CurrencyTrader (March 2009, Vol 6, No. 3)

Strategies, analysis, and news for FX traders
March 2009 Volume 6, No. 3
THE BRITISH POUNDS pounding p. 8 SWEDENS KRONA FACES familiar currency challenge p. 12 RISK AVERSION and the forex market p. 20
WEEKLY BOTTOM PATTERN: Time for a bounce? p. 16 CURRENCIES AND SOVEREIGN credit risks p. 28 CME READIES new Micro FX futures
p. 38
CONTENTS
Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Global Markets Has the bleeding stopped for the pound? . . . . . . . . . . . . . . . . . . . . . .8
The British pound had backed off a bit from its once-in-a-lifetime sell-off in February, but few are betting the currency will stage a dramatic recovery in the near future. By Currency Trader Staff
On the Money Rational fear and the forex market . . . . .20

Analysis of several intermarket relationships . . suggests the role of risk aversion in the forex . market is no cut-and-dried issue. By Barbara Rockefeller
Advanced Strategies Sovereign credit risk and currencies . . .28

Government actions are perversely rewarding the guilty: As a nations credit rating deteriorates, its borrowing costs fall and its currency, at least temporarily, rises. By Howard L. Simons
Volatile times for krona . . . . . . . . . . . . . .12

Regardless of whether this Nordic currency can come out of its deep freeze, it is likely to have a bumpy ride in the coming months. By Currency Trader Staff
Spot Check Pound/dollar . . . . . . . . . . . . . . . . . . . . . .16

A look at what the British pounds recent price action hints about its future. By Currency Trader Staff
continued on p. 4
March 2009 CURRENCY TRADER
CONTENTS
International Markets . . . . . . . . . . . . . .34

Numbers from the global forex, stock, and interest-rate markets.
Global Economic Calendar . . . . . . . . . .37

Important dates for currency traders.
Forex News Two exchanges, two approaches to new FX futures . . . . . . . . . . . . . . . . . .38

The CME Group and ICE take different approaches in offering forex traders new ways to trade currency futures.
Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Conferences, seminars, and other events.
New Products & Services . . . . . . . . . . . . .42 Forex Journal . . . . . . . . . . . . . . . . . . . . .43

A short trade in the USD/CAD pair.
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CONTRIBUTORS CONTRIBUTORS
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Editor-in-chief: Mark Etzkorn metzkorn@currencytradermag.com Managing editor: Molly Goad mgoad@currencytradermag.com Associate editor: Chris Peters cpeters@currencytradermag.com Contributing editor: Howard Simons Contributing writers: Barbara Rockefeller, Marc Chandler Editorial assistant and webmaster: Kesha Green kgreen@currencytradermag.com Art director: Laura Coyle lcoyle@currencytradermag.com President: Phil Dorman pdorman@currencytradermag.com Publisher, Ad sales East Coast and Midwest: Bob Dorman bdorman@currencytradermag.com Ad sales West Coast and Southwest only: Allison Chee achee@currencytradermag.com Classified ad sales: Mark Seger seger@currencytradermag.com
Volume 6, Issue 3. Currency Trader is published monthly by TechInfo, Inc., 161 N. Clark St., Suite 4915, Chicago, IL 60601. Copyright 2009 TechInfo, Inc. All rights reserved. Information in this publication may not be stored or reproduced in any form without written permission from the publisher. The information in Currency Trader magazine is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.
Howard Simons is president of Rosewood Trading Inc. and a strategist for Bianco Research. He writes and speaks frequently on a wide range of economic and financial market issues.
Barbara
Rockefeller
(http://www.rts-
forex.com) is an international economist with a focus on foreign exchange. She has worked as a forecaster, trader, and consultant at Citibank and other financial institutions, and currently publishes two daily reports on foreign exchange. Rockefeller is the author of Technical Analysis for Dummies (For Dummies, 2004), 24/7 Trading Around the Clock, Around the World (John Wiley & Sons, 2000), The Global Trader (John Wiley & Sons, 2001), and How to Invest Internationally, published in Japan in 1999. A book tentatively titled How to Trade FX is in the works. Rockefeller is on the board of directors of a large European hedge fund.
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GLOBAL MARKETS
Has the bleeding stopped for the pound?

The UKs concentration in financial services has compounded the problems for its economy and currency.
BY CURRENCY TRADER STAFF
FIGURE 1 HOW THE MIGHTY HAVE FALLEN A little more than a year after making a 26-year high above 2.1100, the pound/dollar fell to a nearly 24-year low in January 2009.
oncerns over the global crisis remain the key driver in the foreign exchange market as investors witness the continued deterioration of economies around the industrialized world. In February, the British pound stabilized somewhat vs. the U.S. dollar after dramatic losses in recent months. Looking back to what seems now like a lifetime ago, in November 2007 the pound/dollar pair (GBP/USD) touched a high of $2.1159 (the highest price since 1981) and was still trading above $2.000 in July 2008 before plunging to a late-January 2009 low of Source: TradeStation $1.3500 (the lowest price since 1985), and more recently conBRITISH POUND/U.S. DOLLAR AT A GLANCE solidating in the $1.41001.5000 range (Figure 1). Daily range (past 40 days): Average: .0326 The British economy was Weekly range (past 26 weeks): Average: .0828 especially hard hit during the 52-week high/low: 2.0395 fall months thanks to the Prevailing interest rate, last change: UK UKs strong reliance on bank1%, -0.50% ing and other financial servicNext scheduled central bank meeting(s): March 5 es. Citing data from the British Consular Office, GDP (% annualized): Q4 2008 Q3 2008 Charmaine Buskas, senior UK U.S. UK U.S. -1.8 -6.2 0.3 -0.5 economic strategist at TD Securities in Toronto says, All data as of 2/27/09 10.7 percent of UK gross
Median: .0329 Median: .0748 1.3501 U.S. 0%, -0.50% March 17-18 Q2 2008 UK U.S. 1.7 2.8
domestic product (GDP) comes from financial services. It accounts for one in 30 jobs. They had the same troubles as everyone else, but amplified and magnified. Like the U.S., the UK also suffered a crash in its overleveraged housing market at the same time the global financial crisis began to hit. The UK is suffering more than some because of its financial and housing sector exposure, says Stephen Webster, chief European economist at 4CAST Inc.
2-percent contraction of the early 1990s, but less than the nearly 6-percent fall in the early 1980s following the winter of discontent. The UK economy is about halfway through
continued on p. 10
The UK is suffering more than some because of its financial and housing sector exposure.
Stephen Webster, chief European economist at 4CAST Inc.
GDP freefall
Webster says the UKs economic situation is dire in every sense. Economically, the UK officially slipped into recession as of the fourth quarter 2008, he says. Credit conditions remain tight and confidence weak. Ruth Stroppiana, chief international economist at Moodys Economy.com adds: The ongoing lending logjam and the associated adverse impact on the availability of credit to households and [corporations] will take a heavy toll on the economy. Real GDP is expected to sink by almost 4 percent from peak to trough, almost double the
CURRENCY TRADER March 2009 9
GLOBAL MARKETS continued
FIGURE 2 ALMOST, BUT NOT QUITE The Euro/pounds run to parity (1.00) came up short late last year, and the pair subsequently retraced more than 10 percent over the next six weeks.
3.5-percent 2009 decline and TD Securities forecast of a 3.1-percent decline.
BOE action
The Bank of England (BOE) has aggressively stepped in to combat the financial crisis. Since early October, the BOE has slashed its key lending rate from 5 percent to the current record low of 1 percent. Analysts expect the BOE to pull the trigger on another rate cut at its upcoming March 5 meeting. Another 0.50-percent easing is widely expected, which would take the key monetary policy rate to yet another record low of 0.50 percent. With the monetary policy rate rapidly approaching zero, Britains central bankers are running out of room Source: TradeStation to cut rates much further, Stroppiana says. Dysfunctional credit markets its deepest recession in three decades. Moodys Economy.com forecasts UK real GDP to con- have blunted the effectiveness of traditional monetary tract by 2.9 percent in 2009, following a mere 0.6 percent rise policy. The government has granted the central bank unprecein 2008. This compares with 4CAST Inc.s projection of a dented powers to buy up to 50 billion in corporate assets via the Asset FIGURE 3 TRYING TO STAY AFLOAT Purchase Facility. The purchase of The pound/dollar has managed to stay above its January low, but it has not commercial paper and corporate made a strong move to the upside. bonds is currently being financed by the issue of Treasury bills rather than by the creation of money. The next step for Britains central bankers will likely be to adopt a quantitative easing policy creating central bank money to boost money supply in a bid to increase the availability of credit to households and corporations.
FX action
Into year-end, forex traders had focused on the parity level in the Euro/pound pair (EUR/GBP). On Dec. 30, EUR/GBP touched the .9800 level intraday but subsequently pulled back as far as .8600 in early February before rebounding to around .8860 later in the month (Figure 2).
Source: TradeStation 10
There was a speculative push to achieve parity in December, says Michael Woolfolk, senior currency strategist at Bank of New York Mellon. We saw a pullback in January from the speculative surge to buy the Euro vs. the pound. However, analysts are increasingly bearish on the pair. The UK has been more proactive than the Eurozone in battling the deteriorating economic conditions, says Meg Brown, senior currency strategist at Brown Brothers Harriman. We think the UK will follow the U.S. out of recession earlier than Europe. But we are not there yet. On a relative basis, EUR/GBP could have more room on the downside, according Woolfolk. He and others highlight the Eurozones exposure to Eastern European banking woes. Eastern Europe is imploding right now, he says. These countries, such as Poland, the Czech Republic, and Latvia, are members of the European Union. They are in severe economic distress with no positive outlook for the foreseeable future. The Eurozones exposure to these weak links could ultimately weigh on the Euro in the near future. Bank of New York Mellon forecasts a stiff decline in the Euro/dollar (EUR/USD) toward $1.15 in the months ahead. Into year-end, they see an 82.00 EUR/GBP target. In recent weeks, the $1.35 level has formed a minor bottom of sorts in the pound/dollar pair (Figure 3). But, the jury is still out on whether that will act as a strong floor in the weeks ahead. Over the coming quarter, the U.S. dollar will not give up much ground and the pound will come under pressure, Brown says. She
CURRENCY TRADER March 2009
advises pound traders to remain short or use pullbacks, to say, $1.50, to short the pound. For more analysis of the pound/dollar pair, see Spot check.
11
Volatile times for krona

