NBP 28 Day Intervention 3.50 3.50
Hungary MNB 2 Week Depo 5.50 5.75
Russia CBR Refinancing 8.25 8.50
Turkey TCMB O/N Borrowing 6.50 6.50
China PBC 1 Year Lending 5.31 5.58
Taiwan CBC Discount 1.25 1.25
India RBI Repo 5.00 4.75
South Korea BOK O/N Call 2.00 2.01
Thailand BOT Repo 1.25 1.25
Indonesia BI BI 6.50 6.50
Philippines BSP Repo 4.00 4.00
Mexico BDM Target 4.50 4.50
Brazil BCB Selic 8.75 8.75
Chile CBC MPR 0.50 0.50

FX INTERNATIONAL DATA
ECONOMIC DATA
GDP CPI Industrial Production Unemployment
y-o-y y-o-y y-o-y level
USA 0.50 2.10 0.10 9.70
Eurozone -2.10 0.90 1.70 9.90
UK -3.20 3.00 -0.40 7.80
Japan 1.10 -1.20 -0.90 4.90
Switzerland 0.60 0.90 4.10
Australia 2.70 2.10 5.30
Canada 5.00 1.60 8.20
New Zealand (partecipation) 0.40 2.00 68.1 (partecipation)
Sweden -1.50 1.20 1.60 9.30
Norway 0.10 3.00 -0.40 3.10
South Africa -1.40 5.70 3.70 24.30
Czech Rep. -3.10 0.60 5.30 9.90
Poland 3.10 2.90 9.20 13.00
Hungary -4.00 5.70 3.40 11.40
Russia 5.20 0.90 1.90 8.60
China 10.70 2.70 20.70
India 6.70 16.70
Mexico -2.30 0.40 3.60 5.43
Brazil 4.30 0.78 16.00 7.40
FX POLL
3 Month Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 27 1.35 1.25 1.5 1.355 0.045 1.3614
GbpUsd 27 1.53 1.4 1.73 1.528 0.062 1.497
AudUsd 27 0.9 0.8 0.96 0.9 0.036 0.9037
UsdJpy 27 92 85 100 91.8 3.3 88.8
UsdChf 27 1.08 0.98 1.17 1.083 0.038 1.0742
UsdCad 27 1.05 0.98 1.11 1.051 0.03 1.0354
EurJpy 27 124.2 110.9 137.3 124.4 5.4 120.9
EurChf 27 1.463 1.398 1.539 1.466 0.028 1.4629
EurGbp 27 0.887 0.829 0.946 0.888 0.025 0.9092
GbpJpy 27 140.5 127.3 159.2 140.2 7.1 132.89
1 Year Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 27 1.35 1.2 1.6 1.357 0.086 1.3614
GbpUsd 27 1.585 1.31 1.78 1.577 0.103 1.497
AudUsd 27 0.88 0.73 1 0.883 0.062 0.9037
UsdJpy 27 99.3 82 110 98 6.2 88.8
UsdChf 27 1.108 0.91 1.24 1.099 0.07 1.0742
UsdCad 27 1.07 0.95 1.17 1.057 0.053 1.0354
EurJpy 27 134.8 106.3 150.2 133 10.2 120.9
EurChf 27 1.494 1.381 1.61 1.496 0.045 1.4629
EurGbp 27 0.855 0.776 0.969 0.863 0.043 0.9092
GbpJpy 19 154.2 116.1 178.5 154.4 13.3 132.89

