Strategies, analysis, and news for FX traders

April 2010
Volume 7, No. 4

THE DOLLAR VS. EUROPE:

Outlook for the buck,
Euro, and pound p. 6

PATTERN DISSECTION:
What’s driving your
strategy? p. 16

THE CHILEAN PESO’S

singular path p. 20

TRAPPED AT THE BOTTOM

of a Euro trade p. 32
 CONTENTS

Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Currency Futures Snapshot . . . . . . . .24

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

U.S. gains traction,
Europe spins wheels . . . . . . . . . . . . . . . . .6
The U.S. might not be clicking on all cylinders
economically, but it’s a piston or two ahead of
Europe — as evidenced by the dollar’s recent
strength. The question is, what might upset this
apple cart?
By Currency Trader Staff
Numbers from the global forex, stock,
and interest-rate markets.
Global Economic Calendar . . . . . . . . . .29
Important dates for currency traders.
Events . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Conferences, seminars, and other events.

On the Money New products & services . . . . . . . . . . . .30

Straight talk on sovereign risk . . . . . . . . .12
Forget about Greece, the U.S. has its own Forex Journal . . . . . . . . . . . . . . . . . . . . .32
default risk to worry about. Playing the waiting game with an ill-timed
By Barbara Rockefeller intermarket trade.

Trading Strategies
Pattern combination,
pattern dissection . . . . . . . . . . . . . . . . . . .16 Looking for an advertiser?
Breaking down an hourly forex pattern
Click on the company name for a direct link
into its components.
to the ad in this month’s issue.
By Currency Trader Staff
Ablesys
Advanced Strategies
eSignal
Chilean peso makes exceptions
to currency rules . . . . . . . . . . . . . . . . . . .20 FXCM
Movement in the South American currency
MetaStock
defies easy explanation.
By Howard L. Simons Traders Expo

Questions or comments?
Submit editorial queries or comments to
webmaster@currencytradermag.com.

2 April 2010 • CURRENCY TRADER

 CONTRIBUTORS

A publication of Active Trader ®

For all subscriber services:

www.currencytradermag.com

Editor-in-chief: Mark Etzkorn

metzkorn@currencytradermag.com

Managing editor: Molly Goad

mgoad@currencytradermag.com

Contributing writer: Chris Peters

cpeters@currencytradermag.com  Howard Simons is president of

Rosewood Trading Inc. and a strategist for

Contributing editor:
Howard Simons Bianco Research. He writes and speaks fre-

Contributing writers: quently on a wide range of economic and

Barbara Rockefeller, Marc Chandler
financial market issues.
Editorial assistant and
webmaster: Kesha Green
kgreen@currencytradermag.com  Barbara Rockefeller (www.rts-forex.com) is an

Art director: Laura Coyle

international economist with a focus on foreign exchange.
lcoyle@currencytradermag.com
She has worked as a forecaster, trader, and consultant at
President: Phil Dorman Citibank and other financial institutions, and currently
pdorman@currencytradermag.com
publishes two daily reports on foreign exchange.
Publisher, ad sales:
Rockefeller is the author of Technical Analysis for Dummies
Bob Dorman
bdorman@currencytradermag.com (For Dummies, 2004), 24/7 Trading Around the Clock, Around

Classified ad sales: Mark Seger the World (John Wiley & Sons, 2000), The Global Trader (John
seger@currencytradermag.com
Wiley & Sons, 2001), and How to Invest Internationally, pub-

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

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

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

The information in Currency Trader magazine is intended for educational pur-

poses only. It is not meant to recommend, promote or in any way imply 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.

4 April 2010 • CURRENCY TRADER

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 GLOBAL MARKETS

U.S. gains traction,

Europe spins wheels
Although the U.S. was ground zero for the 2008-2009 financial collapse,
Europe appears to be having a harder time rebounding, with the pound and
the Euro paying the price vs. the dollar.

BY CURRENCY TRADER STAFF

A lthough 2009 saw most major currencies

recouping much of the losses they suffered vs.
the U.S. dollar in 2008, this year has been a
much different story for European currencies. As of April 1,
the Euro had lost more than 12 percent vs. the U.S. dollar
since early December 2009, when it formed a top around
$1.5150 (Figure 1). The British pound fell approximately 10
percent vs. the buck from its Jan. 19 high of 1.6457 to its
FIGURE 1 — EURO/DOLLAR
By April 1, the Euro/U.S. dollar pair was down more than 12 percent from its early
December 2009 high.
March 1 low of 1.4780, a level it tested at the end of March
(Figure 2).
Dollar bulls have had the upper hand lately for several
reasons, but better growth differentials are a major factor
supporting the U.S. currency vs. the Euro and the pound.
The U.S. recovery, while sluggish by “normal” standards
(and weak relative to those in many emerging-market
economies and Asia as a whole) has nonetheless been
stronger than its counterpart across
the pond.
“Generally, we are in better shape
than [Europe],” says David Wyss,
chief economist at Standard & Poor’s.
“In the U.S., we are seeing a half-
speed recovery, whereas Europe is
having a harder time getting off the
mark.”
Half speed might not sound that
great, but until the relative balance
between the U.S. and Europe and
Britain changes, the Euro and the
pound may have difficulty reverting
to the bullish ways.

U.S. growth is real,

but jobs picture still murky
The U.S. economy began growing
again in Q3 2009, posting a 2.2-per-
cent annualized GDP increase that
quarter; the fourth quarter produced
a 5.6-percent annualized gain. Credit
Suisse estimates annualized first-
Source: TradeStation quarter 2010 growth at 3.3 percent,
Q2 at 4 percent, Q3 at 3.0 percent, and

6 April 2010 • CURRENCY TRADER

 FIGURE 2 — POUND/DOLLAR
The pound/dollar fell 10 percent from its Jan. 19 to its March 1 low of 1.4780, a
level it was challenging at the end of March.
Q4 at 3.0 percent for an overall annual
average pace of 3.5 percent. Analysts
are generally much more optimistic
than they were six to eight months
ago, and favorable forecasts have
become less tentative.
“Recovery growth is proceeding.
Chances of a double-dip [recession]
are fading,” says Julia Coronado, U.S.
senior economist at BNP Paribas.
Nonetheless, most economists are
still hedging their bets given the seri-
ousness of the remaining problems,
employment not the least.
“The recovery is in place, but it’s
still a little tenuous because we
haven’t had sustainable job growth,”
Credit Suisse economist Jonathan
Basile says. “It looks like the unem-
ployment rate has peaked, but it has- Source: TradeStation
n’t come down yet. We have to get
some traction in job growth to unleash
a little more risk-taking in the econo-
my.”
After reaching 10.2-percent in
October 2009, the unemployment rate
edged down to 9.7 percent in February
2010. However, non-farm payroll
growth has remained negative, mean-
ing the U.S. economy is still shedding
jobs. Non-farm payrolls declined
26,000 in January 2010 and 36,000 in
February. (The employment report for
March was scheduled for April 2. Click
here for a summary of the numbers.)
Although some analysts expect the
payroll number could turn positive
this spring, this could be a misleading
development because of the influence
of the 2010 census. Economists esti-
mate the U.S. government will hire as
many as 1.2 million temporary census
workers this spring.
“The census workers are added to
payrolls in March, April, and May,
which will inflate the [non-farm pay-
rolls] number,” Basile says. “Then they
will be unwound in June, July, August,
and September.”
For a more accurate view of the
labor market, Basile recommends

CURRENCY TRADER • April 2010 7

 GLOBAL MARKETS

EURO/U.S. DOLLAR AT A GLANCE

Median Average
Daily range (past 40 days) 0.0140 0.0139
Daily close-to-close move (past 40 days) 0.0068 0.0075
Weekly range (past 26 weeks) 0.0293 0.0291
Weekly close-to-close move (past 26 weeks) 0.0121 0.0129
% Gain/loss (close-to-close) 20-day 62-day 125-day 250-day ter for household
-1.36% -5.77% -7.78% 1.04% balance sheets, but in
52-week high/low 1.5144 1.2884 the short run it
Central bank rate, last change EUR US means there is little
1%, NC 0-0.25%, NC spending to drive
Next scheduled central bank meeting April 8 April 27-28 growth. Wyss notes
Quarterly GDP change Q1 2010* Q4 2009 Q3 2009 Q2 2009 that in the “normal”
- 0.1% 0.4% -0.2 first four quarters of
EUR
an expansion,
US - 1.4% 0.6% -0.2
growth averages 5
percent, which con-
*Estimate Daily data as of 3/31/10; weekly data as of 3/26/10
trasts starkly to his
current 2010 U.S.
focusing for the next six months at least on the section with- GDP forecast of 2.5-2.7 percent.
in the non-farm payrolls report detailing private hiring.
The weekly initial jobless claims number issued each The Fed: Tame inflation extends leash
Thursday has assumed a much higher profile over the past Economists and traders are keeping a close eye on the U.S.
year, and the trend in this report has definitely improved: Federal Reserve, looking for any clues to when the central
New jobless claims peaked at more than 650,000 in March bank might begin raising interest rates. Before an actual rate
2009, and while the more recent readings have been signifi- shift, analysts expect the Fed to signal its intentions fairly
cantly lower, the numbers are still high. (The March 2010 clearly. Current speculations center around when the Fed
readings all exceeded 440,000 new claims per week.) will drop language from its official statements regarding the
Wells Fargo Securities economist Adam York says a drop need to maintain “exceptionally low levels of the federal
to the 380,000-420,000 range might presage actual payroll funds rate for an extended period.” Some analysts believe
growth. the April 27-28 FOMC statement could usher in the change.
“In a good economy, you’ll see jobless claims in the mid The fed funds rate is currently at zero to .25 percent.
to low 300,000s when you are adding jobs at a significant Estimates when the Fed might actually hike rates range
clip,” he says. from the third or fourth quarter of this year to mid-2011.
Although some economists suggest “reading around” the However, analysts generally agree the Fed will start raising
census data to get a better handle on the labor market in the rates before either the European Central Bank (ECB) or the
coming months, Brian Dolan, chief currency strategist at Bank of England (BOE).
Forex.com, notes the 1.2 million temporary census positions BNP Paribas doesn’t expect the Fed to hike until the mid-
“are real jobs” with the potential to stimulate overall spend- dle of next year.
ing and growth, even if that boost is short-term. “According to the Fed’s mandate, it would be irresponsi-
“They are only temporary, but it is a real paycheck,” he ble to tighten now,” Coronado says. “Inflation is decelerat-
says. ing and unemployment is very, very high.”
With consumer spending previously driving roughly Credit Suisse forecasts a year-over-year U.S. consumer
two-thirds of the U.S. economy, the importance of job cre- price index (CPI) increase of 1.8 percent this year, with the
ation and consumer confidence cannot be underestimated. core number (ex food and energy) even lower at 0.9 percent.
The U.S. may have come far from the dark days of late 2008, Such low inflation gives the Fed some room to wait things
but it’s not out of the woods yet. out, economists say.
“It is going to be a long road,” Coronado says. “We are seeing a very tame inflation profile, which sug-
“Consumers are not panicking anymore, but they are still gests the Fed will not be in a hurry to raise rates,” Basile
saving a lot and shying away from big-ticket items like cars. says. “I think the Fed is willing to wait a little longer to
They are trying pay down debt and don’t want to spend on make sure the train has left the station. It feels like a waiting
things that are usually financed.” game, but you don’t want to be wrong [and hike too soon]
According to Wyss, household debt has dropped for when unemployment is this high.”
seven consecutive quarters. In the long run, this may be bet- But to some analysts, the interest-rate increase horizon

