CurrencyTrader 2009-03

Strategies, analysis, and news for FX traders
March 2009
Volume 6, No. 3
THE BRITISH POUND’S WEEKLY BOTTOM

pounding p. 8 PATTERN:
Time for
SWEDEN’S KRONA FACES a bounce? p. 16
familiar currency
challenge p. 12 CURRENCIES
AND SOVEREIGN
RISK AVERSION credit risks p. 28
and the forex
market p. 20 CME READIES
new Micro FX futures
p. 38
CONTENTS
Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . .6 On the Money

Rational fear and the forex market . . . . .20
Global Markets Analysis of several intermarket relationships . .
Has the bleeding stopped suggests the role of risk aversion in the forex .
for the pound? . . . . . . . . . . . . . . . . . . . . . .8 market is no cut-and-dried issue.
The British pound had backed off a bit from By Barbara Rockefeller
its once-in-a-lifetime sell-off in February, but
few are betting the currency will stage a Advanced Strategies
dramatic recovery in the near future. Sovereign credit risk and currencies . . .28
By Currency Trader Staff Government actions are perversely rewarding
the guilty: As a nation’s credit rating deterio-
Volatile times for krona . . . . . . . . . . . . . .12 rates, its borrowing costs fall and its currency,
Regardless of whether this Nordic currency at least temporarily, rises.
can come out of its deep freeze, it is likely By Howard L. Simons
to have a bumpy ride in the coming months.
By Currency Trader Staff
Spot Check
Pound/dollar . . . . . . . . . . . . . . . . . . . . . .16
A look at what the British pound’s recent price
action hints about its future.
By Currency Trader Staff
continued on p. 4
2 March 2009 • CURRENCY TRADER

ads0708 5/12/08 5:05 PM Page 39
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 Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
to new FX futures . . . . . . . . . . . . . . . . . .38 Conferences, seminars, and other events.
The CME Group and ICE take different
approaches in offering forex traders new New Products & Services . . . . . . . . . . . . .42
ways to trade currency futures.
Forex Journal . . . . . . . . . . . . . . . . . . . . .43
A short trade in the USD/CAD pair.
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Publisher, forex.com) is an international economist with a focus

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reports on foreign exchange. Rockefeller is the author
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(John Wiley & Sons, 2000), The Global Trader (John
Volume 6, Issue 3. Currency Trader is published monthly by TechInfo, Inc., Wiley & Sons, 2001), and How to Invest Internationally,
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GLOBAL MARKETS
Has the bleeding stopped

for the pound?
The UK’s 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.
C
oncerns over the global
crisis remain the key
driver in the foreign
exchange market as
investors witness the continued dete-
rioration 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
$1.3500 (the lowest price since Source: TradeStation
1985), and more recently con-
solidating in the $1.4100- BRITISH POUND/U.S. DOLLAR AT A GLANCE
1.5000 range (Figure 1).
Daily range (past 40 days): Average: .0326 Median: .0329
The British economy was
Weekly range (past 26 weeks): Average: .0828 Median: .0748
especially hard hit during the
fall months thanks to the 52-week high/low: 2.0395 1.3501
UK’s strong reliance on bank- Prevailing interest rate, last change: UK U.S.
ing and other financial servic- 1%, -0.50% 0%, -0.50%
es. Citing data from the Next scheduled central bank meeting(s): March 5 March 17-18
British Consular Office, GDP (% annualized): Q4 2008 Q3 2008 Q2 2008
Charmaine Buskas, senior UK U.S. UK U.S. UK U.S.
economic strategist at TD -1.8 -6.2 0.3 -0.5 1.7 2.8
Securities in Toronto says, All data as of 2/27/09
“10.7 percent of UK gross

domestic product (GDP) comes from financial services. It 2-percent contraction of the early 1990s, but less than the
accounts for one in 30 jobs. They had the same troubles as nearly 6-percent fall in the early 1980s following the ‘winter
everyone else, but amplified and magnified.” of discontent.’ The UK economy is about halfway through
Like the U.S., the UK also suffered a crash in its over- continued on p. 10
leveraged 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.
“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 UK’s 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 interna-
tional economist at Moody’s
Economy.com adds: “The ongoing
lending logjam and the associated
adverse impact on the availability
of credit to households and [corpo-
rations] 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 3.5-percent 2009 decline and TD

The Euro/pound’s run to parity (1.00) came up short late last year, and the pair Securities’ forecast of a 3.1-percent
subsequently retraced more than 10 percent over the next six weeks. 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 expect-
ed, which would take the key mone-
tary policy rate to yet another record
low of 0.50 percent.
“With the monetary policy rate rap-
idly approaching zero, Britain’s cen-
Source: TradeStation tral bankers are running out of room
to cut rates much further,” Stroppiana
its deepest recession in three decades.” says. “Dysfunctional credit markets
Moody’s 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.
in 2008. This compares with 4CAST Inc.’s projection of a “The government has granted the central bank unprece-
dented powers to buy up to £50 billion
FIGURE 3 — TRYING TO STAY AFLOAT in corporate assets via the Asset
Purchase Facility. The purchase of
The pound/dollar has managed to stay above its January low, but it has not
made a strong move to the upside. commercial paper and corporate
bonds is currently being financed by
the issue of Treasury bills rather than
by the creation of money. The next
step for Britain’s 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