INTERNATIONAL DATA FX
MARKETS VIEW
Stock Indices Last % Ch 6M % Ch 12M Commodities Last % Ch 6M % Ch 12M
Gold 1109.55 10.22% 21.09%
MSCI World 1204.37 6.7 45.6 Silver 17.33 4.46% 33.00%
Dow Jones Ind. 10895.86 11.8 40.1 Brent DTD 79.17 20.17% 61.21%
S&P 500 1173.22 10.6 43.8 WTI 81.87 16.19% 68.84%
Nasdaq 100 1961.22 14.2 56.7
Eurostoxx 50 2955.79 1.9 39.1 Bonds Last % Ch 6M % Ch 12M
UK FTSE 100 5709.42 10.7 46.5 5Y Euro 2.177 -0.240 -0.105
Dax 6164.75 7.8 46.5 10Y Euro 3.138 -0.083 0.104
Cac 40 4004.5 4.9 40.8 10Y US Treasury 3.868 0.563 1.145
FT MIB 23123.25 -2.0 41.4 30Y US Treasury 4.772 0.724 1.171
Swiss SMI 6877.54 8.5 40.6 10Y UK Gilt 3.991 0.404 0.808
Nikkei 225 11097.14 8.8 27.4 10Y CH Govt Bond 1.93 -0.088 -0.231
Australia AORD 4926.774 3.4 35.7
HK Hang Seng 21374.79 1.1 50.4 Money Markets Last % Ch 6M % Ch 12M
Shanghai Comp. 3128.468 13.4 31.6 US 6M Depo 0.44188 -0.18687 -1.3031
Singapore StraitT. 2933.39 10.0 67.8 EUR 6M Depo 0.944 -0.0720 -0.7360
India BSE30 17590.17 5.1 76.3 GBP 6M Depo 0.87938 0.1419 -1.0094
Brazil Bovespa 69939.12 14.2 66.9 CHF 6M Depo 0.33583 -0.0592 -0.1958
Russia RTSI 1568.66 23.1 115.1 JPY 6M Depo 0.44875 -0.1000 -0.3356
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FX Economic Calendar
APRIL, MAY, JUNE 2010
GMT London Time
April 1:30pm USD Building Permits
Fri 16
3:00pm USD ISM Non-Manufacturing PMI 2:55pm USD Prelim UoM Consumer Sentiment
Mon 5
3:00pm USD Pending Home Sales m/m Mon 19 11:45pm NZD CPI q/q
Tentative NZD NZIER Business Confidence 2:30am AUD Monetary Policy Meeting Minutes
2:30am AUD ANZ Job Advertisements m/m 9:00am EUR German Ifo Business Climate
Tue 6 5:30am AUD Cash Rate Tue 20 10:00am EUR German ZEW Economic Sentiment
5:30am AUD RBA Rate Statement 2:00pm CAD BOC Rate Statement
7:00pm USD FOMC Meeting Minutes 2:00pm CAD Overnight Rate
Tentative JPY BOJ Press Conference 9:30am GBP Claimant Count Change
Wed 21
8:15am CHF Retail Sales y/y 9:30am GBP MPC Meeting Minutes
Wed 7 9:30am GBP Services PMI 1:30pm CAD Core Retail Sales m/m
1:30pm CAD Building Permits m/m 1:30pm USD PPI m/m
3:00pm CAD Ivey PMI 1:30pm USD Unemployment Claims
Thu 22
2:30am AUD Employment Change 3:00pm USD Existing Home Sales
2:30am AUD Unemployment Rate 3:30pm CAD BOC Monetary Policy Report
9:30am GBP Manufacturing Production m/m 4:15pm CAD BOC Press Conference
12:00pm GBP Asset Purchase Facility 9:30am GBP Prelim GDP q/q
Thu 8 Tentative GBP MPC Rate Statement 9:30am GBP Public Sector Net Borrowing
12:00pm GBP Official Bank Rate Fri 23 12:00pm CAD Core CPI m/m
12:45pm EUR Minimum Bid Rate 1:30pm USD Core Durable Goods Orders m/m
1:30pm EUR ECB Press Conference 1:30pm USD New Home Sales
1:30pm USD Unemployment Claims 2:30am AUD PPI q/q
Tue 27
12:00pm CAD Employment Change 3:00pm USD CB Consumer Confidence
Fri 9
12:00pm CAD Unemployment Rate 2:30am AUD CPI q/q
2:30am AUD Home Loans m/m 4:00am NZD NBNZ Business Confidence
3:00am CNY CPI y/y Tentative GBP Nationwide HPI m/m
Mon 12
3:00am CNY GDP q/y 11:00am GBP CBI Realized Sales
Wed 28
1:15pm CAD Housing Starts 7:15pm USD FOMC Statement
9:30am GBP CPI y/y 7:15pm USD Federal Funds Rate
1:30pm CAD Trade Balance 10:00pm NZD Official Cash Rate
Tue 13 1:30pm USD Trade Balance 10:00pm NZD RBNZ Rate Statement
3:30pm CAD BOC Business Outlook Survey Thu 29 1:30pm USD Unemployment Claims
11:45pm NZD Retail Sales m/m Tentative JPY BOJ Press Conference
Tentative CNY Trade Balance 10:30am CHF KOF Economic Barometer
Fri 30
1:30pm USD Core CPI m/m 1:30pm CAD GDP m/m
Wed 14
1:30pm USD Core Retail Sales m/m 1:30pm USD Advance GDP q/q
1:30pm USD Retail Sales m/m
1:30pm USD Unemployment Claims May
Thu 15 2:00pm USD TIC Long-Term Purchases 2:00am CNY Manufacturing PMI
3:00pm USD Philly Fed Manufacturing Index Mon 3 Tentative GBP Halifax HPI m/m
Fri 16 9:30am GBP Retail Sales m/m 9:30am GBP Manufacturing PMI