8 April 2010 • CURRENCY TRADER

 BRITISH POUND/U.S. DOLLAR AT A GLANCE

Median Average
Daily range (past 40 days) 0.0168 0.0172
Daily close-to-close move (past 40 days) 0.0086 0.0096
Weekly range (past 26 weeks) 0.0358 0.0380
appears less distant. Weekly close-to-close move (past 26 weeks) 0.0142 0.0152
Wells Fargo expects a % Gain/loss (close-to-close) 20-day 62-day 125-day 250-day
hike (to .50 percent)
0.57% -6.00% -4.72% 2.23%
before year-end.
52-week high/low 1.7042 1.4109
Credit Suisse is even
Central bank rate, last change UK US
more aggressive,
forecasting Fed tight- 0.50%, NC 0-0.25%, NC
ening in the third Next scheduled central bank meeting April 7-8 April 27-28
quarter, ratcheting up Quarterly GDP change Q1 2010* Q4 2009 Q3 2009 Q2 2009
the rate to 1 percent UK - 0.3% -0.3% -0.6%
by year-end. US - 1.4% 0.6% -0.2
*Estimate Daily data as of 3/31/10; weekly data as of 3/26/10
The Eurozone:
Debt issues,
growth differen-
tials drag currencies the EU and ECB.”
The picture is decidedly different on the other side of the Dolan calls the breakup hypothesis “absurd.”
Atlantic, where sovereign debt concerns have added stress “I don’t think it’s a viable option,” he says. “They can’t
to an already weak recovery. Credit
Suisse forecasts 2010 Eurozone GDP
growth at 1.5 percent, with Germany
expected to be one of the stronger
economies at 2.5 percent. The bank
forecasts a 2.3-percent pace for the
Netherlands and a 2-percent rate for
France.
Those are the bright spots. The well-
publicized debt problems of other
European nations are expected to
weigh on EU growth in the coming
months.
“The deficit concerns weighing on
the Euro and the British pound are not
going to dissipate anytime soon,
which means a flight to quality to the
U.S. dollar,” Dolan says.
In fact, the Greek debt crisis has fed
talk of a possible breakup of Europe’s
Economic and Monetary Union
(EMU). Most analysts don’t believe it
will happen, but the fact that some-
thing once deemed unthinkable has
crept into the realm of speculation
underscores the magnitude of the
problem.
Although Wyss “doubts highly” a
breakup would actually come to pass,
he concedes it “is what everybody is
scared of. This is the first real test for

CURRENCY TRADER • April 2010 9

 GLOBAL MARKETS

European alphabet soup

A few terms — some with overlapping meanings — are
used to describe the political and monetary alliances just say overnight, ‘we are dropping the Euro.’ They’re
among European states.
going to do whatever is necessarily to make sure it sur-
vives.”
European Union (EU): The alliance of 27 European
member states pursuing common political and monetary Nonetheless, Dolan points out the current problems
goals. within the EU “diminishes the Euro’s appeal as a potential
alternate reserve currency.
Economic and Monetary Union (EMU): Usually Wyss agrees. “It’s hard to unscramble eggs,” he says.
referred to as the European Monetary Union, the EMU At the very least, though, changes are on the horizon for
consists of the EU member states (currently 16) that use the EU.
the Euro as their currency. Some EU members (includ- “Although a break-up of the [EMU] is very unlikely,
ing Britain and Sweden) do not use the Euro as their some national governments in the Eurozone need to make
currency, either because they have chosen not to or significant fiscal corrections in the years ahead,” wrote
because they have not satisfied the financial criteria
Wells Fargo economists in their March 11 Global Chartbook.
required for inclusion in the EMU.
The EU faces not only the challenges of the Greek debt
Eurozone: Another word for the EMU. crisis, but a growing economic dichotomy between coun-
tries within the union. Core countries such as Germany and
France are doing relatively well, while Italy, Spain, Ireland,
EU member nations Eurozone/EMU members and some Eastern European nations are struggling.
Austria Austria “The southern European countries suffered a deeper
Belgium Belgium recession,” Wyss says. “They’d like to keep interest rates
Bulgaria low for a longer period of time, whereas Germany would
Cyprus Cyprus like to see rates go up now. It’s going to be a conflict, and
Czech Republic we’ve haven’t seen this play out before.”
Denmark The ECB’s lending rate currently stands at 1 percent.
Estonia Credit Suisse expects a hike late this year to 1.50 percent.
Finland Finland Other analysts, however, say ECB may not raise rates until
as late as the second half of 2011.
France France
Germany Germany
UK: May elections may
Greece Greece
dictate monetary policy course
Hungary Off the coast of the continent the UK also continues to strug-
Ireland Ireland gle, weighed down by a housing crisis that was even more
Italy Italy pronounced than the one in the U.S. According to Wyss,
Latvia from 1997 to 2005 UK housing prices surged 155 percent —
Lithuania more than twice the percentage increase in the U.S. He says
Luxembourg Luxembourg Britain is in even worse shape than the Eurozone.
Malta Malta “The UK still has a lot of negatives,” he says. “They’ve
Netherlands Netherlands got banks underwater and a lot of bank bailouts. They
Poland haven’t been able to clean it up as fast as we did. Their main
Portugal Portugal export market is Europe and Europe is not growing.”
Credit Suisse forecasts a 1.5-percent UK GDP growth rate
Romania
in 2010. In their March Global Chartbook, Wells Fargo econo-
Slovakia Slovakia
mists wrote: “Continued deleveraging by the [UK] house-
Slovenia Slovenia hold sector will likely exert headwinds on consumer spend-
Spain Spain ing growth. In addition, fiscal tightening will weigh on
Sweden overall economic growth.”
United Kingdom Dolan warns: “I would put a little more emphasis on the
potential for a double-dip in the UK.”
The upcoming national election also looms large in the

10 April 2010 • CURRENCY TRADER

 FIGURE 3 — EURO/POUND
The Euro/pound has been wandering in a range, but some analysts believe it
could make a move later in the year.
country’s market outlook. The May 6
election is expected to be closely con-
tested, with recent polls showing the
possibility of a “hung” parliament in
which neither party captures an out-
right majority.
“A hung parliament [could] mean
gridlock, which means no deficit
reduction package is likely, and that’s
a sterling negative,” Dolan says.
Britain’s key lending rate now
stands at 0.50 percent. Dolan puts the
odds at 20 percent the BOE will hike
rates in the fourth quarter, 80 percent
it will wait until 2011. Credit Suisse
expects a more aggressive pace, with
several increases bringing the rate to
1.50 percent by year-end.

The charts Source: TradeStation

Overall, analysts argue growth and
interest-rate differentials favor the
greenback vs. the Euro and pound in
the near future.
“Even though the U.S. recovery
doesn’t look strong, it looks a lot bet-
ter than the European situation,
which has helped to support the dol-
lar,” Coronado says. “We’ve got a lot
of issues, but a lot of the correction is
behind us.”
Dolan targets the $1.3700-1.4000
range as a sell zone in the Euro, with
$1.2800-1.2700 as the next downside
objective. In sterling, he sees $1.5400-
1.5600 as a resistance zone, with a
downside target around 1.4300-
1.4200.
Currency traders may also want to
keep an eye on the Euro/pound cross
rate in the weeks ahead (Figure 3).
“In the short run, we think
EUR/GBP is likely to continue to
range trade, but the second half of the
year should see general GBP
strength,” Barclay’s analysts wrote in
their March FX Quarterly. “In addition
to the resolution of election uncertain-
ty, our economists forecast the [BOE]
will raise rates in August, well before
the current consensus.” 