“There was a speculative push to achieve parity in advises pound traders to “remain short or use pullbacks, to
December,” says Michael Woolfolk, senior currency strate- say, $1.50, to short the pound.”
gist at Bank of New York Mellon. “We saw a pullback in
January from the speculative surge to buy the Euro vs. the For more analysis of the pound/dollar pair, see “Spot check.”
pound.”
However, analysts are increas-
ingly bearish on the pair.
“The UK has been more proac-
tive than the Eurozone in battling
the deteriorating economic condi-
tions,” 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
Eurozone’s exposure to Eastern
European banking woes.
“Eastern Europe is imploding
right now,” he says. “These coun-
tries, 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 Eurozone’s 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

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.
L
ike Switzerland, Sweden has a long history of “The financial crisis and a global slowdown have
neutrality — the country has not participated in reduced demand for Swedish exports, while domestic con-
a military conflict in nearly two centuries. sumption remained very weak,” says Moody’s Christine Li.
Nonetheless, the Nordic nation, with a popula- And has been the case almost everywhere else, a wobbly
tion of just over nine million citizens, has been unable to housing market and nervous consumers are adding to
avoid the international financial crisis and global recession. domestic weakness.
Swedish economic growth numbers plummeted toward “Consumer spending has been contracting amid very
the end of 2008 amid a sharp decline in exports, which tight credit conditions and a weakening housing market,”
include machinery, autos, paper products, and iron and Li says. “Swedish house prices had been showing positive
steel products. annual growth rates during the first nine months of last
At the same time, the Swedish currency, the krona (SEK), year because of a cap on property taxes, but house prices
reversed a multi-year strengthening trend vs. the U.S. dol- are now contracting. The financial turmoil has kept credit
lar in August 2008 and has deteriorated significantly into conditions tight and borrowing costs high, which has
late February 2009 (Figure 1). reduced household spending.
In the third quarter of 2008 the Swedish growth rate “The labor market is also softening, with unemployment
turned negative, with a quarterly 0.1-percent gross domes- rising from 6.4 percent in December to 7.4 percent in
tic product (GDP) decline. Total 2008 GDP growth was January as Swedish companies slash their workforces to
forecast at 0.5 percent by Moody’s Economy.com, while battle the fallout from the global financial crisis and a weak-
Swedbank Markets estimated a final 0.3-percent annual er sales outlook,” Li adds.
rate for the year. Sweden boasts an export-driven economy. During the
The outlook for 2009 is much bleaker, though. The first three quarters of 2008, the volume of Swedish exports
Swedish banking group SEB forecasts a 2.4-percent decline of goods and services rose by about 4 percent annually
in Swedish GDP this year, which would represent the according to a recent report from Swedbank, in which ana-
largest downturn since World War II. Moody’s lysts wrote: “Foreign trade statistics for October and
Economy.com forecasts a 2.2-percent GDP decline. November show that exports of goods continued to weak-
en, for which reason we estimate that
FIGURE 1 — THE FORMER TREND total export volume growth for the
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.
Source: ADVFN (http://www.advfn.com)
“The Swedish banking sector

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 con-
cerned about European banks’ exposure
to emerging European markets,” she
adds. “Swedish banks have a particular-
ly 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 Swedbank’s Skingsley. The
Riksbank began an easing cycle in
October 2008 and has made four cuts
since then, bringing the bank’s overnight
“repo” rate from 4.75 percent to 1 per-
cent as of February 2009. Most Swedish
analysts agree further rate cuts are possi-
ble, with room for another 50 basis point
continued on p. 14