Economic Calendar FX
3:00pm USD ISM Manufacturing PMI 1:30pm USD Unemployment Claims

Mon 3 Thu 13
11:45pm NZD Labor Cost Index q/q 11:45pm NZD Retail Sales m/m
5:30am AUD Cash Rate 1:30pm USD Core Retail Sales m/m
5:30am AUD RBA Rate Statement Fri 14 1:30pm USD Retail Sales m/m
Tue 4
Tentative AUD Annual Budget Release 2:55pm USD Prelim UoM Consumer Sentiment
3:00pm USD Pending Home Sales m/m 2:00pm USD TIC Long-Term Purchases
Mon 17
2:30am AUD Building Approvals m/m 11:45pm NZD PPI Input q/q
9:30am GBP Services PMI 2:30am AUD Monetary Policy Meeting Minutes
1:15pm USD ADP Non-Farm Employment Change 9:00am EUR German Ifo Business Climate
Wed 5
3:00pm USD ISM Non-Manufacturing PMI 9:30am GBP CPI y/y
Tue 18
11:45pm NZD Employment Change q/q 10:00am EUR German ZEW Economic Sentiment
11:45pm NZD Unemployment Rate 1:30pm USD Building Permits
2:30am AUD Retail Sales m/m 1:30pm USD PPI m/m
2:30am AUD Trade Balance 9:30am GBP MPC Meeting Minutes
Tentative GBP Asset Purchase Facility 1:30pm USD CPI m/m
Wed 19
Tentative GBP MPC Rate Statement 1:30pm USD Core CPI m/m
12:00pm GBP Official Bank Rate 7:00pm USD FOMC Meeting Minutes
Thu 6
12:45pm EUR Minimum Bid Rate 12:50am JPY Prelim GDP q/q
1:30pm CAD Building Permits m/m Tentative NZD Annual Budget Release
Thu 20
1:30pm EUR ECB Press Conference 1:30pm USD Unemployment Claims
1:30pm USD Unemployment Claims 3:00pm USD Philly Fed Manufacturing Index
3:00pm CAD Ivey PMIS Tentative JPY BOJ Press Conference
2:30am AUD Home Loans m/m 9:30am GBP Public Sector Net Borrowing
2:30am AUD RBA Monetary Policy Statement Fri 21 9:30am GBP Retail Sales m/m
8:15am CHF Retail Sales y/y 12:00pm CAD Core CPI m/m
Fri 7 12:00pm CAD Employment Change 1:30pm CAD Core Retail Sales m/m
12:00pm CAD Unemployment Rate Mon 24 3:00pm USD Existing Home Sales
1:30pm USD Non-Farm Employment Change 4:00am NZD Inflation Expectations q/q
1:30pm USD Unemployment Rate Tue 25 9:30am GBP Revised GDP q/q
Mon 10 1:15pm CAD Housing Starts 3:00pm USD CB Consumer Confidence
3:00am CNY CPI y/y 1:30pm USD Core Durable Goods Orders m/m
Wed 26
9:30am GBP Manufacturing Production m/m 3:00pm USD New Home Sales
Tue 11
2:30am AUD Private Capital Expenditure q/q
10:00pm NZD RBNZ Financial Stability Report
Thu 27 11:00am GBP CBI Realized Sales
9:30am GBP Claimant Count Change
1:30pm USD Prelim GDP q/q
10:30am GBP BOE Gov King Speaks
Tentative GBP Nationwide HPI m/m
Wed 12 10:30am GBP BOE Inflation Report Fri 28
10:30am CHF KOF Economic Barometer
1:30pm CAD Trade Balance
4:00am NZD NBNZ Business Confidence
1:30pm USA Trade Balance Mon 31
1:30pm CAD GDP m/m
2:30am AUD Employment Change
2:30am AUD Unemployment Rate June
Thu 13
Tentative CNY Trade Balance 2:00am CNY Manufacturing PMI
Tue 1
7:00am EUR German Prelim GDP q/q 2:30am AUD Retail Sales m/m