The Swedish krona, like many other smaller currencies, took a beating vs. the dollar and the Euro the past few months, but analysts are guessing the worst may be over.
ike Switzerland, Sweden has a long history of neutrality the country has not participated in a military conflict in nearly two centuries. Nonetheless, the Nordic nation, with a population of just over nine million citizens, has been unable to avoid the international financial crisis and global recession. Swedish economic growth numbers plummeted toward the end of 2008 amid a sharp decline in exports, which include machinery, autos, paper products, and iron and steel products. At the same time, the Swedish currency, the krona (SEK), reversed a multi-year strengthening trend vs. the U.S. dollar in August 2008 and has deteriorated significantly into late February 2009 (Figure 1). In the third quarter of 2008 the Swedish growth rate turned negative, with a quarterly 0.1-percent gross domestic product (GDP) decline. Total 2008 GDP growth was forecast at 0.5 percent by Moodys Economy.com, while Swedbank Markets estimated a final 0.3-percent annual rate for the year. The outlook for 2009 is much bleaker, though. The Swedish banking group SEB forecasts a 2.4-percent decline in Swedish GDP this year, which would represent the largest downturn since World War II. Moodys Economy.com forecasts a 2.2-percent GDP decline.
The financial crisis and a global slowdown have reduced demand for Swedish exports, while domestic consumption remained very weak, says Moodys Christine Li. And has been the case almost everywhere else, a wobbly housing market and nervous consumers are adding to domestic weakness. Consumer spending has been contracting amid very tight credit conditions and a weakening housing market, Li says. Swedish house prices had been showing positive annual growth rates during the first nine months of last year because of a cap on property taxes, but house prices are now contracting. The financial turmoil has kept credit conditions tight and borrowing costs high, which has reduced household spending. The labor market is also softening, with unemployment rising from 6.4 percent in December to 7.4 percent in January as Swedish companies slash their workforces to battle the fallout from the global financial crisis and a weaker sales outlook, Li adds. Sweden boasts an export-driven economy. During the first three quarters of 2008, the volume of Swedish exports of goods and services rose by about 4 percent annually according to a recent report from Swedbank, in which analysts wrote: Foreign trade statistics for October and November show that exports of goods continued to weaken, for which reason we estimate that total export volume growth for the FIGURE 1 THE FORMER TREND full year of 2008 to be only 2 percent. The dollar had been losing ground vs. the Swedish krona for the better part of This is the weakest trend since 2002 three years before the massive reversal that began in summer-fall 2008. and much lower than we forecast in the September forecast (4.5 percent). Swedbank forecasts a 1.5-percent decline in Swedish export growth in 2009.
Banking and bailouts

Like many other countries, Sweden has put together a bailout package for its embattled banking sector, announcing a new $6 billion rescue plan in early February. The Swedish banking sector
Source: ADVFN (http://www.advfn.com)
12
remains stressed, Li says. Following the demise of Lehman Brothers, the global wholesale funding market seized up and Swedish banks became reluctant to lend to each other. In response, the central bank has continued to pump massive liquidity into the sector, a total of SEK 300 billion of loans denominated in dollars and kronas. Investors have recently been concerned about European banks exposure to emerging European markets, she adds. Swedish banks have a particularly high exposure to the Baltic region. Western European banks are believed to account for 90 percent of the value of all bank loans made to Central and Eastern European countries. Lehman Brothers September 2008 bankruptcy filing was a watershed event for both the Swedish economy and its currency. The collapse of Lehman Brothers constitutes a turning point for the krona, says Cecilia Skingsley, head of fixed income and foreign exchange research at Swedbank Markets in Stockholm. The effect of the collapse was a sharp increase in financial market volatility. This turned out to be hugely detrimental to small currencies such as the Swedish krona as investors rushed into currencies such as the Japanese yen, U.S. dollar, and the Euro, which were perceived as huge and safe. On top of this, a small export-dependent country like Sweden has a disadvantage when the global business cycle turns down.
The Riksbank
The Swedish central bank the Riksbank has been one of the more aggressive central banks in the world, according to Swedbanks Skingsley. The Riksbank began an easing cycle in October 2008 and has made four cuts since then, bringing the banks overnight repo rate from 4.75 percent to 1 percent as of February 2009. Most Swedish analysts agree further rate cuts are possible, with room for another 50 basis point
continued on p. 14
13
FIGURE 2 THE BIG TURNAROUND The dollar was pushing to new highs vs. the krona in late February.
cut to a 0.50 percent official rate in the second quarter of this year. Johan Javeus, chief forex strategist at SEB Trading offers a more aggressive outlook. Our view is that the Riksbank will cut rates to zero at the April 21 meeting and keep the repo rate at zero until the end of 2010, he says. The Riksbank has a 2-percent inflation target with a tolerance band of Source: ADVFN (http://www.advfn.com) +/- 1 percent around that target. While 2008 CPI inflation came in at 3.4 percent, inflation is not even on the radar screen this year another few months, but will recover in the course of the in fact, it has been plummeting. In December 2008, the CPI second half of 2009. We look for EUR/SEK at 10.00 by year rose by 0.9 percent after hitting 4 percent in October 2008. end. Volatility will likely remain the name of the game in the But the Riksbank is forecasting a 0.5-percent decline this year in the nations consumer price index (CPI), and SEB near term. The Swedish krona will remain volatile against the Euro forecasts a 0.9-percent CPI decline in 2009, followed by a this year given continued financial market turbulence, Li modest rebound to a 0.4-percent rise in 2010. says. The Euro will weaken to 9.40 against the krona by mid-year as investors price in worsening Eurozone ecoThe krona Swedish citizens voted down entry into the European nomic fundamentals and further aggressive Eurozone monUnion in 2003 and chose to maintain their own sovereign etary policy easing. Moodys Economy.com expects the currency the krona. For many years, the USD/SEK pair Euro will finish the year at SEK 9.42 against the krona. What does this mean in respect to the dollar? was in a steady downtrend as the krona strengthened The U.S. dollar will continue to benefit in this shaky against the dollar, falling from from 11.06 in July 2001 to 5.81 in April 2008. After winding in a trading range for global economic environment, partly due to continued much of 2008, the krona made some explosive down moves repatriation flows, partly due to Euro problems stemming against both the dollar and the Euro beginning in August from heavy EMU exposure to Eastern Europe, Skingsley 2008. Again, like most smaller currencies around the world, notes. We see USD/SEK at around 8.50 and the Euro will fall vs. both currencies. the krona suffered as the financial panic unfolded. SEB Trading expects USD/SEK at 8.75 in mid-2009. Risk aversion has meant investors have been selling The risks are clearly on the upside, Javeus says. risky assets such as the krona, Li says. The U.S. dollar has been strengthening vs. the krona as risk-averse investors have been movFIGURE 3 EURO/KRONA ing into safe havens such as the dolThe krona also lost ground against the Euro, which, after a pullback, pushed lar. above its December high in February. From the 6.04 level in August 2008, USD/SEK surged to 8.90 in late February 2009 (Figure 2), while EUR/SEK blasted higher from 9.48 to 11.40 in December 2008 before backing off to 10.41 and then rallying again to a new high in late February (Figure 3). Although the krona is punished in times of financial risk aversion, according to Skingsley, the trend is no longer falling, but rather stabilizing [with] continued high volatility. Source: ADVFN (http://www.advfn.com) EUR/SEK will be range bound for
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SPOT CHECK
Pound/dollar
The British currencys implosion makes it difficult to find historical comparisons, but one unfolding pattern hints at higher near-term prices, barring a new dollar surge.
FIGURE 1 GBP/USD, MONTHLY The pound plummeted to a nearly quarter-century low in January before stabilizing somewhat in February.

hen, during the week ending Oct. 24, 2008, the British pound/U.S. dollar pair (GBP/USD) fell more than six percent below the previous weeks low, it was the first time the pound had dropped that much in more than 16 years. To be precise, it hadnt fallen that far, that fast since the week ending Sept. 18, 1992 the week, in fact, when George Soros was credited with breaking the Bank of England with his massive short play against the British currency. That the pound has taken weekly beatings of this magnitude only four times in the past 20 years, and that three of them have occurred in the past five months (the weeks ending Oct. 24, Nov. 12, and Jan. 23), is a testament to the extreme nature of the current market upheaval. (The market has fallen 3 percent or more on a weekly basis only 26 times in the past 30 years, and seven of those drops have occurred since August 2008.) Perhaps not coincidentally, reports surfaced in late January that Soros had been shorting the pound during the most recent sell-off, which saw the currency collapse from the 2.1159 high in November 2007 vs. the dollar to a 1.3501 low in January 2009 (Figure 1). Soros was quoted in The Daily Telegraph as saying he had foreseen the drop in sterling, but that after the fall from around $2 to $1.40, the risk-reward balance is no longer compelling. Although he hesitated to say the pounds sell-off was definitively finished, the news was widely interpreted as a sign the worst might be over, at least for the near future. But does that make it a buying opportunity? Has the bleeding stopped for the pound? reviews the economic and political challenges the British currency faces as it tries to rebound from its most dramatic devaluation in more
continued on p. 18
Source: TradeStation
FIGURE 2 GBP/USD, DAILY The pound continued to struggle after the initial September-November flush-out in financial markets.
16
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SPOT CHECK continued