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 aggres-
sive outlook.
“Our view is that the Riksbank will
cut rates to zero at the April 21 meet-
ing and keep the repo rate at zero until
the end of 2010,” he says.
The Riksbank has a 2-percent infla-
tion target with a tolerance band of
+/- 1 percent around that target. Source: ADVFN (http://www.advfn.com)
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.”
But the Riksbank is forecasting a 0.5-percent decline this Volatility will likely remain the name of the game in the
year in the nation’s consumer price index (CPI), and SEB near term.
forecasts a 0.9-percent CPI decline in 2009, followed by a “The Swedish krona will remain volatile against the Euro
modest rebound to a 0.4-percent rise in 2010. this year given continued financial market turbulence,” Li
says. “The Euro will weaken to 9.40 against the krona by
The krona mid-year as investors price in worsening Eurozone eco-
Swedish citizens voted down entry into the European nomic fundamentals and further aggressive Eurozone mon-
Union in 2003 and chose to maintain their own sovereign etary policy easing. Moody’s 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.”
was in a steady downtrend as the krona strengthened What does this mean in respect to the dollar?
against the dollar, falling from from 11.06 in July 2001 to “The U.S. dollar will continue to benefit in this shaky
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
the krona suffered as the financial panic unfolded. fall vs. both currencies.”
“Risk aversion has meant investors have been selling SEB Trading expects USD/SEK at 8.75 in mid-2009.
risky assets such as the krona,” Li says. “The U.S. dollar has “The risks are clearly on the upside,” Javeus says.
been strengthening vs. the krona as
risk-averse investors have been mov-
FIGURE 3 — EURO/KRONA
ing into safe havens such as the dol-
lar.” The krona also lost ground against the Euro, which, after a pullback, pushed
From the 6.04 level in August 2008, above its December high in February.
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 currency’s 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.
W
hen, during the week
ending Oct. 24, 2008,
the British pound/U.S.
dollar pair (GBP/USD)
fell more than six percent below the pre-
vious week’s low, it was the first time
the pound had dropped that much in
more than 16 years. To be precise, it had-
n’t 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.
Source: TradeStation 12, and Jan. 23), is a testament to the
extreme nature of the current market
FIGURE 2 — GBP/USD, DAILY upheaval. (The market has fallen 3 percent or
The pound continued to struggle after the initial September-November more on a weekly basis only 26 times in the
flush-out in financial markets. 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 pound’s sell-off was definitively fin-
ished, 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
Source: TradeStation the British currency faces as it tries to rebound
from its most dramatic devaluation in more
continued on p. 18

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SPOT CHECK continued
FIGURE 3 — GBP/USD, WEEKLY
The two-week pattern that appeared in mid-January was a relatively
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/dol-
lar 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 end-
ing 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 week’s range, fol-
lowed 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 pat-
tern 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 week’s low was, as men-
tioned, exceptionally large. Taking into FIGURE 4 — POUND/DOLLAR WEEKLY PATTERN
account as many of the characteristics
of the two-week pattern while avoid- The pound/dollar pair outperformed the market’s overall bias during two
ing optimization led to the following different periods, but results were choppy. Also, relaxing the pattern parameters
definition: significantly produced a total of only 39 examples since 1979.
1. Last week’s low is at least 1

percent lower than the previous
week’s low.
2. Last week’s close was below last
week’s open.
3. The difference between this
week’s low and last week’s low
is less than 0.05 percent.
4. This week’s close is above last
week’s close.
5. This week’s close is in the upper
25 percent of the week’s 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 The evidence is scant, but the pattern analyzed here
after the pattern (measured from the close of the pattern to points to the potential for some limited upside action in the
the subsequent 12 weekly closes) to the median price action pound/dollar pair, given the market’s most recent move
for all one- to 12-week periods during the 10-year analysis was in keeping with the pattern’s historical performance.
period. However, as of Feb. 27, the market had concluded week
There is an upside bias to the post-pattern behavior, espe- four of its post-pattern move and had already rallied as
cially through week 8, but the price action in the first cou- much as .0448 above the Jan. 30 close, much more than the
ple of weeks is flat to lower — which happens to be the path typical post-pattern move.
the pair took after the most recent instance. Also, it’s important to remember the other half of this
Going back another 20 years to 1979 produced 23 more pair is the U.S. dollar, which, although it faces its own prob-
examples, and the overall trajectory was roughly the same: lems, has proved it is still something of a safe-haven in
The pair outperformed the market by the end of the review times of turmoil. If the global markets begin to destabilize
period, but this time price meandered for seven weeks dramatically again, funds are likely to fly in the direction of
before turning higher. 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
Rational
traders buy into the U.S. currency as a safe haven. If risk aversion falls, the
dollar falters. fear
and the
forex market
Intermarket relationships aren’t
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.
T 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 it’s true risk aversion is a
powerful force, it’s 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 haven’t come up with
any new ideas about the behavior of
markets beyond “fear and greed,” a
phrase that surely has been around for
centuries.