CURRENCY TRADER • April 2010 11

 ON THE MONEY
Straight talk
on sovereign risk
It’s not sovereign risk everyone should be worried about, but country risk.
W ill Greece default
on its sovereign
debt? Although this
has been the rivet-
ing question since the Greek
drama started to unfold in
December 2009, the more appro-
priate question might be, “So what
if it does?”
In late March the European Union
(EU) devised a “rescue plan” to pre-
vent Greek default, although it’s nei-
ther a rescue nor a plan. Everyone
talks about the sustainability of the
Eurozone as a consequence of default
TABLE 1 — TRANSPARENCY
INTERNATIONAL CORRUPTION
PERCEPTIONS INDEX (2009)
A high ranking implies a country
with the ability to pay will always
make the political decision to pay.
Rank Country
1 New Zealand
2 Denmark
3 Sweden, Singapore
6 Netherlands, Finland
8 Canada, Iceland
14 Germany
17 UK, Japan
19 U.S.
79 China
120 Viet Nam
130 Nigeria
139 Pakistan
162 Venezuela
Source: www.transparency.org
12
BY BARBARA ROCKEFELLER
by one of its member sovereigns, but
just about everyone gets it wrong
when they talk about sovereign risk.
What we really need to talk about is
country risk, and in that discussion, the
U.S. is particularly vulnerable.
At its core, sovereign risk is the risk
of default — a nation’s refusal or
inability to repay principal or interest
on bank loans or bonds. Choosing
default may be a political choice or a
financial necessity.
Willingness vs. ability
Analysts often draw the distinction
between ability to pay and willingness
to pay. This leads to the broader con-
cept of “country risk,” because a coun-
try that has the ability to pay but
chooses not to is making a political
decision, not a financial one. Russia
and Argentina are the 20th century
poster boys for this kind of country
risk, both having defaulted on their
debts several times despite having the
ability to pay.
In practice, the probability of default
by a major country today — including
Greece and the U.S. — is near zero.
Default is not really the issue anymore,
which leaves the broader and more
nuanced discussion of country risk.
How a country deals with deficit
recovery is a subjective process that
affects the foreign exchange market in
some very strange ways. The UK, for
example, announced a budget in late
March that falls far short of fixing
deficit problems, but sterling remained
on the upswing in congruence with the
rising Euro. Nobody much cared that
the budget failed to meet International
Monetary Fund (IMF) and ratings-
agency standards.
Dubai presented the world with a
strange kind of sovereign risk when it
declined to accept sovereign responsi-
bility for the debts of its entirely state-
owned company, Dubai World, saying
the company never had an explicit
government guarantee. This came as a
shock to bank lenders. The resolution
so far consists of an equity injection
into the company using proceeds from
an Abu Dhabi aid package and other
Dubai funds, but still no state guaran-
tee.
Lest you imagine this is some new
Middle East misunderstanding of the
“sovereign” concept, the U.S. has long
had a similar ambiguity in the form of
its Government Sponsored Enterprises
(GSEs), chiefly the Fannie Mae and
Freddie Mac mortgage units. (There is
also a student loan facility named
Sallie Mae and a farmers’ mortgage
loan unit named Farmer Mac.) These
were explicitly not guaranteed by the
full faith and credit of the U.S. govern-
ment but have been treated during the
financial crisis as if they were.
If sovereign risk is a measure of a
country’s ability to pay and country
risk widens the definition to include
willingness to pay, there’s also the sit-
uation of a country having the willing-
ness to pay but not the ability. A coun-
try’s government may be honorable
with respect to repaying sovereign
debt, but it might still permit corrup-
tion, mismanagement, or both. Its
institutions, especially financial ones,
could be on shaky ground because of
lax accounting standards and lack of
April 2010 • CURRENCY TRADER
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 ON THE MONEY

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

Amazingly, the dollar didn’t collapse in November 1994 when Republicans
shut down the U.S. government and threatened default. in November 1994 the Republicans, under
Newt Gingrich, shut down the U.S. govern-
U.S. dollar/Swiss franc (USD/CHF) ment and threatened default, which was
averted by the nimble Treasury Secretary
Robert Rubin, who funded interest pay-
ments from other government coffers until
a political compromise could be reached.
Rubin said a U.S. default was “unthink-
able” and evidently the FX market believed
him. At the time it was fascinating and
inexplicable that the dollar did not fall dur-
ing this episode (Figure 1).
The next big country to face a sovereign
risk concern is Japan. Japan has sovereign
debt (government bond issuance) totaling
nearly 200 percent of the country’s annual
GDP, or about $9 trillion. The IMF estimates
that by 2014, Japan’s government debt will
reach 246 percent of GDP. Ratings agencies
warn that Japan faces a rating downgrade
Source: Chart — Metastock; data — Reuters and eSignal
unless it brings government spending
under control. S&P reduced Japan’s sover-
supervision. eign rating from Triple A to Double A, and Moody’s cut the
For example, Iceland ranks high in Transparency rating to Aa2 in May 2009.
International’s evaluation of countries for perception of cor- No one doubts the willingness of Japan to repay all this
ruption, Number 8 of 180 countries covered (Table 1). But debt as a matter of national pride; the question is the abili-
Iceland’s banking sector went down in flames in 2008-2009, ty to repay it, and repay it on schedule. Because Japan has
leaving the country with massive international debts it can- $1.051 trillion in reserves as of February 2010, it could, in
not, so far, repay, and struggling under harsh IMF-imposed theory, liquidate reserves to fend off any tax shortfall and
budget constraints. avoid default. The Japanese government could also instruct
Transparency International judges a country on rule of its banks to stop rolling over foreign loans and its corpora-
law, sustainable development, and quality of life. These are tions to repatriate any surplus held in foreign countries. In
not financial criteria, but the inclusion of “rule of law” sug- short, the probability of Japanese default on its sovereign
gests borrowers will honor debt contracts. A high ranking debt is effectively zero. Besides, less than 5 percent of
implies a country with the ability to pay will always make Japanese debt is held by foreigners, so an outright default
the political decision would impoverish Japanese savers and have little effect on
TABLE 2 — 2014 PROJECTED to pay. The rankings global bond holders. Most telling of all, the yen does not fall
GOVERNMENT DEBT AS are quite interesting, when ratings downgrades and budget deficits are the head-
PERCENTAGE OF GDP with New Zealand at line news.
the top of the list and While we may be willing to give G20 the benefit of the
The U.S. has gone deeper into
Somalia, a failed state, doubt when it comes to willingness to repay, the ability to
sovereign debt by 20 percent of
in last place at No. 180 repay is being put through the shredder of the Great
GDP over the past two years,
(not shown). Recession. Ratings agencies have warned the U.S. could
and projections for 2014 don’t
show an improving picture. We generally face a downgrade because of high and rising deficit fund-
assume the major ing. In fact, former IMF chief economist Simon Johnson has
developed nations said, “It’s not just about Greece anymore,” referring to other
Japan 246%
(G7 or perhaps G20, European countries falling into the abyss of unpayable
Italy 129% ex-Russia) would debts. But with the exception of Canada, just about every
U.S. 108% never make the politi- developed country faces a ratings-agency downgrade. This
UK 98% cal decision to default is an unprecedented simultaneous deterioration of every
France 96% because it would later country’s public finances. Table 2 shows the IMF’s 2014 pro-
Germany 89% impose too high a jections of government debt as a percentage of GDP for the
Canada 60% funding cost on the G7.
Source: The Economist, 3/27/2010
taxpaying (and vot- The U.S. has gone deeper into sovereign debt by a stun-
ing) citizens. And yet ning 20 percent of GDP over the past two years. The buyers

14 April 2010 • CURRENCY TRADER

 FIGURE 2 — YIELD LEADS THE DOLLAR

Yield leads the dollar, but in the event of a paradigm shift arising from country risk, we
could see the yield rise and the dollar fall.
are about 40 percent foreign,
including Japan and China,
with Brazil the only notable
name divesting U.S.
Treasuries.
– Dollar Index
In Greece, the debt-to-GDP
– 10-year Yield Index
ratio is 120 percent. Greece
was already paying 5 percent
of GDP in interest payments
in 2009, a figure that will rise
to 8.4 percent in 2014.
According to Johnson, this
debt load is likely unsustain-
able. He says if Greece had to
pay 10 percent interest on
new bonds issues (from 6
percent now), it would end
up transferring 12 percent of
GDP to foreign holders of its
debt every year.

The currency angle

When every major issuer
faces ratings agency down- Source: Chart — Metastock; data — Reuters and eSignal
grades and every major coun-
try has to pay some large and rising on the slightest bit of good news. In anticipation
chunk of annual GDP in debt service, what effect does this of the end of quantitative easing and the Fed raising rates
have on currencies? As difficult as might be to believe, we later this year, the 10-year yield has already jumped to near-
don’t know. This is an unprecedented situation. ly 4 percent. This is the normal curve-steepening that
At a guess, we have to start making new judgments accompanies the return of growth. But if worries about
about country risk — not only the ability to pay, which inadequate deficit reduction get a grip on traders’ imagina-
comes from taxation or asset sales, but also the willingness tions, analysts can attribute the rise in yield to a premium
to pay. Commentators note that Ireland squeezed its deficit demanded by the global market to hold U.S. debt (even if
and its citizens are suffering real hardship, while Greece’s foreign participation in bond auctions remains normal).
contraction plans have yet to result in outcomes such as an Who is to say the bond vigilantes are wrong? Yields ris-
increase in the average retirement age from 58 to the more ing because of growth and a return to normal market con-
common 65 or 66. ditions should be dollar-favorable, while yields rising
Because both countries are in the Eurozone, do their because the world doesn’t approve of U.S. government fis-
country risks offset each other? Probably not, judging from cal actions is a direct response to U.S. country risk, and is
the Euro’s decline since the Greek drama started to unfold. deeply dollar-negative.
In other words, it’s not so much that any particular country Yield leads the dollar, as shown in Figure 2. But we must
does the right thing, it’s how the right thing stacks up consider the paradigm shift arising from country risk — not
against what other countries are doing. all yield changes are created equal. This is the biggest threat
And who does the judging? The IMF, the ratings agen- to the dollar uptrend today. The next big partisan battle in
cies, and the bond market. So far Greece has had to pay the U.S. Congress will be deficit reduction. If it follows the
about 3 percent more than Germany for the same maturity same path as health care, it will be “politics first” instead of
debt. In the U.S., some companies (Warren Buffett’s “America first.” We could see the yield rise and the dollar
Berkshire Hathaway, for example) can raise money more fall, an unusual divergence.
cheaply than the U.S. government. The dollar index has already recovered about 24 percent
Market sentiment tends to be biased against the dollar. of the decline from the head-and-shoulders top in 2001.
Good news is often shrugged off while bad data has an Will it stall now because of country risk?
exaggerated effect. Meanwhile, until the Greek crisis came
along, the Euro was Teflon-coated, shrugging off bad data For information on the author see p. 4.