FIGURE 3 GBP/USD, WEEKLY
than half a century. The price action itself is rare event because of the size of the down move during the week inconclusive. ending Jan. 16. More so than most markets, the pound/dollar pair has struggled to find its footing since October-November, moving sideways to lower before falling to a new low in late January (Figure 2). Its subsequent run-up formed from the week ending Jan. 16 to the week ending Jan. 23 what likely caught the eye of many a chart watcher as a reversal pattern of some kind: A sharply lower weekly low that closed near the bottom of the weeks range, followed by a week that bottomed around the same level but closed near the top of its range (Figure 3). Price initially bounced a little higher, then pulled back slightly over the next couple of weeks. However, several ways of modeling the pattern with any specificity produced too few examples from which to draw conclusions; the drop from the low of the week ending Jan. 16 to Source: TradeStation the following weeks low was, as mentioned, exceptionally large. Taking into FIGURE 4 POUND/DOLLAR WEEKLY PATTERN account as many of the characteristics The pound/dollar pair outperformed the markets overall bias during two of the two-week pattern while avoiddifferent periods, but results were choppy. Also, relaxing the pattern parameters ing optimization led to the following significantly produced a total of only 39 examples since 1979. definition: 1. Last weeks low is at least 1 percent lower than the previous weeks low. 2. Last weeks close was below last weeks open. 3. The difference between this weeks low and last weeks low is less than 0.05 percent. 4. This weeks close is above last weeks close. 5. This weeks close is in the upper 25 percent of the weeks range. As loose as the parameters are, they produced only 16 previous examples dating back to February 1999. Figure 4 compares the median price movement for the 12 weeks after the pattern (measured from the close of the pattern to the subsequent 12 weekly closes) to the median price action for all one- to 12-week periods during the 10-year analysis period. There is an upside bias to the post-pattern behavior, especially through week 8, but the price action in the first couple of weeks is flat to lower which happens to be the path the pair took after the most recent instance. Going back another 20 years to 1979 produced 23 more examples, and the overall trajectory was roughly the same: The pair outperformed the market by the end of the review period, but this time price meandered for seven weeks before turning higher.
18
The two-week pattern that appeared in mid-January was a relatively
The evidence is scant, but the pattern analyzed here points to the potential for some limited upside action in the pound/dollar pair, given the markets most recent move was in keeping with the patterns historical performance. However, as of Feb. 27, the market had concluded week four of its post-pattern move and had already rallied as much as .0448 above the Jan. 30 close, much more than the typical post-pattern move. Also, its important to remember the other half of this pair is the U.S. dollar, which, although it faces its own problems, has proved it is still something of a safe-haven in times of turmoil. If the global markets begin to destabilize dramatically again, funds are likely to fly in the direction of the dollar, to the detriment of most other currencies.
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ON THE MONEY
FIGURE 1 EURO/DOLLAR VS. S&P 500, DAILY Prevailing wisdom holds that if risk aversion rises, the dollar goes up as traders buy into the U.S. currency as a safe haven. If risk aversion falls, the dollar falters.
Rational fear and the forex market

Intermarket relationships arent always what they seem.
BY BARBARA ROCKEFELLER
Source: data eSignal and Reuters Online; chart MetaStock
FIGURE 2 EURO/DOLLAR VS. S&P 500, WEEKLY It may seem as if the Euro led the S&P down in 1999-2001, but this relationship has no basis in reality.
he explanation for every market move in recent months has been risk aversion. If risk aversion rises, as symbolized by declines in the Dow and S&P 500 stock indices, the dollar goes up as traders buy into the U.S. currency as a safe haven. If risk aversion falls because of some new government initiative to fix the financial sector or the economy, the dollar falters (Figure 1). While its true risk aversion is a powerful force, its really another way of saying fear. There was irrational exuberance on the way up, and now we have fear on the way down, with some people claiming this time the fear is rational and based on authentic risks of additional wealth destruction. In short, we havent come up with any new ideas about the behavior of markets beyond fear and greed, a phrase that surely has been around for centuries.
20
We havent come up with any new ideas about the behavior of markets beyond fear and greed, a phrase that surely has been around for centuries.
The problem with risk aversion as the explanation for everything is that it is being tossed around like confetti. One newspaper reports the Euro/yen pair has a strong correlation with the CBOE volatility index (VIX). A hedgefund manager says he is very concerned about the Euro/yen crossrate being so strongly correlated with the S&P 500 stock index. European analysts are tracking the relationship between the Euro/dollar and the Baltic Dry Index (BDI), a measure of shipping rates and thus a proxy for global economic activity. Previously, we had the circular oildollar logic: the dollar is up because oil is down (on the theory that cheap oil is good for the U.S. economy), or oil is up because the dollar is down. Finally, we have the perennial dollar and gold relationship gold rises when the outlook for the dollar is bleak. Gold is an alternative to money as a store of value, even if it cant be used as a unit of account or a transaction medium (try paying for a quart of milk or a tank of heating oil with a chunk of gold). To all of this we say, balderdash.
Market prices may appear to be correlated, but correlation is not causation. Market prices are set by two things fundamentals (such as corporate earnings for stock indices or jewelry demand for gold) and market sentiment. When market sentiment is dominated by fear, rational or irrational, all prices will fall, but they fall in their own way and to their own extent because prices are set by human traders and each market has a different trader profile. Figure 2 shows the Euro and S&P 500 on a weekly basis. It appears the
continued on p. 22
FIGURE 3 DOLLAR/YEN VS. S&P 500, DAILY The dollar/yen surging upward to nearly 100 while the S&P 500 is still falling is a divergence the risk-aversion scenario cannot explain.
21
ON THE MONEY continued
FIGURE 4 EURO/YEN VS. S&P 500, WEEKLY Starting in 2003, it looks like Euro/yen has been highly correlated with the S&P 500, but neither currency has anything to do with the U.S. stock index.
FIGURE 5 DOLLAR/YEN (INVERTED) VS. GOLD (WEEKLY) The yen and gold diverged dramatically in the fall of 2008.
Euro led the S&P down in 1999-2001, but this has no basis in reality. The Euro was the least of the reasons the S&P fell in 2000. The real reason was the tech wreck and the bursting of the Internet bubble. The Euro was weak for its own reasons at the time, or rather we might say the dollar was strong for its own reasons, having little to do with stocks. We might say the Euro fell because Euro-holders were selling them to buy into the U.S. stock market, but the sums involved do not support the thesis, tens of billions in portfolio investment vs. hundreds of billions in actual Euro/dollar positions. The tail does not wag the dog. We need to downplay the seeming correlation for two reasons. First, we want to avoid knee-jerk trading decisions inspired by developments in only marginally related markets. This is called keeping your eye on the ball and its a basic tenet of good management. As management guru Stanley Drucker advised, Stick to your knitting. If you follow the dollar/yen and your trading P&L depends on the dollar/yen, you should not be looking at the gold-oil relationship. A corollary is that if the rest of the market is bedazzled and befuddled by events in another market, you may be able to take advantage of it. At some point they will wake up to the emptiness of their presumption, and if you can predict their exit, you can get there first. The second reason is that you want to have a clear head, uncluttered by extraneous factors against the day when your market really does make a
22
When market sentiment is dominated by fear, rational or irrational, all prices will fall, but they fall in their own way and to their own extent because prices are set by human traders, and each market has a different trader profile.
move. For example, the yen was said to be a safe haven for the Japanese. Risk aversion was causing retail investors to pull back from positions in foreign assets. In the past year, Japanese investors in overseas investment trusts saw a pullout of $118 billion. Despite Japan having the worst economic performance among G7 countries, with GDP falling 12.7 percent year-over-year in 2008, the yen is the home currency for the Japanese and thus their safe haven. Besides, a new tax law coming into effect in April waives corporate taxes on repatriated profits, possibly as much as 10-20 trillion. This scenario supposedly supports the inverse correlation of the yen and the U.S. stock markets. As the Dow and S&P fall, the yen goes up on repatriation. This sounds plausible and
indeed the yen strengthened from 110.67 in August 2008 to 87.13 in January 2009, or more than 21 percent (Figure 3). But now suddenly we have the dollar/yen surging upward to nearly 100 while at the same time the S&P 500 is still falling a divergence the riskaversion scenario simply cannot explain. Logically, if world equity assets are falling, risk aversion should be higher and the safe-haven yen should be rising, not falling. Golly, maybe the dollar is the safe haven, after all.
continued on p. 24
FIGURE 6 DOLLAR/SWISS VS. GOLD/OIL (WEEKLY) The rise in gold and decline in oil forms a spike, but the Swiss franc fails to follow.
23
ON THE MONEY continued
FIGURE 7 DOLLAR/YEN VS. NIKKEI 225 STOCK INDEX, DAILY The yen/Nikkei stock index relationship is logical, because when the yen is weak Japanese companies can sell more overseas.
Or maybe its a mistake to forecast the yen based on what stock markets are doing. Starting in 2003, it looks like Euro/yen has been highly correlated with the S&P 500 (Figure 4). Huh? Neither currency has anything to do with the U.S. stock index. Maybe we could torture U.S. corporate earnings and get them into the picture somehow, but the operative word is torture. What about currencies vs. oil and
FIGURE 8 DOLLAR/YEN VS. NIKKEI 225 STOCK INDEX, WEEKLY The yen/Nikkei relationship is weaker on a weekly basis.
If the rest of the market is bedazzled and befuddled by events in another market, you may be able to take advantage of it. At some point the rest of the market will wake up to the emptiness of their presumption, and if you can predict their exit, you can get there first.
gold? Figure 5 shows the yen against gold, which is denominated in dollars. Note the giant divergence in the fall of 2008. Another chart that shakes confidence in intermarket correlation is the Swiss franc vs. the gold/oil composite (Figure 6). Here we see the
24
rise in gold, coupled with the fall in oil, delivering a spike while the Swiss franc fails to follow. The Swiss franc is regarded as a safe haven in times of market turmoil and uncertainty and the spike in gold/oil must spell uncertainty in capital letters but it would have been a mistake to buy Swiss francs on this evidence. One intermarket relationship that is consistent and reliable is the one between the yen and the Nikkei stock index (Figure 7). This has logic behind it, because when the yen is weak Japanese companies can sell more overseas. This is the only time you can use an intermarket correlation to your trading advantage but you have to be nimble. Figure 8 shows the same relationship on a weekly basis. The correlation is weaker, because there are other, separate factors at work in both markets, like actual earnings over expected earnings. You cant dawdle with this one. Next, consider the Baltic Dry Index as a proxy for true economic growth. The BDI, which has been around since 1744, measures the price of shipping raw materials on various routes around the world. It takes a long time to build a ship, so when demand for shipping rises compared to the supply of ships, we assume economic growth is good (Figure 9). The Euro seems to track the index very closely to the May 2008 spike when the index hit a record high. By December 2008, the index had lost all its 2005 gains. So why did the Euro spike up in December to nearly 1.4600 when the index was still down in the dumps? Logically, there is no reason for the Euro to be more highly
correlated with world growth than any other currency. The BDI fell for many reasons, but
an important one was the loss of credit that started last July and remains in
continued on p. 26
25
TRADING STRATEGIES continued
FIGURE 9 EURO/DOLLAR VS. BALTIC DRY INDEX WEEKLY There is no reason for the Euro to be more highly correlated with world growth than any other currency. The BDI fell for many reasons notably, the loss of credit that started last July.
Its okay to consider that one market influences another, like raw materials prices influence the BDI. But its risky and a bit silly to trade the Euro/dollar by looking at the BDI chart.
effect today. Shippers, shipbuilders, and producers of raw materials couldnt get credit as the financial markets seized. Finally, raw materials prices fell dramatically. The correlation of raw material prices (represented by the Commodity Price Index in Figure 10) to the BDI is more impressive than the relationship between the Euro against the index. Finally, if we think fear is behind all markets these days, lets measure fear itself. That is achieved with the VIX, which measures the implied volatility of S&P 500 index options over the upcoming 30-day period (Figure 11). A high VIX means fear is really high and the market is likely to go up, on the theory that an excess of fear will exhaust itself. VIX spiked to its highest level in October 2008, crashed, and then spiked again. As we know, the S&P itself failed to deliver a rally (Figure 1) while at the same time, the Euro is diverging from VIX. Well, if fear is what is dominating the currency market, the Euro should be lower
FIGURE 10 COMMODITY PRICE INDEX VS. BALTIC DRY INDEX, WEEKLY The correlation of raw material prices to the BDI is more impressive than the relationship between the Euro against the BDI in Figure 9.
26
FIGURE 11 EURO/DOLLAR (INVERTED) VS. VIX (DAILY) The VIX spiked to its highest level in October 2008, crashed, and then spiked again without a big rally in the S&P. At the same time, the Euro is diverging from VIX.
much lower. Evidently, risk aversion in stocks is quantitatively and qualitatively different from risk aversion in currencies. Context counts. Its okay to consider that one market influences another, like raw materials prices influence the BDI. But its risky and a bit silly to trade the Euro/dollar by looking at the BDI chart. Dont trade one thing while looking at something else. Trade the thing youre looking at. For information on the author see p. 6.
Other Barbara Rockefeller articles:

Competitive devaluations, the EMU, and the yen Currency Trader, February 2009. Currency devaluation never works in the long run just ask Japan but that doesnt mean panicky governments wont use it to try to stem the flow of blood in the near term. The Euro: Prosperity or perdition? Currency Trader, January 2009. The belief the Euro sell-off has ended may be based on some false assumptions about how the U.S. and Europe are handling the economic crisis. The six Ds of depression Currency Trader, December 2008. The buck has gotten a bounce from the recent financial panic, but the longer-term picture isnt quite as bullish. Euro and dollar at parity? Currency Trader, November 2008. A few short months ago the world was contemplating Euro $2. Now, the talk is all about Euro $1. What are the odds it will happen? Crisis of confidence, Currency Trader, October 2008. As Wall Street and Washington prove themselves equally inept, the dollar suffers. The dollar-oil connection Currency Trader, September 2008. As oil broke, so did the Euro/dollar pair. What can we learn from analyzing bursting bubbles? Horizontal patterns in foreign exchange Currency Trader, August 2008. The Euros price action lends itself well to dissection with the Darvas Box. Are the summer doldrums here? Currency Trader, July 2008. If market myth is true, the season will bring a sideways market. But the myth warrants some analysis. Manias and crashes: Where will oil lead the dollar? Currency Trader, June 2008. Although some analysts argue a falling dollar is helping to push up oil prices, it might be the other way around. The question is, when will the bubble-go-round stop? Is the Euro going to the moon? Currency Trader, May 2008. A look at the Euros recent gravity-defying performance. Whats really driving the dollar? Currency Trader, April 2008. Signs of a potential turnaround in the buck can be found in an unexpected place. Why is the yen trending higher? Currency Trader, March 2008. The yens rise seems to defy logic. Find out whats behind it.
You can purchase and download past articles at http://store.activetradermag.com.
27
ADVANCED STRATEGIES
Sovereign credit risk and currencies

The policy failures of 2007-2008 are likely to lead to greater government intervention.
BY HOWARD L. SIMONS
FIGURE 1 FIVE- AND 10-YEAR CDS COSTS ON U.S. AND GERMAN BONDS VS. NORMALIZED YIELD SPREAD The credit crisis was global and clearly affected German bunds as much if not more than American bonds.
ne witticism circulating about the Internet endlessly and by fax previously, for those of you old enough to remember when the fax machine was trs chic is the six phases of a project. These are, in chronological order: enthusiasm, disillusionment, panic, search for the guilty, punishment of the innocent, and praise and honors for non-participants. This process must be scale-independent, for it applies to global central banks and finance ministries, operating both as separate entities and in coordination with each other, as well as to small groups within companies. How else can we explain the phenomenon increasingly observable in 2008 that once a countrys sovereign credit rating deteriorates, its borrowing costs fall and its currency, at least temporarily, rises? If this is not a perverse rewarding of the guilty, then what is?
Sovereign credit risk

Credit default swaps (CDS) are insurance contracts wherein the writer agrees to pay the investor the full (par) value of the bond in the event of a default. Think of them as put options on bonds. They are quoted in basis points, or 0.01-percent units of the dollar amount being insured, usually a minimum of $10 million. The com28 March 2009 CURRENCY TRADER
FIGURE 2 CREDIT RISK OF JAPANESE FIVE- AND 10-YEAR BONDS REMAINS ELEVATED This parallel example observed for American and Japanese bonds confirms an emerging principle of sovereign credit risk: Governments are being rewarded with lower borrowing costs as investors flee risk.
bination of a risky bond plus a CDS, therefore, is a synthetic call option on the bond. The arbitrage is conceptually simple: A holder of a risky bond should be willing to pay as much as the spread over Treasury or other sovereign yields in CDS protection. What happens when the underlying bond itself is a sovereign credit risk, such as a U.S. Treasury, a German bund or a Japanese government bond (JGB)? The default risk of
Restated, as credit risks increased in general, investors fled riskier assets for the perceived safety of sovereign debt a flight-to-quality only if you assume quality and printing press are interchangeable.
any of these instruments involves something pretty apocalyptic, on the order of the issuing government ceasing to exist and honor its obligations. That happens, as anyone who dabbles in Tsarist or Confederate bonds in anything other than the scripophily market can attest. And if that event comes about, it would be pretty pointless to receive payment for a defaulted U.S. Treasury bond in U.S. dollars. Therefore, the CDS quotes here always are in units of another currency; Euros for U.S. bonds and dollars for German and Japanese bonds. Rising CDS costs on various sovereign credit risks became an increasing fact of life after the onset of the credit crunch in 2007. Governments everywhere (in the U.S. and UK in particular) felt the appropriate response to banks reaping the consequences of their own bad bets and risk management was to bail them out by a combination of negCURRENCY TRADER March 2009
ative real short-term interest rates, acceptance of all hard-tovalue securities as collateral, implicit backstops of rescue plans for entities such as Bear Stearns, the de facto nationalization of Fannie Mae and Freddie Mac, and the creation of a bewildering array of lending facilities managed by some combination of the Treasury and the Federal Reserve. Each one of these steps reduced, in the case of the Federal Reserve, the quantity of Treasury securities on its balance sheet. Central banks portfolios held securities of increasingly dubious quality, so much so the Federal Reserve has refused to disclose the garbage it has accepted as collateral despite a Freedom of Information Act inquiry. All this chicanery produced higher inflation and, ironicontinued on p. 30
29
ADVANCED STRATEGIES continued
FIGURE 3 YEN VOLATILITY ROSE WITH SOVEREIGN CREDIT RISK Yen implied volatility jumped during the August 2007 panic, well ahead of any increases in CDS costs, and peaked simultaneously with these costs in the January, March, and September-October 2008 panics. Yen volatility remained elevated along with these CDS costs.
cally, higher credit costs for both corporate borrowers and for residential mortgages without the offsetting benefit of rising asset prices. As far as complete failures with catastrophic long-term consequences go, you would be hardpressed to beat this. Praise and honors for the nonparticipants might be a Pyrrhic victory given the damage produced by the participants. Did we mention Timothy Geithner, present (as the president of the New York Federal Reserve) at the destruction of Lehman Brothers and the draconian rescue of AIG, was rewarded with the Treasury Secretary? Its important to remember the governments AAA credit rating derives from 1) its taxation author-
FIGURE 4 YEN STRENGTHENED AS SOVEREIGN CREDIT RISK ROSE Over the past year, the yen and five-year CDS costs have moved in tandem. Higher credit risk leads to both lower funding costs and a stronger currency for the government at the expense of higher funding costs for everyone else.
ity and 2) its printing presses, not necessarily in that order. While the federal government can tax 100 percent of your money (true statement: under the due process clauses of the fifth and 14th Amendments, all that is required is for Congress to pass a law), it is unlikely to do so, and we saw by the dollars collapse early in 2008 that international creditors might issue a collective cease-and-desist order on the printing presses. If the markets sense the governments balance sheet consists of defunct mortgage securities, a credit deterioration will occur.
Trans-Atlantic trade
Lets map two different CDS costs, those for German bunds
continued on p. 32
ADVANCED STRATEGIES continued
priced in dollars and those for American bonds priced in Euros, at two different maturities, five and 10 years (Figure 1). The jump in CDS costs for the U.S. during various phases of the 2008 credit crisis and the governments response thereto is quite apparent, as is the ratchet nature of their climb: Once the market priced in a lower credit rating for the U.S., it remained elevated until the next jump.
Related reading:
Other Howard Simons articles
Minor trends make minor friends Currency Trader, February 2009. Do minor currencies offer trading opportunities the majors dont? Find out what the numbers say. Let the trend be your friend: The majors Currency Trader, January 2009. If currencies trend so much, why do trend followers usually have such blah performance? This and other questions are answered in this study of currency trends. The rupee and emerging markets Currency Trader, December 2008. Analysis suggests Indias status as a global economic power is no accident. Nordic currency confusion Currency Trader, November 2008. Get a handle on the dynamics of the Northern European currencies. The Swiss francs commodity connection Currency Trader, October 2008. How can the Swiss currency be, of all things, a commodity currency? Franc-ly, my dear, I dont give a carry Currency Trader, September 2008. Investigating the Swiss franc carry trade, and what might change its dynamics. The short, awful life of the dollar carry trade Currency Trader, August 2008. The implications of the weak-dollar policy and the dollars roles as a funding currency. Currencies and commitments Currency Trader, June 2008. Find out what COT data conveys about forex price action. Getting carried away with the kiwi Currency Trader, July 2008. Whats driving the New Zealand dollar, and how long is it likely to last? Currencies and stock index performance Currency Trader, April 2008. Find out how stock indices relate to the performance of their currencies. Whats down with the Australian dollar? Currency Trader, March 2008. Traders have many assumptions about the nature of the Australian dollar, but only one of these preconceptions appears to have any impact on the currency. Currencies and U.S. stock-sector returns Currency Trader, January 2008. This exhaustive analysis challenges some common assumptions about the relationship between currency moves and stocks. Interest-rate shocks and currency moves Currency Trader, October 2007. Short-term interest rates are typically cited as the prime catalyst of currency moves. This study puts that idea to the test. Howard Simons: Advanced Currency Concepts, Vol. 1 A discounted collection that includes many of the articles listed here. You can purchase and download past articles at http://store.activetradermag.com
Moral hazard: Banks learned they can force governments hands by failing on a grand scale, and governments learned their power rises and their funding costs fall when they extend the full faith and credit of their national treasuries to wayward financiers.
What about the CDS costs for the German bunds priced in dollars? While they are at lower basis-point levels than their American counterparts, their path has paralleled U.S. CDS costs. The credit crisis was as a global affair and clearly affected the German bunds as much if not more than it did the American bonds. Lets overlay the normalized yield spreads between the German and American bonds; this is the yield differential between the German and American bonds, divided by the
32
American yield itself. This normalized yield spread began to move strongly lower in mid-July 2008, but then shot higher into December 2008, especially at the five-year horizon, as investors fled into U.S. Treasuries. This was a rather bizarre phenomenon; as the U.S. abandoned all pretense of fiscal and monetary sobriety and began to borrow $100 billion chunks as if they were $5 bills, U.S. Treasury yields collapsed. By December 2008, four-week Treasury bills were yielding 0.0000 percent at auction and three-month bills were actually being sold at a premium to par for a negative yield to maturity. Restated, as credit risks increased in general, investors fled riskier assets for the perceived safety of sovereign debt. It is a flight-to-quality only if you choose to use quality and printing press interchangeably. Yes, it was time to punish the innocent with rising costs for mortgages and corporate debt, and reward the guilty with declining funding costs for sovereign debt even as the sovereign was trying desperately to inflate its way out of every problem, real and imagined. The expansion of moral hazard was complete; banks learned they can force the hand of government by failing on a grand scale, and governments learned their power rises and their funding costs fall when they extend the full faith and credit of their national treasuries to wayward financiers.
money flows into mismanaged government coffers. Five- and 10-year CDS costs on JGBs priced in USD exploded higher between November 2007 and the March 2008 Bear Stearns panic low (Figure 2). They retreated between March and June 2008 and hit a reaction low in early June, marked on both charts with a green vertical line, and then rose sharply during the September-October crisis. The normalized yield spread between Japanese and American fiveand 10-year bonds started to rise after June 2008. Japanese yields fell faster than American yields even though the credit risk for Japanese bonds rose at a faster rate and the yen weakened against the dollar. This was a temporary phenomenon, however. By the time the FOMC announced its anything goes monetary policy on Dec. 16, 2008, the yen was at a thirteen-year high, and shortterm American rates were below their Japanese counterparts in what some may regard as a violation of the laws of financial gravity. This is completely parallel to the phenomenon observed for American and European bonds and thus confirms an emerging principle of sovereign credit risk: Governments are being rewarded with lower borrowing costs as investors flee risk.
volatility and substitute the yen itself, we see this principle emerge quite clearly (Figure 4). Over the past year, the yen and five-year CDS costs have moved in tandem. The circle has been closed: Higher credit risk leads to both lower funding costs and a stronger currency for the government at the expense of higher funding costs for everyone else. We have to consider another, grimmer scenario. If the Great Depression was prolonged and deepened by policy errors, did the world move away from greater centralized planning? No, the opposite occurred. The era initiated a half-century of ever-greater government interference in the economy. Past performance does not predict future results, but what else can we use? Expect the massive policy failures of 2007-2008 to lead to greater government intervention.
For information on the author see p. 6.
Impact on the yen