We haven’t come up with any new ideas about the
Market prices may appear to be corre-
behavior of markets beyond “fear and greed,” a lated, but correlation is not causation.
Market prices are set by two things —
phrase that surely has been around for centuries. fundamentals (such as corporate earn-
ings for stock indices or jewelry
The problem with risk aversion as Previously, we had the circular oil- demand for gold) and market senti-
the explanation for everything is that dollar logic: the dollar is up “because” ment. When market sentiment is dom-
it is being tossed around like confetti. oil is down (on the theory that cheap inated by fear, rational or irrational, all
One newspaper reports the Euro/yen oil is good for the U.S. economy), or oil prices will fall, but they fall in their
pair has a strong correlation with the is up “because” the dollar is down. own way and to their own extent
CBOE volatility index (VIX). A hedge- Finally, we have the perennial dollar because prices are set by human
fund manager says he is very con- and gold relationship — gold rises traders and each market has a differ-
cerned about the Euro/yen crossrate when the outlook for the dollar is ent trader profile.
being so strongly correlated with the bleak. Gold is an alternative to money Figure 2 shows the Euro and S&P
S&P 500 stock index. European ana- as a store of value, even if it can’t be 500 on a weekly basis. It appears the
lysts are tracking the relationship used as a unit of account or a transac- continued on p. 22
between the Euro/dollar and the tion medium (try paying for a quart of
Baltic Dry Index (BDI), a measure of milk or a tank of heating oil with a
shipping rates and thus a proxy for chunk of gold).
global economic activity. To all of this we say, “balderdash.”
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.

ON THE MONEY continued
FIGURE 4 — EURO/YEN VS. S&P 500, WEEKLY

Euro led the S&P down in 1999-2001,
Starting in 2003, it looks like Euro/yen has been highly correlated with the S&P
but this has no basis in reality. The
500, but neither currency has anything to do with the U.S. stock index.
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 lit-
tle 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 bil-
lions in portfolio investment vs. hun-
dreds of billions in actual Euro/dollar
positions. The tail does not wag the
dog.
We need to downplay the seeming
Source: data — eSignal and Reuters Online; chart — MetaStock correlation for two reasons. First, we
want to avoid knee-jerk trading deci-
sions inspired by developments in
FIGURE 5 — DOLLAR/YEN (INVERTED) VS. GOLD (WEEKLY) only marginally related markets. This
The yen and gold diverged dramatically in the fall of 2008. is called keeping your eye on the ball
and it’s a basic tenet of good manage-
ment. As management guru Stanley
Drucker advised, “Stick to your knit-
ting.” If you follow the dollar/yen
and your trading P&L depends on the
dollar/yen, you should not be look-
ing at the gold-oil relationship. A
corollary is that if the rest of the mar-
ket 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 empti-
ness 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

When market sentiment is dominated by fear,
rational or irrational, all prices will fall, but they fall indeed the yen strengthened from
110.67 in August 2008 to 87.13 in
in their own way and to their own extent because January 2009, or more than 21 percent
(Figure 3).
prices are set by human traders, and each market But now suddenly we have the dol-
lar/yen surging upward to nearly 100
has a different trader profile. while at the same time the S&P 500 is
still falling — a divergence the risk-
move. For example, the yen was said the home currency for the Japanese aversion scenario simply cannot
to be a safe haven for the Japanese. and thus their safe haven. Besides, a explain. Logically, if world equity
Risk aversion was causing retail new tax law coming into effect in April assets are falling, risk aversion should
investors to pull back from positions waives corporate taxes on repatriated be higher and the safe-haven yen
in foreign assets. In the past year, profits, possibly as much as ¥10-20 tril- should be rising, not falling. Golly,
Japanese investors in overseas invest- lion. maybe the dollar is the safe haven,
ment trusts saw a pullout of $118 bil- This scenario supposedly supports after all.
lion. Despite Japan having the worst the inverse correlation of the yen and continued on p. 24
economic performance among G7 the U.S. stock markets. As the Dow
countries, with GDP falling 12.7 per- and S&P fall, the yen goes up on repa-
cent year-over-year in 2008, the yen is triation. This sounds plausible and
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.

ON THE MONEY continued
Or maybe it’s a mistake to forecast

FIGURE 7 — DOLLAR/YEN VS. NIKKEI 225 STOCK INDEX, DAILY the yen based on what stock markets
The yen/Nikkei stock index relationship is logical, because when the yen is are doing. Starting in 2003, it looks
weak Japanese companies can sell more overseas. like Euro/yen has been highly corre-
lated 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. corpo-
rate earnings and get them into the
picture somehow, but the operative
word is torture.
What about currencies vs. oil and
If the rest of the market

is bedazzled and
befuddled by events in
another market, you
Source: data — eSignal and Reuters Online; chart — MetaStock may be able to take
FIGURE 8 — DOLLAR/YEN VS. NIKKEI 225 STOCK INDEX, WEEKLY
advantage of it. At
The yen/Nikkei relationship is weaker on a weekly basis. 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 dol-
lars. 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

rise in gold, coupled with the fall in correlated with world growth than an important one was the loss of cred-
oil, delivering a spike while the Swiss any other currency. it that started last July and remains in
franc fails to follow. The Swiss franc is The BDI fell for many reasons, but continued on p. 26
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 can’t 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