FX Economic Calendar
5:30am AUD Cash Rate 1:30pm USD Retail Sales m/m

Fri 11
5:30am AUD RBA Rate Statement 2:55pm USD Prelim UoM Consumer Sentiment
8:15am CHF Retail Sales y/y Sun 13 11:45pm NZD Retail Sales m/m
Tentative GBP Halifax HPI m/m 2:30am AUD Monetary Policy Meeting Minutes
Tue 1
9:30am GBP Manufacturing PMI Tentative JPY BOJ Press Conference
2:00pm CAD BOC Rate Statement 9:30am GBP CPI y/y
Tue 15
2:00pm CAD Overnight Rate 10:00am EUR German ZEW Economic Sentiment
3:00pm USD ISM Manufacturing PMI 10:00am GBP Inflation Report Hearings
2:30am AUD GDP q/q 2:00pm USD TIC Long-Term Purchases
Wed 2 1:15pm USD ADP Non-Farm Employment Change 9:30am GBP Claimant Count Change
3:00pm USD Pending Home Sales m/m Wed 16 1:30pm USD Building Permits
2:30am AUD Building Approvals m/m 1:30pm USD PPI m/m
2:30am AUD Trade Balance 8:30am CHF Libor Rate
9:30am GBP Services PMI 8:30am CHF SNB Monetary Policy Assessment
Thu 3 1:30pm USD Non-Farm Employment Change 8:30am CHF SNB Press Conference
1:30pm USD Unemployment Claims Thu 17
1:30pm USD Core CPI m/m
1:30pm USD Unemployment Rate
1:30pm USD Unemployment Claims
3:00pm USD ISM Non-Manufacturing PMI
3:00pm USD Philly Fed Manufacturing Index
2:30am AUD Home Loans m/m
Fri 18 9:30am GBP Retail Sales m/m
12:00pm CAD Employment Change
Fri 4 9:00am EUR German Ifo Business Climate
12:00pm CAD Unemployment Rate
12:00pm CAD Core CPI m/m
1:30pm CAD Building Permits m/m Tue 22
3:00pm CAD Ivey PMI 3:00pm USD Existing Home Sales
Tue 8 9:30am GBP Manufacturing Production m/m 11:45pm NZD Current Account
Tentative CNY Trade Balance 9:30am GBP MPC Meeting Minutes
1:15pm CAD Housing Starts 1:30pm CAD Core Retail Sales m/m
Wed 9 10:00pm NZD Official Cash Rate 3:00pm USD New Home Sales
Wed 23
10:00pm NZD RBNZ Press Conference 7:15pm USD FOMC Statement
10:00pm NZD RBNZ Rate Statement 7:15pm USD Federal Funds Rate
2:30am AUD Employment Change 11:45pm NZD GDP q/q
2:30am AUD Unemployment Rate 1:30pm USD Core Durable Goods Orders m/m
Tentative GBP Asset Purchase Facility Thu 24
1:30pm USD Unemployment Claims
Tentative GBP MPC Rate Statement
Fri 25 9:30am GBP Current Account
12:00pm GBP Official Bank Rate
Thu 10 4:00am NZD NBNZ Business Confidence
12:45pm EUR Minimum Bid Rate Mon 28
Tentative NZD Nationwide HPI m/m
1:30pm CAD Trade Balance
11:00am GBP CBI Realized Sales
1:30pm EUR ECB Press Conference Tue 29
3:00pm USD CB Consumer Confidence
1:30pm USD Trade Balance
1:30pm USD Unemployment Claims 12:50am JPY Tankan Manufacturing Index
3:00am CNY CPI y/y 10:30am CHF KOF Economic Barometer