Now lets turn this longer history toward the Japanese currency. If we map the implied volatility on threemonth non-deliverable forwards on the yen against five-year CDS costs, we see how this volatility jumped during the August 2007 panic, well ahead of any increases in CDS costs (Figure 3). It peaked simultaneously with these costs in the January, March, and September-October 2008 panics (yes, there are a lot of panics to enumerate). Volatility on the yen remained elevated along with these CDS costs. If we strip out the intermediary of
33
Trans-Pacific trade
One of the downsides of the U.S.German example is its short life; the CDS series for the Treasuries begins in April 2008, and that simply is too small of a data sample to draw any meaningful conclusions between credit risk and currencies. However, if we look across the Pacific to Japan, we can find CDS on JGBs trading back to 2003. Lets see whether these instruments confirm the principle suggested here that
INTERNATIONAL MARKETS
CURRENCIES (vs. U.S. DOLLAR)
Current price vs. U.S. dollar
1.45017 0.09981 0.12898 0.14645 0.85894 0.64528 0.80105 0.02001 0.65432 1.27509 0.02881 0.41999 0.51066 0.02825 0.01047 0.11294 0.02786
Rank*
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Country
Currency
British pound South African rand Hong Kong dollar Chinese yuan Swiss franc Australian dollar Canadian dollar Indian rupee Singapore dollar Euro Taiwanese dollar Brazilian real New Zealand dollar Thai baht Japanese yen Swedish krona Russian ruble
1-month gain/loss
4.99% 1.66% 0.02% 0.02% -0.97% -1.40% -1.42% -1.57% -1.69% -1.86% -2.93% -3.35% -3.55% -4.98% -7.10% -7.25% -10.01%
3-month gain/loss
-3.19% 3.29% -0.03% -0.17% 4.26% 1.64% 1.03% 0.30% -0.35% 0.48% -3.81% -0.07% -4.94% -1.60% 0.19% -7.92% -23.42%
6-month gain/loss
-21.76% -23.87% 0.66% -0.05% -5.69% -25.56% -16.16% -13.34% -7.62% -13.83% -9.69% -32.14% -28.01% -4.85% 15.18% -28.54% -32.08%
52-week high
2.0397 0.1391 0.129 0.1466 1.0375 0.9849 1.0297 0.03974 0.7434 1.6038 0.03335 0.6414 0.8214 0.03373 0.01148 0.1718 0.04334
52-week low
1.3501 0.0841 0.1279 0.1395 0.813 0.6005 0.768 0.01843 0.6489 1.2329 0.02865 0.3751 0.4959 0.0262 0.00904 0.1111 0.0271
Previous rank
10 12 5 3 15 11 4 8 13 14 9 2 16 6 1 7 17
As of Feb. 25 *based on one-month gain/loss
ACCOUNT BALANCE
Rank
1 2 3 4 5 6 7 8 9 10 11 12
34
Country
Singapore Switzerland China Hong Kong Netherlands Taiwan Sweden Russia Germany Japan Canada Brazil
2007
41.395 65.534 379.162 22.796 55.891 25.402 25.903 72.543 175.371 195.904 25.603 10.253
Ratio*
27 15.8 11.7 11.2 7.4 6.8 6 5.9 5.4 4.5 1.8 0.8
2006
36.288 58.708 249.866 20.586 8.6 24.661 27.707 95.322 147.134 170.437 20.792 13.276
2008+
42.208 64.106 453.146 20.456 6.7 28.365 25.584 49.181 174.137 195.145 17.909 4.299
Rank
13 14 15 16 17 18 19 20
Country
Mexico France India UK Australia U.S. South Africa Spain
2007
-6.368 -39.363 -23.131 -96.687 -50.816 -784.341 -18.495 -138.916
Ratio*
-0.7 -1.6 -2.1 -3.5 -5.7 -5.7 -6.7 -9.8
2006
-2.425 -27.712 -9.503 -77.236 -41.49 -811.483 -16.608 -106.399
2008+
-10.588 -48.885 -32.301 -105.144 -52.988 -788.293 -19.237 -154.849
Totals in billions of U.S. dollars *Account balance in percent of GDP +Estimate Source: International Monetary Fund, World Economic Outlook Database, October 2008
NON-U.S. DOLLAR FOREX CROSS RATES