TRADING STRATEGIES continued
FIGURE 9 — EURO/DOLLAR VS. BALTIC DRY INDEX WEEKLY It’s okay to consider that
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 one market influences
credit that started last July.
another, like raw
materials prices
influence the BDI. But
it’s 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
couldn’t get credit as the financial
markets seized. Finally, raw materials
prices fell dramatically. The correla-
tion of raw material prices (represent-
FIGURE 10 — COMMODITY PRICE INDEX VS. BALTIC DRY INDEX, WEEKLY ed by the Commodity Price Index in
The correlation of raw material prices to the BDI is more impressive than the Figure 10) to the BDI is more impres-
relationship between the Euro against the BDI in Figure 9. sive than the relationship between the
Euro against the index.
Finally, if we think fear is behind all
markets these days, let’s 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 high-
est 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 curren-
cy market, the Euro should be lower

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 aver-

sion in stocks is quantitatively and
qualitatively different from risk aver-
sion in currencies.
Context counts. It’s okay to consid-
er that one market influences another,
like raw materials prices influence the
BDI. But it’s risky and a bit silly to
trade the Euro/dollar by looking at
the BDI chart. Don’t trade one thing
while looking at something else.
Trade the thing you’re looking at.
For information on the author see p. 6.
Other Barbara Rockefeller articles:

“Competitive devaluations, the EMU, and the yen” “Horizontal patterns in foreign exchange”
Currency Trader, February 2009. Currency Trader, August 2008.
Currency devaluation never works in the long run — just ask The Euro’s price action lends itself well to dissection with
Japan — but that doesn’t mean panicky governments won’t the Darvas Box.
use it to try to stem the flow of blood in the near term.
“Are the summer doldrums here?”
“The Euro: Prosperity or perdition?”
Currency Trader, July 2008.
Currency Trader, January 2009.
If market myth is true, the season will bring a sideways
The belief the Euro sell-off has ended may be based on
market. But the myth warrants some analysis.
some false assumptions about how the U.S. and Europe are
handling the economic crisis. “Manias and crashes: Where will oil lead the dollar?”
Currency Trader, June 2008.
“The six Ds of depression”
Although some analysts argue a falling dollar is helping to
Currency Trader, December 2008.
push up oil prices, it might be the other way around. The
The buck has gotten a bounce from the recent financial
question is, when will the bubble-go-round stop?
panic, but the longer-term picture isn’t quite as bullish.
“Is the Euro going to the moon?”
“Euro and dollar at parity?”
Currency Trader, May 2008.
Currency Trader, November 2008.
A look at the Euro’s recent gravity-defying performance.
A few short months ago the world was contemplating Euro
$2. Now, the talk is all about Euro $1. What are the odds it “What’s really driving the dollar?”
will happen? Currency Trader, April 2008.
Signs of a potential turnaround in the buck can be found in
“Crisis of confidence,” Currency Trader, October 2008.
an unexpected place.
As Wall Street and Washington prove themselves equally
inept, the dollar suffers. “Why is the yen trending higher?”
Currency Trader, March 2008.
“The dollar-oil connection”
The yen’s rise seems to defy logic. Find out what’s behind it.
Currency Trader, September 2008.
As oil broke, so did the Euro/dollar pair. What can we learn
from analyzing bursting bubbles?
You can purchase and download past articles at http://store.activetradermag.com.

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
O
The credit crisis was global and clearly affected German bunds as much if not more ne witticism circulat-
than American bonds. ing about the Internet
endlessly — and by
fax previously, for
those of you old enough to remem-
ber when the fax machine was très
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-inde-
pendent, for it applies to global cen-
tral 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 phe-
nomenon — increasingly observ-
able in 2008 — that once a country’s
sovereign credit rating deteriorates,
its borrowing costs fall and its cur-
rency, 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 com-

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 conceptu-
ally 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 underly-
ing bond itself is a sovereign credit
risk, such as a U.S. Treasury, a
German bund or a Japanese govern-
ment 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 ative real short-term interest rates, acceptance of all hard-to-
anyone who dabbles in Tsarist or Confederate bonds in any- value securities as collateral, implicit backstops of rescue
thing other than the scripophily market can attest. And if plans for entities such as Bear Stearns, the de facto nation-
that event comes about, it would be pretty pointless to alization of Fannie Mae and Freddie Mac, and the creation
receive payment for a defaulted U.S. Treasury bond in U.S. of a bewildering array of lending facilities managed by
dollars. Therefore, the CDS quotes here always are in units some combination of the Treasury and the Federal Reserve.
of another currency; Euros for U.S. bonds and dollars for Each one of these steps reduced, in the case of the Federal
German and Japanese bonds. Reserve, the quantity of Treasury securities on its balance
Rising CDS costs on various sovereign credit risks sheet. Central banks’ portfolios held securities of increas-
became an increasing fact of life after the onset of the cred- ingly dubious quality, so much so the Federal Reserve has
it crunch in 2007. Governments everywhere (in the U.S. and refused to disclose the garbage it has accepted as collateral
UK in particular) felt the appropriate response to banks despite a Freedom of Information Act inquiry.
reaping the consequences of their own bad bets and risk All this chicanery produced higher inflation and, ironi-
management was to bail them out by a combination of neg- continued on p. 30