CURRENCY TRADER • April 2010 15

 TRADING STRATEGIES
Pattern combination,
pattern dissection
Is a setup more or less than the sum of its parts?
BY CURRENCY TRADER STAFF
W hen a trade setup consists of multiple
inputs or parameters, it can be diffi-
cult to determine if certain parts are
contributing more or less to perform-
ance than others. This problem was highlighted in
part in “The pattern behind the pattern” (Currency
Trader, December 2009). That article analyzed a long-
entry setup that centered around an inside bar form-
ing after an intermediate-term retracement. However,
FIGURE 1 — THREE-RULE BOTTOM PATTERN
The arrow marks a 60-minute bar with the following characteristics: three lower lows,
a 0.029-percent or greater drop between the two most recent lows, and a new 48-
hour low.
Source: TradeStation
16
the inside-bar pattern turned out to be irrelevant. The
retracement pattern, which was initially conceived as
more of a filter than a primary trade catalyst, was
really responsible for the pattern’s apparent outper-
formance. A similar situation, in which a moderately
successful short pattern set up a more promising long
pattern, was the focus of “Top pattern feeds bottom
formation” (Currency Trader, March 2010).
Analyzing a trade idea’s components individually is one
way to understand how it is reacting to price action. Say
you’ve been analyzing a currency
pair and found a pattern consisting
of three consecutive wide-range
bars near a 30-day high, with a
descending relationship between
the closes of the bars, has often
been followed by selling. You input
the pattern variables into your
trading software to see how this
pattern has fared historically. You
get the results and see performance
isn’t nearly as attractive as you’d
hoped.
But by treating the pattern as a
whole — a single price event that
cannot be reduced in any way —
perhaps you’re missing important
information the individual compo-
nents might have to offer. Perhaps
there is something to be learned by
breaking the setup into individual
components.
Sum of its parts
Figure 1 is a 60-minute chart of the
Euro/U.S. dollar pair (EUR/USD)
showing a few days worth of activ-
April 2010 • CURRENCY TRADER
 FIGURE 2 — BOTTOM PATTERN, PLUS SUB-PATTERNS
ity in mid-March. The arrow
The arrow marks another example of the bottom pattern shown in Figure 1, while
(noon ET on March 18) identifies
bars marked with 1s, 2s, and 3s are bars that satisfy one or more of the individual
the conclusion of a pattern with (sub-pattern) rules.
the following characteristics:

1. Three consecutive lower

lows.
2. The most recent low is at
least 0.029 percent below the
previous low.
3. The current low is below
the lowest low of the preced-
ing 48 hours.

In formula form these rules are:

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

< L[3];
2. (L[1] - L[0])/L[1] >= 0.0029
(or, (L[0] - L[1])/L[1] <=
0.0029);
3. L[0] < min(L[48]:L[1]).

where:
L = low Source: TradeStation
0, 1, etc., = the current bar,
one bar ago, etc.
Figure 2 shows another example of the pattern, from 7
p.m. ET on Feb. 18, along with examples of bars that satis-
fied the criteria of one or two of the individual rules.
While the pattern in Figure 1 was followed by a relative-
ly small bounce and consolidation that interrupted an
ongoing downtrend, price rallied more significantly after
the instance in Figure 2, climbing from around 1.3560 from
the close of the bar to above 1.3700 some 18 hours later.
Let’s say this pattern has accompanied several relative lows
recently, and we’re interested in learning more about its
potential. Researching the sub-patterns that make up the
larger formation might be a useful place to start.
One by one
Traders often say you shouldn’t trade something unless you
understand how it works. In this case, we can test each of
the three component patterns to gain a better understand-
ing of how they’re interacting.
In the 1,014 60-minute bars (43 days) from 11 a.m. on Jan.
19 to 5 p.m. on March 18, there were nine examples of the
overall formation, but many more instances of the three
sub-patterns: 123 instances of pattern 1, 25 instances of pat-
tern 2, and 66 instances of pattern 3.
Table 1 summarizes the median close-to-close post-pat-
tern performance for the 12 hours after the composite for-
mation and its three sub-patterns (the closing price of the

TABLE 1 — INDIVIDUAL SUB-PATTERN PERFORMANCE

The three rules (patterns) were more bullish than the market’s norm, but individually they do not account for the much more positive
performance of the composite (1-2-3) formation.

Hour 1 2 3 4 5 6 7 8 9 10 11 12
EUR/USD avg. -0.0001 -0.0001 -0.0002 -0.0003 -0.0003 -0.0004 -0.0005 -0.0005 -0.0006 -0.0006 -0.0007 -0.0008
Pattern 1 0.0002 0.0000 0.0004 0.0006 0.0005 0.0002 0.0002 -0.0001 0.0001 -0.0006 -0.0002 0.0003
Pattern 2 0.0003 -0.0002 0.0000 0.0006 0.0002 -0.0003 -0.0004 0.0006 -0.0003 -0.0001 0.0002 0.0012
Pattern 3 0.0001 0.0002 0.0006 0.0006 0.0009 0.0006 0.0002 -0.0004 0.0000 0.0001 0.0002 0.0009
Pattern 1-2-3 0.0008 0.0006 0.0025 0.0025 0.0052 0.0047 0.0048 0.0049 0.0036 0.0044 0.0042 0.0047

CURRENCY TRADER • April 2010 17

 TRADING STRATEGIES

FIGURE 3 — COMPONENT BREAKDOWN

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

er than the sums of the three sub-

Source: TradeStation
pattern to the closing price of the 12 subsequent hourly
bars), along with the average performance for the
EUR/USD pair during this period (the average for all one-
hour moves, all two-hour moves, and so on, up to 12
hours). While EUR/USD had a bearish bias during this
period, as evidenced by the negative average returns at
each hourly interval, the sub-patterns’ performance went
against this grain, especially through hour 5. Pattern 2 (a
0.029-percent or larger drop from the preceding bar to the
current bar) was the least bullish, with a median negative
return at hour 2, as well as negative returns at four of the
five intervals from hour 6 through hour 10.
While the returns for pattern 1 and pattern 3 are little
more consistent, they are nowhere near the noticeably bull-
ish numbers for the overall formation, pattern 1-2-3. There’s
no way to extrapolate from the individual pattern numbers
to the total performance — the total pattern returns are larg-
patterns in every instance.
What we haven’t done yet is
look at different combinations of
the sub-patterns — pairing pat-
terns 1 and 2, patterns 2 and 3, and
patterns 1 and 3. Table 2 shows the
results of these matches. Here we
get a much clearer picture of how
the sub-patterns were interacting.
There were 15 instances of pattern
combination 1-2, 40 instances of
combination 1-3, and 12 instances
of combination 2-3. The weakest
(but still mildly bullish) combina-
tion was 1-3, while combinations
1-2 and 2-3 were much more posi-
tive — the 2-3 pairing, in fact, out-
performed the overall 1-2-3 pattern
results.
Figure 3 graphs the results for all the tests and highlights
the more consistent and longer-lasting upside action
(through hour 7) of the 2-3 combination. For the most part,
the individual sub-patterns initially (and mildly) buck the
market’s bearish bias before slumping lower, then recover a
little toward the end of the analysis window; no single sub-
pattern dramatically outperformed the others. The 2-3 and
1-2-3 patterns clearly stand apart from the rest.
One of the more interesting results from the two-pattern
combinations was the underperformance of the 1-3 combi-
nation. Pattern 2 was the single worst performer of the sub-
patterns, but removing it from the equation did not
improve results. But overall, based on all the breakdowns,
the 2-3 and 1-2-3 patterns appear to be more than the sum
of their parts: The individual patterns do not have much
value on their own. They have more value as part of an inte-

TABLE 2 — SUB-PATTERN COMBINATION PERFORMANCE

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

Hour 1 2 3 4 5 6 7 8 9 10 11 12
EUR/USD avg. -0.0001 -0.0001 -0.0002 -0.0003 -0.0003 -0.0004 -0.0005 -0.0005 -0.0006 -0.0006 -0.0007 -0.0008
Pattern 1-2 0.0008 -0.0002 0.0017 0.0015 0.0016 0.0019 0.0019 0.0020 0.0030 0.0018 0.0026 0.0018
Pattern 1-3 0.0002 0.0002 0.0006 0.0005 0.0002 0.0007 0.0007 0.0014 0.0005 0.0005 0.0016 0.0018
Pattern 2-3 0.0016 0.0018 0.0026 0.0030 0.0044 0.0051 0.0056 0.0050 0.0034 0.0040 0.0035 0.0031
Pattern 1-2-3 0.0008 0.0006 0.0025 0.0025 0.0052 0.0047 0.0048 0.0049 0.0036 0.0044 0.0042 0.0047

18 April 2010 • CURRENCY TRADER


gral whole — a very different situa-
tion than the one detailed in “The pat-
tern behind the pattern.”
FIGURE 4 — NEW DATA PERIOD
The 2-3 and 1-2-3 patterns performed very poorly from mid-August 2009 to
mid-January 2010 — especially in light of the EUR/USD pair’s bullish bias
during this period.