Wed 30
Fri 11 9:30am GBP PPI Input m/m 1:15pm USD ADP Non-Farm Employment Change
1:30pm USD Core Retail Sales m/m 1:30pm CAD GDP m/m

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E IN TUTTE LE MIGLIORI GIOIELLERIE

Euro Troubles: Wea K

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THE NEW

artwork for connoisseurs.

05 EDITOR’S NOTE INTERVIEW: TECHNICAL ANALYSIS:

FX TRADER MAGAZINE April - June 2010 

experience of providing technical approach at all levels. Combining

 FX TRADER MAGAZINE April - June 2010

IT’S ALL ABOUT

FX TRADER MAGAZINE April - June 2010 

Know Your Currencies

In the last article we looked at the commonality of volume Time Zones

FX TRADER MAGAZINE April - June 2010 

 FX TRADER MAGAZINE April - June 2010

and selling USDCAD results in a net short Volatil it y

FX TRADER MAGAZINE April - June 2010 

Slippa g e can be such a hug e factor that some

Interest rates are another known, and

Currency Interest Rate

FX TRADER MAGAZINE April - June 2010 11

content * content * content

Jason recently turned $250.000

12 FX TRADER MAGAZINE April - June 2010

14 FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010 15

FX TRADER MAGAZINE April - June 2010 17

the system that you have”, and I

18 FX TRADER MAGAZINE April - June 2010

trading system and you run into a

20 FX TRADER MAGAZINE April - June 2010

to the Live Trading Room

Greek Tragedy: “Those who have knowledge, don’t

W eak D ollar , E uro in troubles

22 FX TRADER MAGAZINE April - June 2010

In an interesting piece of research

24 FX TRADER MAGAZINE April - June 2010

in exchang e for have witnesse d the unravel ing

avo i d traumati c e vents wou ld

p ar ti e s invo lve d (EU: dom ino

nati ons ; G re e c e : in the e vent

o f d e f au lt or exit from the 6 000

Euro, economic measures even

than those ne cessar y to g a in

supp or t eng a g ement r u les Medium Long Term Short Term

FX TRADER MAGAZINE April - June 2010 25

What is more worrying, looking

26 FX TRADER MAGAZINE April - June 2010

recursion bet ween Act I

FX TRADER MAGAZINE April - June 2010 27

fixed with some kind of resolution.

28 FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010 29

Economic Stagnation, Wars, Pandemics,

Welcome to the The New

30 FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010 31

glee, scenes of torture and death

culminating, after a Malthusian

All of our recent ‘advancements’ are

FX TRADER MAGAZINE April - June 2010 35

of permanent blackouts spreads the intelligent, creating , over

36 FX TRADER MAGAZINE April - June 2010

The Wall Street Journal gives some

FX TRADER MAGAZINE April - June 2010 37

An economy is a measure of resources,

FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010

FX TRADER MAGAZINE April - June 2010