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 increas-
es in CDS costs, and peaked simultaneously with these costs in the January, March, cally, higher credit costs for both
and September-October 2008 panics. Yen volatility remained elevated along with corporate borrowers and for resi-
these CDS costs. dential mortgages without the off-
setting benefit of rising asset
prices. As far as complete failures
with catastrophic long-term conse-
quences go, you would be hard-
pressed to beat this.
Praise and honors for the non-
participants might be a Pyrrhic
victory given the damage pro-
duced by the participants. Did we
mention Timothy Geithner, pres-
ent (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?
It’s important to remember the
government’s 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 govern-
ity and 2) its printing presses, not ment — at the expense of higher funding costs for everyone else.
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 dollar’s collapse early in 2008
that international creditors might
issue a collective cease-and-desist
order on the printing presses. If
the markets sense the govern-
ment’s balance sheet consists of
defunct mortgage securities, a
credit deterioration will occur.
Trans-Atlantic trade
Let’s map two different CDS
costs, those for German bunds
continued on p. 32
ADVANCED STRATEGIES continued
priced in dollars and those for Related reading:

American bonds priced in Euros, at Other Howard Simons articles
two different maturities, five and 10 “Minor trends make minor friends”
years (Figure 1). The jump in CDS Currency Trader, February 2009.
costs for the U.S. during various phas- Do minor currencies offer trading opportunities the majors don’t? Find
es of the 2008 credit crisis and the gov- out what the numbers say.
ernment’s response thereto is quite “Let the trend be your friend: The majors”
apparent, as is the ratchet nature of Currency Trader, January 2009.
their climb: Once the market priced in If currencies trend so much, why do trend followers usually have such blah
a lower credit rating for the U.S., it performance? This and other questions are answered in this study of currency
trends.
remained elevated until the next
jump. “The rupee and emerging markets”
Currency Trader, December 2008.
Analysis suggests India’s status as a global economic power is no accident.
Moral hazard: Banks “Nordic currency confusion”
Currency Trader, November 2008.
Get a handle on the dynamics of the Northern European
learned they can force currencies.
“The Swiss franc’s commodity connection”
governments’ hands Currency Trader, October 2008.
How can the Swiss currency be, of all things, a commodity currency?
by failing on a grand “Franc-ly, my dear, I don’t give a carry”
Currency Trader, September 2008.
scale, and governments Investigating the Swiss franc carry trade, and what might change its dynamics.
“The short, awful life of the dollar carry trade”
learned their power rises Currency Trader, August 2008.
The implications of the weak-dollar policy and the dollar’s roles as a funding currency.
“Currencies and commitments”
and their funding costs Currency Trader, June 2008.
Find out what COT data conveys about forex price action.
fall when they extend “Getting carried away with the kiwi”
Currency Trader, July 2008.
the full faith and credit of What’s driving the New Zealand dollar, and how long is it likely to last?
“Currencies and stock index performance”
their national treasuries Currency Trader, April 2008.
Find out how stock indices relate to the performance of their
currencies.
to wayward financiers. “What’s down with the Australian dollar?”
Currency Trader, March 2008.
Traders have many assumptions about the nature of the Australian dollar, but only one
What about the CDS costs for the of these preconceptions appears to have any impact on the currency.
German bunds priced in dollars?
“Currencies and U.S. stock-sector returns”
While they are at lower basis-point
Currency Trader, January 2008.
levels than their American counter- This exhaustive analysis challenges some common assumptions about the relationship
parts, their path has paralleled U.S. between currency moves and stocks.
CDS costs. The credit crisis was as a
“Interest-rate shocks and currency moves”
global affair and clearly affected the Currency Trader, October 2007.
German bunds as much if not more Short-term interest rates are typically cited as the prime catalyst of currency moves.
than it did the American bonds. This study puts that idea to the test.
Let’s overlay the normalized yield
“Howard Simons: Advanced Currency Concepts, Vol. 1”
spreads between the German and A discounted collection that includes many of the articles listed here.
American bonds; this is the yield dif-
ferential between the German and You can purchase and download past articles at http://store.activetradermag.com
American bonds, divided by the