Different data,
different results
Although the analysis of the overall
pattern was intended to highlight
methods of understanding its compo-
nents and show they combined to cre-
ate the composite performance, it is
instructive to show the performance
of some of these patterns on different
price data. Since the original analysis
included recent data (through March
18), we applied two of the patterns on
several preceding months to see what
results were like.
It was quite a different story.
Performance from mid-August 2009
Source: TradeStation
to Jan. 19, 2010 was poor (negative at
every hourly interval) for both the 2-3
combination and the overall 1-2-3 pat-
tern (Figure 4). Although it is perhaps Advertise with the Active
understandable the setups got ham-
mered during December when the
Trader Magazine Group
EUR/USD pair sold off sharply, the
underperformance relative to the mar-
ket’s overall uptrend during the pre-
ceding is jarring — almost the exact
opposite of the patterns’ bullish per- Bob Dorman
formance during the mostly bearish Ad Sales
January-March 2010 period.
bdorman@activetradermag.com
Losses would undoubtedly have
(312) 775-5421
been curbed by rudimentary trade
management — for example, exiting
with a stop-loss below the low of the
entry bar — but even so, the probabili-
ty of having an open gain at any Mark Seger
hourly interval never exceeded 48 per- Account Executive
cent. seger@activetradermag.com
To further experiment with these
(312) 377-9435
trade ideas, we will monitor the 2-3
and 1-2-3 patterns in coming months
and post occasional updates in our
magazine and on the Currency Trader
Web site.IGURE 2 AB

CURRENCY TRADER • April 2010 19

 ADVANCED STRATEGIES

Chilean peso
makes exceptions to currency rules
Chile’s currency ignores the primary forex drivers.

BY HOWARD L. SIMONS

T
hink back to the first time you saw Chile on a socialist Salvador Allende government, Chile had become
map of the world. If your first reaction wasn’t dangerously dependent on its copper earnings. As any
something on the order of, “What an unusual country with a commodity dependency can attest, this is
shape for a country,” chances are that was your always a mixed blessing because the country’s well being is
second reaction. dependent on an external market it cannot control.
Just as terrain determines tactics in the military equation, After the overthrow of Allende and a free-market turn in
geography determines destiny for countries such as Chile. Chilean economic policy under the so-called “Chicago
Oddly enough, it’s not the presence of the world’s driest Boys,” disciples of the University of Chicago’s free-market
desert, the Atacama, in the north or the mountainous forests economic philosophy, the country diversified its export
of the southern third sweeping down to Tierra del Fuego base to take advantage of its central growing region and its
that has determined Chile’s destiny. location in the Southern Hemisphere. Many of the fresh
The real determinant lies offshore under thousands of fruits available in the U.S. during the winter are exported
feet of water — the subduction zone of the Chile-Peru from Chile, and the country has moved up the value-added
trench, where the tectonic plate of the Pacific Ocean is slid- curve to add wine to its export mix as well.
ing underneath the westward-moving South American But copper still dominates the export mix, and is by far
plate. As the plate sinks, water
carried downward into the man-
tle becomes super heated and FIGURE 1 — CHILEAN PESO NOT LINKED STRONGLY TO COPPER
rises through cracks in the crust
Between May 2006 and May 2008, copper prices entered a highly volatile, long-
forming the base of the Andes
term congestion and the link between copper and the CLP broke.
Mountains. The minerals carried
upward form some of the largest
deposits of copper anywhere on
the planet, including one of the
largest open-pit copper mines in
the world, Chuquicamata.
As an aside, Chile used to have
a second great source of mineral
wealth: nitrates. Eons of guano
deposition by seabirds were com-
pressed into sodium and potassi-
um nitrates. Prior to the develop-
ment of the Haber process for cat-
alyzing nitrogen from the air with
hydrogen to form ammonia,
Chilean nitrates were the world’s
largest source of both explosives
and fertilizers.

Chile and copper

Prior to the 1973 overthrow of the

20 April 2010 • CURRENCY TRADER

 FIGURE 2 — INSURANCE ON A STRONGER PESO TENDS TO BE EXPENSIVE
the country’s leading export earn-
er. Does this create a strong link to The CLP doesn’t appear to be impacted by excess volatility, and implied volatility
the Chilean peso (CLP)? Or, as we tends to be expensive regardless of the currency’s movement.
saw last month with the case of
South Africa and gold (see “Cry,
the beloved currency,” March
2010), is the connection largely
absent?
The answer is strangely mixed.
Prior to the adoption of low inter-
est rates in the U.S. in 2001-2002,
the link between copper prices
and the exchange value of the CLP
was largely absent. Once U.S.
interest rates helped trigger both a
manic expansion of Chinese
demand for copper starting in
2003, the CLP followed copper
prices higher (Figure 1). Then
something strange happened,
highlighted by the orange rectan-
gle: Between May 2006 and May
2008, copper prices entered a high-
ly volatile, long-term consolida-
tive top and the CLP-copper link FIGURE 3 — CHILEAN PESO LARGELY INDEPENDENT OF
broke. It re-emerged during the RELATIVE CONSUMER INFLATION
2008-2009 financial crisis (as com- Relative CPI doesn’t seem to affect the Chilean peso at all. The CLP fell when
modity investors fled the metal Chilean inflation started to outpace its American counterpart in 2008, but this had
and financial investors fled emerg- more to do with the global financial crisis than relative CPI.
ing markets) and continued into
2010. The net result is a link that
works only some of the time and
under certain conditions; we can-
not consider it an intrinsic relation-
ship as much as a series of anec-
dotes.

If not copper, then what?

If copper is not a driver of CLP
rates, we have to turn to a checklist
of what else might be. The curren-
cy doesn’t appear to be driven by
large swings in its “excess volatili-
ty,” which is the ratio of implied
volatility to high-low-close volatil-
ity less 1.00 (Figure 2). We have
seen how this indicator tends to
lead many other currency
exchange rates by three months on
average, but Figure 2 simply

CURRENCY TRADER • April 2010 21

 ADVANCED STRATEGIES

shows a volatile series — implied volatility tends to be currency doesn’t appear affected by excess volatility. We
expensive regardless of movement in the currency, and the should scratch this off the list of factors.
What about relative purchas-
FIGURE 4 — CHILEAN PERFORMANCE DIVERGED FROM PESO IN MID-2008 ing power as determined by
movements in the respective
Chilean stock-market performance offers no insights into the CLP’s behavior. consumer price indices (CPI) of
Chilean stocks have outperformed their American counterparts almost continuously Chile and the U.S.? The Chilean
since March 1999, but both the CLP rate and the USD-CLP carry return have moved
CPI numbers have a short histo-
higher and lower during the period.
ry, but between January 1999 and
January 2008, the two countries’
purchasing power declined at
relatively the same rate (Figure
3). The CLP both weakened
between January 1999 and
February 2003 and strengthened
into March 2008 with little or no
relationship between it and the
relative exchange measures. The
CLP fell once Chilean inflation
started to outpace its American
counterpart in 2008, but this
clearly had more to do with the
global financial crisis than rela-
tive CPI. The CLP strengthened
vis-à-vis the USD through mid-
2009, even though the two coun-
tries’ rates of consumer inflation
moved parallel to one another.
Finally, a better CPI picture in
Chile relative to the U.S. con-
FIGURE 5 — CHILEAN PESO NOW MOVING WITH ABSOLUTE tributed to a stronger CLP in the
INTEREST RATE DIFFERENTIALS second half of 2009, but did noth-
The Chilean-USD six-month simple interest-rate spread didn’t match up in 2001- ing to prevent a sell-off in the
2003, but it started to do a better job afterward. CLP during January 2010. Once
again, relative CPI doesn’t seem
to affect the currency at all.
The relative attractiveness of a
country’s financial assets, as
measured by the return on its
national stock market, often is
reflected in its currency rate. This
certainly was the case with the
South African rand and the rela-
tive performance of South
African stocks. Here, too, the
relationship is frustrating.
Chilean stocks have outper-
formed their American counter-
parts almost continuously since
March 1999, yet both the CLP
spot rate and the carry return of
borrowing USD and lending in
CLP have moved higher and
lower during the period (Figure
4). Even when both the peso and