Rank Currency pair Symbol GBP/JPY GBP/EUR CHF/JPY AUD/JPY CAD/JPY EUR/JPY BRL/JPY CHF/EUR CHF/CAD AUD/EUR CAD/EUR AUD/CAD AUD/CHF BRL/EUR BRL/CAD BRL/AUD CHF/GBP AUD/GBP CAD/GBP BRL/GBP Feb. 25 138.564 1.13748 82.08369 61.65867 76.5369 121.84 40.12818 0.67369 1.07277 0.5061 0.62829 0.80592 0.75145 0.32941 0.52455 0.65112 0.59238 0.44509 0.55253 0.28969 1-month gain/loss 13.07% 6.94% 6.58% 6.07% 6.04% 5.62% 3.96% 0.90% 0.42% 0.39% 0.39% -0.02% -0.50% -1.58% -1.99% -2.09% -5.67% -6.13% -6.15% -7.99% 1-month gain/loss -0.72% -1.13% -1.14% -2.88% -3.27% -6.64% -7.06% -8.37% -8.45% -8.55% -8.57% -8.75% -11.11% -11.92% -13.19% Rate (%) 0-0.25 0.1 2 1 1 0.5 3.25 3.5 12.75 2.5 1.25 5.5 10.5 1-month 2.05% -0.14% -0.37% -0.42% -1.84% 3-month gain/loss -3.38% -3.67% 4.07% 1.44% 0.84% 0.29% -0.26% 3.75% 3.16% 1.15% 0.54% 0.57% -2.52% -0.55% -1.12% -1.71% 7.67% 4.97% 4.34% 3.21% 3-month gain/loss 9.82% 2.38% 0.98% -10.36% -8.22% -7.13% -5.68% -6.05% -2.21% -7.73% -10.79% -15.97% -15.66% -18.90% -14.16% 6-month gain/loss -32.08% -9.24% -18.13% -35.39% -27.25% -25.19% -41.12% 9.44% 12.44% -13.67% -2.76% -11.26% -21.13% -21.29% -19.10% -8.90% 20.51% -4.89% 7.12% -13.29% 6-month gain/loss -29.82% -38.39% -38.38% -42.07% -35.53% -29.53% -31.10% -40.31% -93.95% -29.64% -39.62% -38.09% -38.92% -42.01% -33.42% 52-week high 215.863 1.3304 105.071 104.448 108.96 169.958 69.3981 0.6992 1.1583 0.6268 0.6785 0.9833 1.0095 0.4197 0.6719 0.7391 0.661 0.4902 0.5918 0.339 52-week high 73,920.00 18,137.30 26,387.40 14,601.30 6,059.50 33,232.89 32,292.90 15,154.80 3,269.88 6,377.00 1,440.24 5,142.10 7,231.86 26,458.00 7,802.60 Aug. 08 2 0.5 4.25 5 3 2.75 7.25 8 13 5.25 3.625 9 12 High 126.53 96.16 98.705 141.9 128.65 52-week low 118.782 1.0195 74.698 55.1876 70.6656 112.045 36.0109 0.6106 0.9135 0.4725 0.5799 0.7568 0.712 0.2941 0.4726 0.5991 0.4658 0.3786 0.4874 0.2441 52-week low 29,435.00 7,697.39 10,676.30 6,994.90 3,201.50 17,814.42 16,480.00 7,566.32 1,473.77 3,665.20 741.02 2,662.73 3,790.79 12,349.00 4,660.90 Feb. 08 3 0.5 4 5.25 4 2.75 6.75 8.25 11.25 5 3.375 7.75 11 Low 109.65 93.18 93.595 132.09 111.15 Previous 1 4 2 5 3 Previous 15 4 20 17 13 19 10 12 18 7 2 14 3 1 9 5 16 11 8 6
1 Pound / Yen 2 Pound / Euro 3 Franc / Yen 4 Aussie $ / Yen 5 Canada $ / Yen 6 Euro / Yen 7 Real / Yen 8 Franc / Euro 9 Franc / Canada $ 10 Aussie $ / Euro 11 Canada $ / Euro 12 Aussie $ / Canada $ 13 Aussie $ / Franc 14 Real / Euro 15 Real / Canada $ 16 Real / Aussie $ 17 Franc / Pound 18 Aussie $ / Pound 19 Canada $ / Pound 20 Real / Pound
GLOBAL STOCK INDICES

Rank Country Index Feb. 25 38,232.00 8,902.56 13,005.08 7,461.22 3,281.50 18,817.56 18,200.70 7,932.30 1,616.79 3,849.00 764.90 2,696.92 3,846.21 12,494.00 4,702.50 Previous 1 8 14 12 4 7 15 2 3 6 5 11 13 10 9
1 Brazil Bovespa 2 India BSE 30 3 Hong Kong Hang Seng 4 Japan Nikkei 225 5 Australia All ordinaries 6 South Africa FTSE/JSE All Share 7 Mexico IPC 8 Canada S&P/TSX composite 9 Singapore Straits Times 10 UK FTSE 100 11 U.S. S&P 500 12 France CAC 40 13 Germany Xetra Dax 14 Italy MIBTel 15 Switzerland Swiss Market Country U.S. Japan Eurozone UK Canada Switzerland Australia New Zealand Brazil Korea Taiwan India South Africa Rank 1 2 3 4 5 Country Germany Australia UK Japan U.S.
GLOBAL SHORT-TERM INTEREST RATES

Interest rate Fed funds rate Overnight call rate Refi rate Repo rate Overnight funding rate 3-month Swiss Libor Cash rate Cash rate Selic rate Overnight call rate Discount rate Repo rate Repurchase rate Rate BUND 10-year bonds Short sterling Government Bond 10-year T-note
Feb. 25
Last change 0.5 (Dec. 08) 0.2 (Dec. 08) 0.5 (Jan. 09) 0.5 (Feb. 09) 0.5 (Jan. 09) 0.5 (Dec. 08) 1.00 (Feb. 09) 1.50 (Jan. 09) 1.00 (Jan. 09) 0.5 (Jan. 09) 0.25 (Feb. 09) 1.00 (Jan. 09) 1.00 (Feb. 08) 3-month 4.13% 0.47% 1.47% 0.04% 0.38% 6-month 9.75% 1.62% 4.14% 0.69% 4.13%
GLOBAL BOND RATES

125.82 95.765 98.13 139.2 121.63
35
INTERNATIONAL MARKETS continued

Gross Domestic Product*
Period AMERICAS Argentina Brazil Canada EUROPE France Germany UK Q3 Q3 Q3 Q4 Q4 Q3 Release date 12/18 12/9 12/1 2/13 2/13 12/23 Change -5.1% 1.8% 1.2% -0.9% -1.2% -0.3% 1-year change 19.1% 6.8% 6.3% 0.9% 0.6% 2.3% Next release 3/18 3/10 3/2 5/15 5/15 3/27 AFRICA S. Africa Period Q4 Release date 2/24 Change 0.8% 1-year change 11.0% Next release 5/26
ASIA AND SOUTH PACIFIC Australia Q3 Hong Kong Q4 India Q4 Japan Q4 Singapore Q4
12/3 2/25 2/27 2/16 2/27
0.1% 1.5% 11.1% -1.7% -0.5%
1.9% -2.6% 14.0% -6.6% -5.6%
3/4 5/15 5/29 NLT 5/20 NLT 5/22
* Final estimates, at current prices, seasonally adjusted
Unemployment
Period AMERICAS Argentina Brazil Canada EUROPE France Germany UK Q4 Jan. Jan. Q3 Jan. Oct.-Dec. Release date 2/25 2/20 2/6 12/4 2/26 2/11 Rate 7.3% 8.2% 7.2% 7.7% 7.3% 6.3% 1-year Change change -0.5% 1.4% 0.6% 0.1% 0.1% 0.5% -0.2% 0.2% 1.4% -0.5% -0.4% 1.1% Next release 4/27 3/26 3/13 3/5 3/31 3/18 Period Release date Rate 1-year Next Change change release
ASIA AND SOUTH PACIFIC Australia Jan. Hong Kong Nov.-Jan. Japan Jan. Singapore Q4
2/12 2/17 2/27 1/30
4.8% 4.6% 4.1% 2.6%
0.3% 0.5% -0.2% 0.4%
0.7% 1.2% 0.3% 0.9%
3/12 3/17 3/31 4/30
CPI
Period AMERICAS Argentina Brazil Canada EUROPE France Germany UK Jan. Jan. Jan. Jan. Jan. Jan. Release date 2/11 2/6 2/20 2/20 2/11 2/17 Change 0.6% 0.5% -0.3% -0.4% -0.5% -0.7% 1-year change 0.5% 5.8% 1.1% 0.7% 0.9% 3.0% Next release 3/11 3/11 3/19 3/12 3/10 3/24 AFRICA S. Africa Period Jan. Release date 2/25 Change 0.4% 1-year change 8.1% Next release 3/25
ASIA AND SOUTH PACIFIC Australia Q4 Hong Kong Jan. India Jan. Japan Jan. Singapore Jan.
1/28 2/23 2/27 2/27 2/23
-0.3% 0.4% 0.7% -0.6% -0.1%
3.7% 3.1% 10.4% 0.0% 2.9%
4/23 3/20 3/31 3/27 3/23
PPI
Period AMERICAS Argentina Brazil Canada EUROPE France Germany UK Jan. Jan. Jan. Dec. Dec. Jan. Release date 2/11 2/7 2/27 1/4 1/21 2/6 Change -0.1% -0.3% -0.1% -1.4% -1.0% 0.1% 1-year change 7.9% 8.3% 1.2% 0.0% 4.3% 3.5% Next release 3/11 3/7 3/31 3/5 3/6 3/6 AFRICA S. Africa Period Jan. Release date 2/26 Change -0.7% 1-year change 9.2% Next release 3/26
ASIA AND SOUTH PACIFIC Australia Q4 Hong Kong Q3 India Jan. Japan Jan. Singapore Jan.
1/27 12/12 2/13 2/12 2/27
1.3% -1.2% -0.2% -1.0% 1.2%
6.4% 5.5% 5.3% -0.2% -17.7%
4/20 3/13 3/13 3/11 3/27
LEGEND: Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate. As of Feb. 27
36 March 2009 CURRENCY TRADER
GLOBAL ECONOMIC CALENDAR

Legend
CPI: Consumer price index ECB: European Central Bank FDD (first delivery day): The first day on which delivery of a commodity in fulfillment of a futures contract can take place. FND (first notice day): Also known as first intent day, this is the first day on which a clearinghouse can give notice to a buyer of a futures contract that it intends to deliver a commodity in fulfillment of a futures contract. The clearinghouse also informs the seller. FOMC: Federal Open Market Committee GDP: Gross domestic product ISM: Institute for supply management LTD (last trading day): The final day trading can take place in a futures or options contract. PMI: Purchasing managers index PPI: Producer price index Economic Release time release (U.S.) (ET) GDP 8:30 a.m. CPI 8:30 a.m. ECI 8:30 a.m. PPI 8:30 a.m. ISM 10:00 a.m. Unemployment 8:30 a.m. Personal income 8:30 a.m. Durable goods 8:30 a.m. Retail sales 8:30 a.m. Trade balance 8:30 a.m. Leading indicators 10 a.m.
MARCH/APRIL
18
U.S.: FOMC interest-rate announcement; February CPI Japan: Bank of Japan interest-rate announcement FDD: March U.S. dollar index futures (ICE); March currency futures U.S.: February leading indicators Canada: February CPI Germany: February PPI Hong Kong: Q4 GDP; February CPI
March 1 2
U.S.: February ISM; January personal income Canada: Q4 GDP Canada: Bank of Canada interest-rate announcement U.S.: Fed. beige book Australia: Q4 GDP France: Q4 employment report; January PPI UK: Bank of England interest-rate announcement ECB: Governing council interest-rate announcement U.S.: February employment report Germany: January PPI LTD: March U.S. dollar index options (ICE); March currency options Brazil: February PPI
3 4 5
19 20
21 22 23 24
U.S.: February durable goods Mexico: February employment report; March 15 CPI S. Africa: Q4 employment report S. Africa: February CPI Brazil: February employment report S. Africa: February PPI Japan: February CPI UK: Q4 GDP
7 8 9 10 11 12
25 26
Mexico: February PPI; Feb. 28 CPI Brazil: Q4 GDP Germany: February CPI Japan: February PPI U.S.: February retail sales Australia: February employment report France: February CPI U.S.: January trade balance Canada: February employment report Hong Kong: Q4 PPI India: February PPI
27 28 29 30 31
MARCH 2009 1 8 2 9 3 4 5 6 7
13
10 11 12 13 14
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4
Canada: February PPI Germany: February employment report India: February CPI Japan: February employment report
14
APRIL 2009 29 30 31 5 6 7 1 8 2 9 3 4 10 11
15 16 17
LTD: March U.S. dollar index futures (ICE); March currency futures U.S.: February PPI and housing starts Hong Kong: Dec.-Feb. employment report FND: March U.S. dollar index futures (ICE)
April 1 2 3
U.S.: March ISM France: February PPI U.S.: March employment report LTD: April U.S. dollar index (ICE); April currency options
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2
The information on this page is subject to change. Currency Trader is not responsible for the accuracy of calendar dates beyond press time. CURRENCY TRADER March 2009
37
FOREX NEWS
Two exchanges, two approaches to new FX futures