American yield itself. This normalized money flows into mismanaged gov- volatility and substitute the yen itself,
yield spread began to move strongly ernment coffers. we see this principle emerge quite
lower in mid-July 2008, but then shot Five- and 10-year CDS costs on JGBs clearly (Figure 4). Over the past year,
higher into December 2008, especially priced in USD exploded higher the yen and five-year CDS costs have
at the five-year horizon, as investors between November 2007 and the moved in tandem. The circle has been
fled into U.S. Treasuries. March 2008 Bear Stearns panic low closed: Higher credit risk leads to both
This was a rather bizarre phenome- (Figure 2). They retreated between lower funding costs and a stronger
non; as the U.S. abandoned all pre- March and June 2008 and hit a reaction currency for the government at the
tense of fiscal and monetary sobriety low in early June, marked on both expense of higher funding costs for
and began to borrow $100 billion charts with a green vertical line, and everyone else.
chunks as if they were $5 bills, U.S. then rose sharply during the We have to consider another, grim-
Treasury yields collapsed. By September-October crisis. mer scenario. If the Great Depression
December 2008, four-week Treasury The normalized yield spread was prolonged and deepened by poli-
bills were yielding 0.0000 percent at between Japanese and American five- cy errors, did the world move away
auction and three-month bills were and 10-year bonds started to rise after from greater centralized planning? No,
actually being sold at a premium to June 2008. Japanese yields fell faster the opposite occurred. The era initiat-
par for a negative yield to maturity. than American yields even though the ed a half-century of ever-greater gov-
Restated, as credit risks increased in credit risk for Japanese bonds rose at a ernment interference in the economy.
general, investors fled riskier assets for faster rate and the yen weakened Past performance does not predict
the perceived safety of sovereign debt. against the dollar. future results, but what else can we
It is a flight-to-quality only if you This was a temporary phenomenon, use? Expect the massive policy failures
choose to use “quality” and “printing however. By the time the FOMC of 2007-2008 to lead to greater govern-
press” interchangeably. announced its “anything goes” mone- ment intervention.
Yes, it was time to punish the inno- tary policy on Dec. 16, 2008, the yen
cent with rising costs for mortgages was at a thirteen-year high, and short- For information on the author see p. 6.
and corporate debt, and reward the term American rates were below their
guilty with declining funding costs for Japanese counterparts in what some
sovereign debt even as the sovereign may regard as a violation of the laws
was trying desperately to inflate its of financial gravity.
way out of every problem, real and This is completely parallel to the
imagined. phenomenon observed for American
The expansion of moral hazard was and European bonds and thus con-
complete; banks learned they can force firms an emerging principle of sover-
the hand of government by failing on a eign credit risk: Governments are
grand scale, and governments learned being rewarded with lower borrowing
their power rises and their funding costs as investors flee risk.
costs fall when they extend the full
faith and credit of their national treas- Impact on the yen
uries to wayward financiers. Now let’s turn this longer history
toward the Japanese currency. If we
Trans-Pacific trade map the implied volatility on three-
One of the downsides of the U.S.- month non-deliverable forwards on
German example is its short life; the the yen against five-year CDS costs,
CDS series for the Treasuries begins in we see how this volatility jumped dur-
April 2008, and that simply is too small ing the August 2007 panic, well ahead
of a data sample to draw any mean- of any increases in CDS costs (Figure
ingful conclusions between credit risk 3). It peaked simultaneously with
and currencies. these costs in the January, March, and
However, if we look across the September-October 2008 panics (yes,
Pacific to Japan, we can find CDS on there are a lot of panics to enumerate).
JGBs trading back to 2003. Let’s see Volatility on the yen remained elevat-
whether these instruments confirm the ed along with these CDS costs.
principle suggested here — that If we strip out the intermediary of

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 British pound 1.45017 4.99% -3.19% -21.76% 2.0397 1.3501 10
2 South African rand 0.09981 1.66% 3.29% -23.87% 0.1391 0.0841 12
3 Hong Kong dollar 0.12898 0.02% -0.03% 0.66% 0.129 0.1279 5
4 Chinese yuan 0.14645 0.02% -0.17% -0.05% 0.1466 0.1395 3
5 Swiss franc 0.85894 -0.97% 4.26% -5.69% 1.0375 0.813 15
6 Australian dollar 0.64528 -1.40% 1.64% -25.56% 0.9849 0.6005 11
7 Canadian dollar 0.80105 -1.42% 1.03% -16.16% 1.0297 0.768 4
8 Indian rupee 0.02001 -1.57% 0.30% -13.34% 0.03974 0.01843 8
9 Singapore dollar 0.65432 -1.69% -0.35% -7.62% 0.7434 0.6489 13
10 Euro 1.27509 -1.86% 0.48% -13.83% 1.6038 1.2329 14
11 Taiwanese dollar 0.02881 -2.93% -3.81% -9.69% 0.03335 0.02865 9
12 Brazilian real 0.41999 -3.35% -0.07% -32.14% 0.6414 0.3751 2
13 New Zealand dollar 0.51066 -3.55% -4.94% -28.01% 0.8214 0.4959 16
14 Thai baht 0.02825 -4.98% -1.60% -4.85% 0.03373 0.0262 6
15 Japanese yen 0.01047 -7.10% 0.19% 15.18% 0.01148 0.00904 1
16 Swedish krona 0.11294 -7.25% -7.92% -28.54% 0.1718 0.1111 7
17 Russian ruble 0.02786 -10.01% -23.42% -32.08% 0.04334 0.0271 17
As of Feb. 25 *based on one-month gain/loss
ACCOUNT BALANCE
Rank Country 2007 Ratio* 2006 2008+ Rank Country 2007 Ratio* 2006 2008+
1 Singapore 41.395 27 36.288 42.208 13 Mexico -6.368 -0.7 -2.425 -10.588
2 Switzerland 65.534 15.8 58.708 64.106 14 France -39.363 -1.6 -27.712 -48.885
3 China 379.162 11.7 249.866 453.146 15 India -23.131 -2.1 -9.503 -32.301
4 Hong Kong 22.796 11.2 20.586 20.456 16 UK -96.687 -3.5 -77.236 -105.144
5 Netherlands 55.891 7.4 8.6 6.7 17 Australia -50.816 -5.7 -41.49 -52.988
6 Taiwan 25.402 6.8 24.661 28.365 18 U.S. -784.341 -5.7 -811.483 -788.293
7 Sweden 25.903 6 27.707 25.584 19 South Africa -18.495 -6.7 -16.608 -19.237
8 Russia 72.543 5.9 95.322 49.181 20 Spain -138.916 -9.8 -106.399 -154.849
9 Germany 175.371 5.4 147.134 174.137 Totals in billions of U.S. dollars
10 Japan 195.904 4.5 170.437 195.145 *Account balance in percent of GDP +Estimate
11 Canada 25.603 1.8 20.792 17.909 Source: International Monetary Fund,
12 Brazil 10.253 0.8 13.276 4.299 World Economic Outlook Database, October 2008