22 April 2010 • CURRENCY TRADER

the peso-carry collapsed in 2008, the Chilean stock market
simply churned sideways relative to the U.S. stock market.
We have to cross this one off the list, too.
Short-term interest rates
One of the more common determinants of currency rates,
expected interest-rate differentials, is nearly impossible to
calculate for the CLP at the six- to nine-month horizon we
use typically. Chilean deposits at the three- and six-month
horizons are active, and the one-year is available, but we
cannot calculate the six-month/nine-month forward-rate
ratio for the CLP. This is the forward rate between six and
nine months divided by the nine-month rate itself, and it
determines reinvestment prospects at the end of a three-
month non-deliverable forward.
Related reading: Other Howard Simons articles
“Cry, the beloved currency”
Currency Trader, March 2010.
Analysis reveals a surprising source of momentum
in the South African rand.
“Islamic currencies: What’s for dinar?”
Currency Trader, February 2010.
Does having a tradable currency make an economy develop
more quickly, or is development a precondition for a tradable
currency?
“Currency carry and yield-curve trading”
Currency Trader, January 2010.
Examining the currency-bond connection.
“A parody of purchasing power”
Currency Trader, December 2009.
Is there such as thing as a currency “fair value”?
“The hidden cost of illiquidity”
Currency Trader, November 2009.
Evidence mounts that we actually failed to learn the lessons
of the Great Depression.
“How Eastern Europe got carried away”
Currency Trader, October 2009.
The Swiss National Bank’s move to quantitative easing in
March reopened the Swiss franc-Eastern Europe carry trade.
“Hungary’s Blue Danube Waltz”
Currency Trader, September 2009.
A look at a unique currency slated to be absorbed by
the Euro in the next few years.
CURRENCY TRADER • April 2010
We can, however, use a simple interest-rate spread much
as we did for the Mexican peso (see “Mexican peso: Who’s
your padre?” February 2007). There, the three-month
spread between the peso (MXN) and USD was a good indi-
cator. Here, it’s the six-month simple interest rate spread
(Figure 5). While this didn’t match well during the first
period of low interest rates in the U.S., 2001-2003, it started
to match well against the CLP thereafter.
Still, this is unsatisfying somehow. Currency rates almost
always can be linked to carry spreads, expected interest-rate
differentials, key commodity prices, or relative asset
returns. In the case of the Chilean peso, none of these apply.
It’s a group of exceptions to the rules.
For information on the author see p. 4.
“Post-bubble ruble trouble and reversal”
Currency Trader, August 2009.
Which rate matters most, the Russian ruble vs. the dollar,
or the ruble vs. the Euro?
“Won flew over the carry’s nest”
Currency Trader, July 2009.
For better or worse, Korea’s currency seems to function as a
basic risk barometer.
“Currency volatility and long-term treasury returns”
Currency Trader, June 2009.
The belief that higher currency volatility leads to steeper yield
curves and negative bond returns has been challenged by the
2008-2009 financial upheaval.
“A cross rate to bear,” Currency Trader, May 2009.
The Euro/yen pair isn’t just a currency cross rate — it’s a
gauge of global risk.
“And it’s one, two, three — what are we trading for?”
Currency Trader, April 2009.
They don’t call them frontier markets for nothing. A look at
Vietnam’s currency and stock market over the past few years.
“Sovereign credit risk and currencies”
Currency Trader, March 2009.
Government actions are perversely rewarding the guilty: As a
nation’s credit rating deteriorates, its borrowing costs fall and
its currency, at least temporarily, rises.
“Howard Simons: Advanced Currency Concepts, Vol. 1”
A discounted collection that includes many of the articles
listed here.
23
 CURRENCY FUTURES SNAPSHOT as of 3/30/10

The information does NOT constitute trade signals. It is intended only to provide a brief synopsis of each market’s liquidity, direction, and levels of momentum and volatility.
See the legend for explanations of the different fields.

Market Symbol Exchange Volume OI 10-day move/% rank 20-day move/% rank 60-day move/% rank Volatility ratio/rank
Eurocurrency EC CME 313.2 186.8 -2.44% / 78% -1.32% / 31% -6.37% / 61% .24 / 53%
British pound BP CME 131.1 120.0 -1.10% / 29% 0.72% / 11% -6.75% / 76% .26 / 22%
Japanese yen JY CME 108.5 109.6 -2.77% / 100% -4.45% / 87% 0.35% / 7% .79 / 97%
Australian dollar AD CME 92.1 111.0 0.33% / 13% 0.95% / 16% 2.20% / 26% .36 / 45%
Canadian dollar CD CME 78.5 112.6 -0.45% / 50% 1.64% / 21% 2.60% / 54% .35 / 20%
Swiss franc SF CME 48.8 35.5 -1.04% / 100% 0.97% / 27% -2.95% / 52% .25 / 40%
U.S. dollar index DX ICE 23.1 45.8 2.18% / 80% 1.44% / 44% 4.99% / 61% .35 / 67%
Mexican peso MP CME 20.8 111.5 1.26% / 71% 2.17% / 72% 5.67% / 97% .25 / 25%
New Zealand dollar NE CME 9.2 17.0 0.24% / 18% 1.57% / 53% -2.19% / 45% .24 / 7%
E-Mini eurocurrency ZE CME 3.9 3.1 -2.44% / 78% -1.32% / 31% -6.37% / 61% .24 / 53%
Note: Average volume and open interest data includes both pit and side-by-side electronic contracts (where applicable).

LEGEND:
Volume: 30-day average daily volume, in thou-
Managed money: Barclay Trading Group’s
sands. currency trader rankings for February 2010
OI: 30-day open interest, in thousands. Top 10 currency traders managing more than $10 million
as of Feb. 28, ranked by February 2010 return.
10-day move: The percentage price move from
the close 10 days ago to today’s close. 2010 $ Under
Feb. YTD mgmt.
20-day move: The percentage price move from Rank Trading advisor return return (millions)
the close 20 days ago to today’s close. 1. Dacharan Capital (High Exposure) 17.86% 16.19% 20.0
60-day move: The percentage price move from 2. MIGFX Inc (Retail) 6.70% 4.55% 13.0
the close 60 days ago to today’s close. 3. Aurapoint Asset Mgmt (Calypso1) 6.34% 11.40% 250.0
The “% rank” fields for each time window (10- 4. QFS Asset Mgmt (QFS Currency) 4.59% 2.95% 632.0
day moves, 20-day moves, etc.) show the per- 5. IKOS FX Fund 3.70% 7.18% 472.7
centile rank of the most recent move to a certain 6. Goldman Sachs (Fund. Currency) 3.21% 4.84% 447.4
number of the previous moves of the same size 7. Friedberg Comm. Mgmt. (Curr.) 3.19% 15.47% 68.7
and in the same direction. For example, the % 8. Metro Forex Inc (Tri Gl FX) 2.66% 3.96% 113.2
rank for the 10-day move shows how the most 9. Metro Forex (Cable Forex Fund) 2.66% 3.96% 20.0
recent 10-day move compares to the past twenty 10. FX Concepts (Multi-Strategy) 2.40% 2.14% 3111.0
10-day moves; for the 20-day move, it shows how
the most recent 20-day move compares to the Top 10 currency traders managing less than $10 million and more than
past sixty 20-day moves; for the 60-day move, it $1 million as of Feb. 28, ranked by February 2010 return.
shows how the most recent 60-day move com- 1. Smart Box Capital (Leveraged FX) 23.81% 54.03% 1.5
pares to the past one-hundred-twenty 60-day 2. Excel Capital Mgmt. (FX) 8.22% 31.72% 1.8
moves. A reading of 100% means the current 3. QuantFX AM (Managed Account) 8.19% 13.30% 2.1
reading is larger than all the past readings, while
4. Gables Capital Mgmt (Global FX) 3.16% 1.05% 8.6
a reading of 0% means the current reading is
5. Smart Box Capital (FX) 3.10% 7.80% 5
smaller than the previous readings.
6. Valhalla Capital Group (Int'l AB) 3.05% 3.55% 1.2
Volatility ratio/% rank: The ratio is the short-term 7. Blue Fin Capital (Managed Currency) 2.33% 0.99% 3.3
volatility (10-day standard deviation of prices)
8. Rove Capital (Dresden) 1.99% 2.11% 2.2
divided by the long-term volatility (100-day stan-
9. Vaskas Capital Mgmt (Global FX) 1.56% -2.88% 3.5
dard deviation of prices). The % rank is the per-
10. Overlay Asset Mgmt. (Emerging Mkts) 1.49% -0.03% 7.6
centile rank of the volatility ratio over the past 60
days. Source: BarclayHedge (www.barclayhedge.com). Based on estimates of the composite of all accounts or the
fully funded subset method. Does not reflect the performance of any single account.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.

24 April 2010 • CURRENCY TRADER

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 TRADING STRATEGIES
INTERNATIONAL MARKETS
CURRENCIES (vs. U.S. DOLLAR)
Current
price vs. 1-month 3-month 6-month 52-week 52-week Previous
Rank* Country Currency U.S. dollar gain/loss gain/loss gain/loss high low rank

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ACCOUNT BALANCE
Rank Country 2008 Ratio* 2007 2009+ Rank Country 2008 Ratio* 2007 2009+
1 Norway 88.008 19.478 61.811 51.41 13 Belgium -12.891 -2.547 7.772 -4.455
2 Singapore 26.983 14.831 39.209 20.501 14 Czech Republic -6.669 -3.083 -5.483 -4.075
3 Hong Kong 30.621 14.219 25.529 22.288 15 Italy -78.812 -3.406 -51.208 -52.42
4 Sweden 37.279 7.783 39.054 25.403 16 Australia -46.605 -4.599 -57.305 -29.89
5 Netherlands 65.746 7.497 59.598 55.648 17 U.S. -706.068 -4.889 -726.572 -369.787
6 Germany 235.257 6.405 250.263 94.248 18 Ireland -13.886 -5.189 -13.876 -3.925
7 Taiwan 24.894 6.361 32.975 28.216 19 Spain -153.665 -9.592 -144.435 -86.701
8 Japan 157.079 3.199 210.967 96.891
Totals in billions of U.S. dollars
9 Switzerland 12.065 2.412 43.032 29.731 *Account balance as percent of GDP +Estimate
10 Canada 7.606 0.507 14.53 -34.309 Source: International Monetary Fund, World Economic Outlook
11 Korea -6.406 -0.69 5.876 26.979 Database, October 2009.
12 UK -46.457 -1.733 -75.483 -44.735