As currency futures volume slumps, the CME and ICE hope to entice investors with new products.
FIGURE 1 YEAR-OVER-YEAR FX FUTURES VOLUME Average daily volume for forex futures on the CME and ICE has fallen recently. Despite the ICEs new currency contracts ICE Millions the exchanges year-over-year forex volume dropped by more than 40 percent for three months in a row.
n Feb. 18, the CME Group announced it would begin offering currency futures contracts of one-tenth the size of its standard contracts. These E-Micro forex contracts are scheduled to launch on March 22 for six currency pairs. The Euro/U.S. dollar (EUR/USD), British pound/U.S. dollar (GBP/USD), and Australian dollar/U.S. dollar (AUD/USD) EMicro contracts will be fully fungible with their full-sized counterparts, with margins and exchange fees proportionally scaled down to one-tenth of the full-contract cost. The three remaining contracts, U.S. dollar/Japanese yen (USD/JPY), U.S. dollar/Swiss franc (USD/CHF), and U.S. dollar/Canadian dollar (USD/CAD), cannot be directly offset because of the reversal of the base and quote currencies from the full-contract convention. The CME Group says it hopes to attract the retail crowd with its new contracts, not only with its small-trading size, but also by offering an alternative to the interbank, over-thecounter (OTC) forex market with centralized clearing and guaranteed counterparty credit by trading on CMEs Globex electronic platform. This is the opposite direction the IntercontinentalExchange (ICE) went with its ICE Millions FX Futures, launched in November 2008. These contracts represent a million units of the base currency 10 times the size of its standard forex futures contracts. Because an E-Micro contract repre38
sents only one-tenth of the currency units of a standard contract, a one-tick move represents the gain or loss of a much smaller amount. For example,
for the CMEs standard Australian dollar/U.S. dollar futures contract (AD), which represents 100,000 Australian dollars, a single tick is 0.0001, or $10
TABLE 1 ICE MILLIONS MONTHLY VOLUME TOTALS A few of the contracts, which represent 10 times as many units of currency as their standard counterparts, saw a burst of interest in their first month of trading, but quickly fell off over the following months. Currency pair EUR/USD GBP/USD USD/CAD USD/JPY USD/CHF USD/SEK EUR/GBP EUR/CAD EUR/JPY EUR/SEK EUR/CHF AUD/USD Futures symbol IEO IMP ISV ISN IMF IKX IGB IEP IEJ IRK IRZ IAU Feb. (through 25th) 552 13 0 684 1 0 0 27 2 0 0 0
Jan. 852 8 0 590 0 0 0 0 0 0 0 0
Dec. 722 44 0 305 2 0 0 0 0 0 0 1
Nov. 4,082 283 0 1,478 47 0 0 0 0 0 0 2
Total 6,208 348 0 3,057 50 0 0 27 2 0 0 3
CURRENCY FUTURES SNAPSHOT

as of Feb. 27
The information does NOT constitute trade signals. It is intended only to provide a brief synopsis of each markets liquidity, direction, and levels of momentum and volatility. See the legend for explanations of the different fields.
Market
Symbol Exchange Volume
OI
10-day move/% rank
20-day move/% rank
60-day move/% rank
Volatility ratio/rank
Eurocurrency EC CME 199.6 142.8 -0.58% / 6% -1.98% / 23% 0.22% / 7% .21 / 45% Japanese yen JY CME 91.5 106.4 -7.60% / 88% -8.28% / 95% -4.67% / 100% .58 / 98% British pound BP CME 78.1 80.6 0.94% / 0% 0.10% / 0% -3.93% / 4% .10 / 7% Canadian dollar CD CME 33.9 62.7 -1.23% / 25% -3.72% / 71% -2.46% / 20% .21 / 75% Swiss franc SF CME 33.6 29.8 -0.15% / 6% -1.44% / 14% 2.87% / 67% .16 / 18% Australian dollar AD CME 32.3 45.1 -0.14% / 0% -1.35% / 21% -0.31% / 0% .25 / 73% Mexican peso MP CME 9.1 37.9 -3.17% / 74% -5.93% / 93% -10.27% / 39% .22 / 100% U.S. dollar index DX ICE 4.7 18.2 2.11% / 73% 1.95% / 31% 1.13% / 9% .26 / 58% E-Mini eurocurrency ZE CME 2.6 2.4 -0.58% / 6% -1.98% / 23% 0.22% / 7% .21 / 45% New Zealand dollar NE CME 1.5 12.1 -2.10% / 50% -1.76% / 10% -5.72% / 12% .15 / 35% Note: Average volume and open interest data includes both pit and side-by-side electronic contracts (where applicable). Price activity is based on pit-traded contracts.
LEGEND:
Volume: 30-day average daily volume, in thousands. OI: 30-day open interest, in thousands. 10-day move: The percentage price move from the close 10 days ago to todays close. 20-day move: The percentage price move from the close 20 days ago to todays close. 60-day move: The percentage price move from the close 60 days ago to todays close. The % rank fields for each time window (10-day moves, 20-day moves, etc.) show the percentile rank of the most recent move to a certain number of the
previous moves of the same size and in the same direction. For example, the % rank for 10-day move shows how the most recent 10-day move compares to the past twenty 10-day moves; for the 20-day move, the % rank field shows how the most recent 20-day move compares to the past sixty 20-day moves; for the 60-day move, the % rank field shows how the most recent 60-day move compares to the past onehundred-twenty 60-day moves. A reading of 100% means the current reading is larger than all the past readings, while a reading of 0% means the current reading is lower than the previous readings. Volatility ratio/% rank: The ratio is the short-term
volatility (10-day standard deviation of prices) divided by the long-term volatility (100-day standard deviation of prices). The % rank is the percentile rank of the volatility ratio over the past 60 days.
This information is for educational purposes only. Currency Trader provides this data in good faith, but assumes no responsibility for the use of this information. Currency Trader does not recommend buying or selling any market, nor does it solicit orders to buy or sell any market. There is a high level of risk in trading, especially for traders who use leverage. The reader assumes all responsibility for his or her actions in the market.
per contract. However, for the E-Micro equivalent, a single tick would be worth only $1 per contract. By contrast, a single tick for an ICE Millions contract, which is set at 0.0005, is equivalent to $500. Figure 1 shows the year-over-year changes in monthly average daily currency volume (ADV) for the CME Group and ICE. ICE volume began to decline in mid-2008. Despite the launch of the new Millions contracts in November, the exchanges monthly ADV dropped by more than 40 percent in November, December, and January. Table 1 shows the total monthly volume for the ICE Millions contracts through Feb. 25. Five contracts in the Millions suite had yet to trade by that date, and four of the contracts had yet to see more than 50 contracts change hands. The Euro/U.S. dollar contract (IEO), by far the most popular, traded
more than 4,000 contracts in its first month, but has been unable to rival that number in subsequent months. However, because of its inflated size, each ICE Millions trade represents 10 times the volume of a trade in a standard-sized contract. For example, total January volume for the ICEs standard Euro/U.S. dollar futures contract (EO) was 10,615, with each contract representing 100,000 units of currency. In the same month, 552 IEO contracts traded, but because each represents a million currency units, volume was equivalent to 5,520 trades in the EO contract. While the demand for currency products from the CME Group hasnt suffered as much as ICEs, the exchange still posted year-over-year drops in excess of 20 percent in both November and December following mostly steady growth throughout much of 2008.
39
INDUSTRY NEWS continued
Southeast Asian coalition increases monetary support fund