26 April 2010 • CURRENCY TRADER

 NON-U.S. DOLLAR FOREX CROSS RATES
Currency 1-month 3-month 6-month 52-week 52-week
Rank pair Symbol March 29 gain/loss gain/loss gain/loss high low Previous
1 Canada $ / Yen CAD/JPY 90.11 6.56% 3.03% 10.23% 90.4395 77.9037 4
2 Aussie $ / Yen AUD/JPY 83.635 5.02% 3.01% 8.03% 86.194 46.508 10
3 Franc / Yen CHF/JPY 86.925 4.91% -1.69% 0.38% 91.549 81.73 15
4 New Zeal $ / Yen NZD/JPY 65.07 4.80% 0.39% 1.74% 69.5573 53.87 12
5 Canada $ / Real CAD/BRL 1.77232 2.45% 6.21% 8.22% 1.8546 1.6003 3
6 Euro / Yen EUR/JPY 124.12 2.40% -5.77% -5.09% 139.2 119.63 19
7 Pound / Yen GBP/JPY 137.87 1.73% -5.73% -2.74% 163.057 132.45 18
8 Aussie $ / Real AUD/BRL 1.64502 0.97% 6.19% 6.08% 1.6978 1.5256 9
9 Euro / Pound EUR/GBP 0.90027 0.65% -0.04% -2.42% 0.9411 0.8399 6
10 Euro / Real EUR/BRL 2.44117 0.47% -2.87% -6.82% 3.0779 2.3905 16
11 Aussie $ / New Zeal $ AUD/NZD 1.28477 0.19% 2.57% 6.14% 1.3125 1.1931 2
12 Aussie $ / Franc AUD/CHF 0.96226 0.11% 4.80% 7.64% 0.9833 0.7854 1
13 Aussie $ / Canada $ AUD/CAD 0.928175 -1.45% -0.01% -1.98% 0.9895 0.8541 11
14 Franc / Canada $ CHF/CAD 0.96458 -1.56% -4.59% -8.94% 1.1074 0.9539 17
15 Euro / Franc EUR/CHF 1.42794 -2.40% -4.15% -5.45% 1.5383 1.4229 7
16 Euro / Aussie $ EUR/AUD 1.48393 -2.51% -8.54% -12.16% 1.9465 1.4594 13
17 Pound / Franc GBP/CHF 1.586105 -3.02% -4.11% -3.11% 1.8112 1.5778 8
18 Pound / Aussie $ GBP/AUD 1.64833 -3.13% -8.50% -9.98% 2.0859 1.6328 14
19 Yen / Real JPY/BRL 0.019665 -3.86% 3.07% -1.85% 0.0238 0.01865 5
20 Euro / Canada $ EUR/CAD 1.37739 -3.91% -8.54% -13.90% 1.6739 1.3614 20
21 Pound / Canada $ GBP/CAD 1.529935 -4.53% -8.51% -11.77% 1.9173 1.5212 21
GLOBAL STOCK INDICES
1-month 3-month 6-month 52-week 52-week
Rank Country Index March 29 gain/loss gain/loss gain/loss high low Previous
1 Italy FTSE MIB 23,104.97 8.37% -1.16% -1.95% 24,559 15,269 15
2 Japan Nikkei 225 10,986.47 8.01% 3.28% 8.77% 11,001.60 8,084.62 14
3 Germany Xetra Dax 6,156.85 7.76% 2.42% 7.76% 6,172.85 3,987.39 9
4 South Africa FTSE/JSE All Share 28,705.82 6.22% 3.80% 15.49% 28,806.14 19,798.43 8
5 France CAC 40 4,000.66 6.13% 1.36% 4.89% 4,088.18 2,719.34 13
6 UK FTSE 100 5,710.70 5.64% 5.02% 10.68% 5,737.10 3,762.90 6
7 India BSE 30 17,711.35 5.60% 1.78% 5.09% 17,793.01 9,521.76 12
8 Singapore Straits Times 2,929.14 5.59% 2.07% 9.98% 2,947.08 1,658.04 10
9 Mexico IPC 33,416.10 5.20% 2.42% 13.54% 33,474.90 19,288.40 1
10 U.S. S&P 500 1,173.22 5.15% 4.18% 10.62% 1,180.69 779.81 5
11 Australia All ordinaries 4,907.20 4.52% 1.04% 3.37% 4,984.00 3,503.80 11
12 Brazil Bovespa 69,939.00 4.03% 2.41% 14.21% 71,068.00 40,256.00 4
13 Canada S&P/TSX composite 12,029.72 2.57% 2.80% 5.57% 12,129.30 8,453.09 3
14 Switzerland Swiss Market 6,850.60 0.87% 3.66% 8.45% 6,943.50 4,714.00 2
15 Hong Kong Hang Seng 21,237.43 0.86% -1.22% 1.07% 23,099.60 13,411.80 7
GLOBAL CENTRAL BANK LENDING RATES
Country Interest rate Rate (%) Last change Sept. 2009 March 2009
United States Fed funds rate 0-0.25 0.5 (Dec. 08) 0-0.25 0-0.25
Japan Overnight call rate 0.1 0.2 (Dec. 08) 0.1 0.1
Eurozone Refi rate 1 0.25 (May 09) 1 1.5
England Repo rate 0.5 0.5 (March 09) 0.5 0.5
Canada Overnight funding rate 0.25 0.25 (April 09) 0.25 0.5
Switzerland 3-month Swiss Libor 0.25 0.25 (March 09) 0.25 0.25
Australia Cash rate 4 0.25 (March 10) 3 3.25
New Zealand Cash rate 2.5 0.50 (April 09) 2.5 3
Brazil Selic rate 8.75 0.5 (July 09) 8.75 11.25
Korea Overnight call rate 2 0.5 (Feb. 09) 2 2
Taiwan Discount rate 1.25 0.25 (Feb. 09) 1.25 1.25
India Repo rate 5 0.25 (March 10) 4.75 5
South Africa Repurchase rate 7 0.5 (Aug. 09) 7 9.5
GLOBAL BOND RATES
Rank Country Rate March 29 1-month 3-month 6-month High Low Previous
1 UK Short sterling 99.30 -0.04% 0.00% -0.11% 99.52 98.52 2
2 Australia 10-year bonds 94.18 -0.35% 0.04% -0.56% 95.68 94.11 4
3 Germany BUND 122.97 -1.19% 1.22% 1.01% 124.53 117.47 1
4 Japan Government Bond 138.15 -1.25% -1.00% -0.90% 140.32 135.45 5
5 U.S. 10-year T-note 115.94 -1.33% 0.24% -1.99% 124.28 112.90 3

CURRENCY TRADER • April 2010 27

 INTERNATIONAL
continued MARKETS

GDP*
Release 1-year Next Unemployment
Period date Change change release Release 1-year Next
AMERICAS Period date Rate Change change release
Argentina Q4 3/17 4.8% 10.7% 6/18 AMERICAS
Brazil Q4 3/11 2.0% 4.3% 6/8 Argentina Q4 3/15 8.4% -0.7% 1.1% 5/21
Canada Q4 3/1 2.4% -0.7% 5/31 Brazil Feb. 3/25 7.4% 0.2% -1.1% 4/29
EUROPE
Canada Feb. 3/12 8.2% -0.1% 0.2% 4/9
France Q4 2/12 0.7% -0.2% 5/12
EUROPE
Germany Q4 2/12 -0.1% -0.6% 5/12
UK Q4 3/30 1.2% -1.7% 6/30 France Q4 3/4 9.6% 0.5% 1.8% 5/12
AFRICA Germany Feb. 3/31 7.5% 0.0% 0.1% 4/29
S. Africa Q4 2/23 2.5% 6.7% 5/25 UK Nov.-Jan. 3/17 7.8% -0.1% 1.2% 4/21
ASIA AND SOUTH PACIFIC ASIA AND SOUTH PACIFIC
Australia Q4 3/3 1.9% 1.3% 6/2 Australia Feb. 3/11 5.3% 0.1% 0.0% 4/8
Hong Kong Q4 2/24 5.7% 2.6% 5/14 Hong Kong Dec.-Feb. 3/18 4.6% -0.3% -0.4% 4/20
India Q4 2/26 8.8% 11.9% 5/31 Japan Feb. 3/31 4.9% 0.0% 0.5% 4/30
Japan Q4 2/28 1.1% 4.6% 5/20 Singapore Q4 1/29 2.1% -1.3% -0.4% 4/30
Singapore Q4 2/19 -1.2% 4.0% NLT 5/21
* Final estimates, at current prices, seasonally adjusted

CPI PPI
Release 1-year Next Release 1-year Next
Period date Change change release Period date Change change release
AMERICAS AMERICAS
Argentina Feb. 3/12 1.2% 4.1% 4/14 Argentina Feb. 3/12 1.3% 13.2% 4/14
Brazil Feb. 3/5 0.8% 4.8% 4/8 Brazil Feb. 3/8 1.1% 2.1% 4/8
Canada Feb. 3/19 0.4% 1.6% 4/23 Canada Feb. 3/30 0.0% -0.6% 4/30
EUROPE EUROPE
France Feb. 3/16 0.6% 1.3% 4/13 France Feb. 3/31 0.1% 1.0% 4/30
Germany Feb. 3/10 0.4% 0.6% 4/13 Germany Feb. 3/19 0.0% -2.9% 4/20
UK Feb. 3/23 0.4% 3.0% 4/20 UK Feb. 3/5 0.3% 4.1% 4/9
AFRICA AFRICA
S. Africa Feb. 3/24 0.6% 5.7% 4/28 S. Africa Feb. 3/25 0.4% 3.5% 4/29
ASIA AND SOUTH PACIFIC ASIA AND SOUTH PACIFIC
Australia Q4 1/27 0.5% 2.1% 4/28 Australia Q4 1/25 -0.4% -1.5% 4/27
Hong Kong Feb. 3/22 1.0% 2.8% 4/22 Hong Kong Q1 3/12 1.8% -0.3% 6/14
India Feb. 3/31 -1.2% 14.9% 4/30 India Feb. 3/15 0.7% 9.9% 4/15
Japan Feb. 3/26 -0.1% -1.1% 4/30 Japan Feb. 3/10 0.1% -1.5% 4/13
Singapore Feb. 3/23 0.4% 1.0% 4/23 Singapore Feb. 3/29 -0.2% 11.4% 4/29

LEGEND:
Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.
As of March 31

28 April 2010 • CURRENCY TRADER

 GLOBAL ECONOMIC CALENDAR APRIL/MAY
April 23 U.S.: March durable goods
CPI: Consumer price index Canada: March CPI
ECB: European Central Bank
1 U.S.: March ISM manufacturing report
Mexico: March employment report
FDD (first delivery day): The 2 U.S.: March employment report
first day on which delivery of a 24
commodity in fulfillment of a 3
futures contract can take place. 25
FND (first notice day): Also 4
known as first intent day, this is
26
the first day on which a clearing- 5
27 Australia: Q1 PPI
house can give notice to a buyer
6
of a futures contract that it 28 U.S.: FOMC interest-rate
intends to deliver a commodity in
fulfillment of a futures contract.
7 Japan: Bank of Japan interest-rate announcement
The clearinghouse also informs announcement Australia: Q1 CPI
the seller. South Africa: March CPI
8 Australia: March employment report
FOMC: Federal Open Market
Committee Brazil: March CPI and PPI 29 Brazil: March employment report
GDP: Gross domestic product Mexico: March 31 CPI and March PPI Germany: March employment report
ISM: Institute for supply UK: Bank of England interest-rate South Africa: March PPI
management announcement
LTD (last trading day): The final ECB: Governing council interest-rate
30 U.S.: Q1 GDP (advance)
day trading can take place in a Canada: March PPI
announcement
futures or options contract. France: March PPI
PMI: Purchasing managers 9 Canada: March employment report India: March CPI
index
UK: March PPI Japan: March employment report and
PPI: Producer price index
LTD: April U.S. dollar index options CPI
Economic Release (ICE)
release (U.S.) time (ET)
GDP 8:30 a.m. 10
May
CPI 8:30 a.m.
11
ECI 8:30 a.m. 1
PPI 8:30 a.m. 12
ISM 10:00 a.m. 2
Unemployment 8:30 a.m. 13 U.S.: February trade balance
Personal income 8:30 a.m. France: March CPI
3 U.S.: April ISM manufacturing report
Durable goods 8:30 a.m. and March personal income
Germany: March CPI
Retail sales 8:30 a.m.
Trade balance 8:30 a.m.
Japan: March PPI 4
Leading indicators 10:00 a.m. 14 U.S.: March CPI and retail sales; Fed 5
beige book
APRIL 2010
6 Brazil: April PPI
15 India: March PPI UK: Bank of England interest-rate
27 28 29 30 1 2 3
announcement
4 5 6 7 8 9 10 16 U.S.: March housing starts
ECB: Governing council interest-rate
11 12 13 14 15 16 17 17 announcement
18 19 20 21 22 23 24
25 26 27 28 29 30 1
18 7 U.S.: April employment report
Brazil: April CPI
19 U.S.: March leading indicators
MAY 2010 Canada: April employment report
25 26 27 28 29 30 1 20 Canada: Bank of Canada interest-rate Mexico: April 30 CPI and April PPI
2 3 4 5 6 7 8 announcement UK: April PPI
Germany: March PPI LTD: May U.S. dollar index options
9 10 11 12 13 14 15
Hong Kong: Q1 employment report (ICE)
16 17 18 19 20 21 22
UK: March CPI
23 24 25 26 27 28 29
30 31 1 2 3 4 5 21 UK: February employment report

The information on this page is 22 U.S.: March PPI

subject to change. Currency Trader is Hong Kong: March CPI
not responsible for the accuracy of Mexico: April 15 CPI
calendar dates beyond press time.

CURRENCY TRADER • April 2010 29

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FXCM (www.fxcm.com) has introduced a beta version of
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Date: May 17-18
Location: Toronto
For more information: Go to www.itts2010.com
Event: FIA/FOA International Derivatives Expo
Date: June 8-9
Location: The Brewery, Chiswell Street, London
For more information: Go to www.idw.org.uk
30
treated as broad-based index options; TradeLog will then
import those securities as futures so they can be reported
properly as section 1256 contracts. Version 8 also includes
customizable, predefined index options, as well as
enhanced futures support. Users can now define securities
to be treated as futures in addition to securities predefined
in TradeLog. The software will import defined securities as
futures in the type column for proper reporting as section
1256 contracts. Version 8 now includes an embedded user
guide, making it easier for users to access TradeLog’s quick
start and comprehensive user guides.
CQG has integrated its hosted market data servers and
exchange gateways with MATLAB from The MathWorks, a
mathematical computing software developer. By combin-
ing MATLAB into CQG’s solutions, CQG now gives traders
and market analysts the ability to analyze global financial
markets and make intelligent analysis-based trading deci-
sions. The integration of MATLAB and CQG’s software is
incorporated at no additional charge in CQG Integrated
Client, CQG’s flagship trading and analytics program. The
MathWorks joins a growing list of companies participating
in CQG’s Certified API Partner Program, while CQG has
joined The MathWorks Connections Program. MATLAB is
a widely used, high-level environment for algorithm devel-
opment, data visualization, analysis, and mathematical
modeling. MATLAB users can now receive real-time and
historical analytical data from more than one hundred
CQG-supported exchange and financial sources world-
wide, enabling fast and powerful analysis, trading strategy
development, and testing. The link also enables MATLAB
to execute orders, creating an appealing offering for MAT-
LAB users simply wanting to send orders directly to mar-
ket or those developing algorithm-powered automated
trading systems. The integration allows MATLAB-calculat-
ed values to be imported into CQG and charted next to the
underlying financial values. This gives customers the
opportunity to append MATLAB analytics in trading sys-
Event: Los Angeles Traders Expo
Date: June 9-12
Location: Pasadena Convention Center, Los Angeles
For more information: Go to
www.moneyshow.com/caot/?scode=013721
Event: The Forex, Futures & ETFs Expo Las Vegas 2010
Date: Sept. 23-25
Location: Caesars Palace, Las Vegas
For more information: Go to www.moneyshow.com
April 2010 • CURRENCY TRADER
tems developed on the CQG Integrated Client. CQG’s Data
and Trading APIs are available as part of its flagship prod-
uct, the CQG Integrated Client, and can be used with any
object-oriented programming language, including
Microsoft Excel VBA, Visual Basic, C#, and C++. CQG also
provides direct connectivity to its Hosted Exchange
Gateways using the industry standard FIX protocol via
CQG’s FIX 4.2 API.
TradingScreen has integrated with FMO, the online
portfolio management system for global hedge funds with
industry leading reporting and attribution analysis func-
tionality. The certified integration of TradingScreen and
FMO links the front and middle/back office to offer a new
level of trading efficiency built on the combined multi-asset
class capabilities of both systems. Institutional traders using
this FIX-based best-of-breed EMS-OMS solution will lever-
age TradingScreen’s global order routing and advance exe-
cution management functionality coupled with the FMO
portfolio management system to manage post trade and
middle office processes with brokers and custodians, recon-
ciliations, reporting, as well as fund accounting. The latest
FMO release features improved-real time and historic
reporting of fund performance across multiple prime bro-
kers and custodians to manage counterparty risk and pro-
vide clients additional process transparency.
Interactive Data Corporation has expanded its
Interactive Data 7ticks ultra low-latency trading network to
the East Coast. This expansion enables equities and futures
traders to gain more direct access to additional key equities
markets by using a single service provider with advanced
co-location, proximity hosting, real-time monitoring and
technical support capabilities for customers. Interactive
Data 7ticks has supplemented its existing presence in the
New York Metro area with connectivity to facilities located
in Carteret and Weehawken, New Jersey. It can now pro-
vide customers with exchange co-location capabilities for
access to leading equities exchanges. In addition, customers
will have proximity hosting with some of these exchanges.
Interactive Data 7ticks will also be able to provide moni-
tored low-latency domestic telecommunications connectiv-
ity between its financial data center hub located in Chicago
and five locations in the New York City and New Jersey
area. 
Note: New Products and Services is a forum for industry businesses to
announce new products and upgrades. Listings are adapted from press releas-
es 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

Flip-flop catches market bottom almost

perfectly — wrong, that is.

TRADE
Date: Thursday, March 25, 2010.

Entry: Short the Euro/U.S. dollar

(EUR/USD) at 1.3279.

Reason for trade/setup: This short

trade reversed a long position estab-
lished the previous day (based in part
on analysis from “Pattern combination,
pattern dissection”).
While on a shorter-term basis the
EUR/USD pair appeared more likely to
bounce, the expectation of an eventual
sharp sell-off in the stock market (equi-
ties having rallied relentlessly for most
of March) was the catalyst for the short Source: TradeStation
trade: Any significant retracement in
stocks would send capital into the U.S.
dollar and fuel another leg of the Euro’s reaction to another market — resulted in the destruction of
longer-term downtrend. Stocks’ dramatic intraday reversal what would have been a profitable long trade and the estab-
(after making a new high) on March 25 triggered the aban-
lishment of a short position just a few ticks off what turned
donment of the long EUR/USD) position and a reversal to
out to be the lowest low of the next several days.
the short side.
By entering on a breakdown (rather than waiting for a
bounce), we’re poorly positioned to take advantage of
Initial stop: 1.3683. longer-term bearishness in the Euro, if and when it actual-
ly unfolds. As it stands, we are forced to place a stop-loss
Initial target: 1.2990. for this order right around the area that would make a
good entry point for a short trade. (The trade would have
been liquidated sooner, but the position size was very
RESULT small.)

Exit: Trade still open.

Profit/loss: -0.0291 (2.2 percent), marked to market on
April 1.
Outcome: The ad hoc decision — based on an emotional
Note: Initial trade targets are typically based on things such as the historical per-
formance of a price pattern or a trading system signal. However, because indi-
vidual 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
nature.

TRADE SUMMARY
Date Currency Entry price Initial stop Initial target IRR Exit Date P/L LOP LOL Trade length
pair Point %

3/25/10 EUR/USD 1.3279 1.3683 1.3000 0.69 1.3570 4/1/10 -0.0291 -2.19% 0.0013 -0.0308 5 days

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).

32 April 2010 • CURRENCY TRADER