Group of Asian nations decides to increase stabilization fund to $120 billion following summit.
ollowing their most recent summit in Phuket, Thailand, the Association of Southeast Asian Nations plus the East Asian nations of China, Japan, and Korea (ASEAN+3) announced on Feb. 22 their intention to increase their combined monetary stabilization fund from $80 billion to $120 billion. While we note that the Asian
economies are in a better position to face challenges due to the structural reforms undertaken since the Asian financial crisis, we recognize that the regional economy is now facing great challenges, the groups announced in their joint statement. The stabilization fund, called the Multilateralised Chiang Mai Initiative (CMIM), which began in 1997 follow-
FIGURE 1 U.S. DOLLAR/ SINGAPORE DOLLAR Along with many other Southeast Asian currencies, the Singapore dollar has fallen recently, prompting the regions financial leaders to approve a $40 billion monetary stabilization fund increase.
Managed money: Barclay Trading Groups currency trader rankings for January 2009
Top 10 currency traders managing more than $10 million as of Jan. 31, ranked by January 2009 return. Rank Trading advisor 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Goldman Sachs (Fund. Currency) Alder Cap'l (Alder Global 20) Rhicon Currency Mgmt (4XiM) Dominion Capital Mgmt. (FX) IKOS G10 Currency Fund Alder Cap'l (Alder Global 10) Geo Economic Mgmt. System Ltd IKOS Currency JB Currency Hedge (Discr Seg Port) Capricorn Advisory Mgmt (FXG10) January return 6.47% 5.20% 4.71% 4.08% 3.79% 2.90% 2.66% 2.31% 2.28% 2.15% 2009 YTD return 6.47% 5.20% 4.71% 4.08% 3.79% 2.90% 2.66% 2.31% 2.28% 2.15% $ Under mgmt. (millions) 306.8 170.0 20.0 10.0 719.7 36.0 44.7 719.7 20.4 11.8
Source: eSignal
Top 10 currency traders managing less than $10 million and more than $1 million as of Jan. 31, ranked by January 2009 return. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Quant Trading (FX Quant 11) Informed Funds (Trend Strategies) Mellon Capital Mgmt (Currency Opp) Zone Cap'l FX Managed Account Wealth Builder FX Group M2 Global Mgmt (5X) Putnam Currency Alpha Fund Blue Fin Capital (Managed Currency) Capricorn Advisory Mgmt (fxMT Growth) Aspect Capital (Gl. Currency) 8.00% 6.94% 5.64% 4.11% 3.70% 3.27% 3.24% 3.11% 1.71% 1.66% 8.00% 6.94% 5.64% 4.11% 3.70% 3.27% 3.24% 3.11% 1.71% 1.66% 1.0 7.2 9.0 1.0 1.1 1.0 1.8 1.3 1.0 5.0
Source: BarclayHedge (http://www.barclayhedge.com). Based on estimates of the composite of all accounts or the fully funded subset method. Does not reflect the performance of any single account. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
ing the Asian financial crisis that severely damaged the currencies of the ASEAN member nations, provides funding for a multilateral currency swap scheme intended to combat short-term liquidity issues, similar to the International Monetary Fund (IMF). The finance ministers of the 13 countries involved in the agreement will make the final decisions for the increase when they meet again in March 2009. China, Japan, and South Korea are expected to foot a large portion of the bill. Currencies in the region fell hard vs. the dollar in early 2009. The Singapore dollar lost 6.9 percent in 2009 through Feb. 25 (Figure 1). The Thai bhat, which collapsed during the 1997 crisis, fell 3 percent in the same period, while the Japanese yen lost 7.4 percent.
40
EVENTS
Event: 25th Annual Risk Management Conference Date: March 8-10 Location: The Ritz-Carlton, Laguna Niguel, Dana Point, Calif. For more information: http://www.cboermc.com Event: Capital Markets Boot Camp Event: 34th Annual International Futures Industry Conference Date: March 11-14 Location: Boca Raton Resort & Club, Boca Raton, Fla. For more information: http://www.futuresindustry.org/boca-2009.asp Event: Second Annual Conference on Institutional Options Trading Date: March 17 Location: New York City For more information: http://www.fmwonline.com Event: The World Money Show Date: March 17-19 Location: Hong Kong Date: May 11-14 Location: Las Vegas For more information: Go to http://www.moneyshow.com and click on Events Event: International Traders Expo Date: June 3-6 Location: Los Angeles For more information: http://www.tradersexpo.com Event: The 15th Forbes Cruise for Investors Date: June 2-14 Location: Lisbon to Venice For more information: Go to http://www.moneyshow.com and click on Events Event: Securities Operations World 2009 Date: May 27 Location: New York City For more information: http://www.fmwonline.com Date: March 25-26 Location: New York City For more information: http://www.fmwonline.com Event: 10th Free Annual Technical Analysis Expo Date: March 20-21 Location: Paris, France For more information: http://www.salonAT.com
Three good tools for targeting customers
CONTACT
Bob Dorman Ad sales East Coast and Midwest bdorman@activetradermag.com (312) 775-5421 Allison Chee Ad sales West Coast and Southwest achee@activetradermag.com (415) 272-0999 Mark Seger Account Executive seger@activetradermag.com (312) 377-9435
41
NEW PRODUCTS & SERVICES

BBForex has upgraded its Web sites portfolio section. The new features include streamed quotes for all symbol pairs within a selected portfolio; advanced charts with dynamic zoom, chart-window time movement, resizing, rearranging, news, indicators, and history bar; statistical data such as highs and lows for different relevant time periods; single symbol pair plotting within a specific portfolio or from the complete list of symbol pairs; and multiple symbol pair plotting on one page. The features are available via http://www.BBForex.com and http://www.BB4X.com. Autochartist launched its automated chart-pattern service on the Forex Club platform and has expanded its client base to include Forex Club members, who have been provided with a special version of Autochartists existing service. Autochartist recognizes patterns such as channels, head and shoulders, triangles, and wedges. Traders are alerted to patterns in real time according to their search criteria. Visit http://www.autochartist.com for more information. Lightspeed Financial launched Lightspeed Spotlight, an online social networking community enabling its customers to interact with other Lightspeed customers and participate in online educational courses and seminars. Members can participate in group discussions; create groups and personal blogs; gain access to educational information and resources including discussions and online Webinars from Lightspeed Trading, Options Industry Council, and the Chicago Mercantile Exchange; view and post videos, articles and events on Spotlights message boards, blogs, and calendar; and access research and analyst Webinars from StreetBrains.com and chart pattern recognition techniques provided by Recognia, Inc. FXStreet.com launched a Japanese Web site, www.FXStreet.jp, offering some of the main sites most popular features, including rates and charts, Currencies at a Glance, economic calendar, forex tools, and a brokers section. With the Japanese version of FXstreet.com, forex information is now provided in English, Spanish, Chinese Simplified, and Japanese. In 2009 the company will also release Russian, French, and Arab versions. optionsXpress announced three additions to its brokerage platform. The new myOX portal allows users to customize the http://www.optionsXpress site to their specific interests and preferences. myOX users design their own control centers on the site by using the adaptable modular interface to select the information they want to see, its location on the screen, and even how it is displayed. Users can select from 16 different preset myOX modules including account balances, watch lists, charts, positions, futures and options chains, and even RSS feeds from financial news sites or blogs. Similarly, the new Research Center provides a single access point for research reports, breaking news, market commentary, quotes, and other information. The Research Center allows users to read any full report or news item without ever leaving the page. The new Education Center offers investors access to progressive investment education courses, hundreds of free online learning events, as well as a library of general investing information.
Note: New Products and Services is a forum for industry businesses to announce new products and upgrades. Listings are adapted from press releases and are not endorsements or recommendations from the Active Trader Magazine Group. E-mail press releases to editorial@currencytradermag.com. Publication is not guaranteed.
FOREX TRADE JOURNAL
Dont blink or youll miss the trade.

TRADE
Date: Tuesday, Feb. 24. Entry: Short the U.S. dollar/Canadian
dollar pair (USD/CAD) at 1.2412.

Reason(s) for trade/setup: Testing
indicated favorable odds for a down move after the inside day that formed on Feb. 24 (marked with red arrow on the inset chart). Also, the U.S. equity market bounced strongly off support; the dollar has moved mostly inversely to the stock market since the financial panic unfolded. A supplemental reason was price was also poised to at least test the up trendlines connecting the two most recent swing lows (blue trendline) and low closes (red trendline).
Initial stop: 1.2609. Initial target: 1.2308. Take partial profits and lower stop.
Secondary target: 1.2200.
RESULT
Exit: 1.2609. Profit/loss: -.0197 (-1.6 percent). Outcome: This trade was a (irony alert) double feel-good:
recent daily ranges (the median daily range for the 10 days preceding the entry was .0172), it was probably not liberal enough. Unfortunately, we did not take this into consideration before the trade, instead simply placing the stop above the highs of the past two daily bars. Given the markets haphazard trading, it would have been wise to at least expect a challenge to the recent swing high of 1.2672 and place the stop above that high, adjusted by some measure of recent volatility. The fact a stop level that far away might have seemed excessive casts doubt on the wisdom of the entry level. The pair was almost certain to rebound a bit before moving lower, and entering at a higher price would have resulted in a smaller loss or possibly still being in the position with a stop in place at a higher level.
Note: Initial trade targets are typically based on things such as the historical performance of a price pattern or a trading system signal. However, because individual trades are dictated by immediate circumstances, price targets are flexible and are often used as points at which to liquidate a portion of a trade to reduce exposure. As a result, initial (pre-trade) reward-risk ratios are conjectural by
The market turned around on a dime in the wrong direction as soon as we entered, and the trade got stopped out by one tick. Yes, 1.2610 was the high on Feb. 25. Although the stop level seemed fairly liberal, given the
TRADE SUMMARY
Date Currency Entry price Initial stop Initial target IRR Exit Date Point 2/24/09 USD/CAD 1.2412 1.2609 1.2308 0.53 1.2609 2/25/09 -.0197 P/L % -1.6% .0018 -.0197 1 day LOP LOL Trade length
Legend: IRR initial reward/risk ratio (initial target amount/initial stop amount); LOP largest open profit (maximum available profit during lifetime of trade); LOL largest open loss (maximum potential loss during life of trade).
CURRENCY TRADER March 2009 43
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CurrencyTrader (March 2009, Vol 6, No. 3)

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Strategies, analysis, and news for FX traders

March 2009 Volume 6, No. 3

On the Money Rational fear and the forex market . . . . .20

Advanced Strategies Sovereign credit risk and currencies . . .28

Volatile times for krona . . . . . . . . . . . . . .12

Spot Check Pound/dollar . . . . . . . . . . . . . . . . . . . . . .16

March 2009 CURRENCY TRADER

International Markets . . . . . . . . . . . . . .34

Global Economic Calendar . . . . . . . . . .37

Forex News Two exchanges, two approaches to new FX futures . . . . . . . . . . . . . . . . . .38

New Products & Services . . . . . . . . . . . . .42 Forex Journal . . . . . . . . . . . . . . . . . . . . .43

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GLOBAL MARKETS continued

3.5-percent 2009 decline and TD Securities forecast of a 3.1-percent decline.

GLOBAL MARKETS continued

Volatile times for krona

Banking and bailouts

Source: ADVFN (http://www.advfn.com)

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SPOT CHECK continued

The two-week pattern that appeared in mid-January was a relatively

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Rational fear and the forex market

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

CURRENCY TRADER March 2009

ON THE MONEY continued

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

CURRENCY TRADER March 2009

ON THE MONEY continued

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

TRADING STRATEGIES continued

Source: data eSignal and Reuters Online; chart MetaStock

Source: data eSignal and Reuters Online; chart MetaStock

Other Barbara Rockefeller articles:

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CURRENCY TRADER March 2009

Sovereign credit risk and currencies