NON-U.S. DOLLAR FOREX CROSS RATES
Currency 1-month 3-month 6-month 52-week 52-week
Rank pair Symbol Feb. 25 gain/loss gain/loss gain/loss high low Previous
1 Pound / Yen GBP/JPY 138.564 13.07% -3.38% -32.08% 215.863 118.782 15
2 Pound / Euro GBP/EUR 1.13748 6.94% -3.67% -9.24% 1.3304 1.0195 4
3 Franc / Yen CHF/JPY 82.08369 6.58% 4.07% -18.13% 105.071 74.698 20
4 Aussie $ / Yen AUD/JPY 61.65867 6.07% 1.44% -35.39% 104.448 55.1876 17
5 Canada $ / Yen CAD/JPY 76.5369 6.04% 0.84% -27.25% 108.96 70.6656 13
6 Euro / Yen EUR/JPY 121.84 5.62% 0.29% -25.19% 169.958 112.045 19
7 Real / Yen BRL/JPY 40.12818 3.96% -0.26% -41.12% 69.3981 36.0109 10
8 Franc / Euro CHF/EUR 0.67369 0.90% 3.75% 9.44% 0.6992 0.6106 12
9 Franc / Canada $ CHF/CAD 1.07277 0.42% 3.16% 12.44% 1.1583 0.9135 18
10 Aussie $ / Euro AUD/EUR 0.5061 0.39% 1.15% -13.67% 0.6268 0.4725 7
11 Canada $ / Euro CAD/EUR 0.62829 0.39% 0.54% -2.76% 0.6785 0.5799 2
12 Aussie $ / Canada $ AUD/CAD 0.80592 -0.02% 0.57% -11.26% 0.9833 0.7568 14
13 Aussie $ / Franc AUD/CHF 0.75145 -0.50% -2.52% -21.13% 1.0095 0.712 3
14 Real / Euro BRL/EUR 0.32941 -1.58% -0.55% -21.29% 0.4197 0.2941 1
15 Real / Canada $ BRL/CAD 0.52455 -1.99% -1.12% -19.10% 0.6719 0.4726 9
16 Real / Aussie $ BRL/AUD 0.65112 -2.09% -1.71% -8.90% 0.7391 0.5991 5
17 Franc / Pound CHF/GBP 0.59238 -5.67% 7.67% 20.51% 0.661 0.4658 16
18 Aussie $ / Pound AUD/GBP 0.44509 -6.13% 4.97% -4.89% 0.4902 0.3786 11
19 Canada $ / Pound CAD/GBP 0.55253 -6.15% 4.34% 7.12% 0.5918 0.4874 8
20 Real / Pound BRL/GBP 0.28969 -7.99% 3.21% -13.29% 0.339 0.2441 6
GLOBAL STOCK INDICES
1-month 3-month 6-month 52-week 52-week
Rank Country Index Feb. 25 gain/loss gain/loss gain/loss high low Previous
1 Brazil Bovespa 38,232.00 -0.72% 9.82% -29.82% 73,920.00 29,435.00 1
2 India BSE 30 8,902.56 -1.13% 2.38% -38.39% 18,137.30 7,697.39 8
3 Hong Kong Hang Seng 13,005.08 -1.14% 0.98% -38.38% 26,387.40 10,676.30 14
4 Japan Nikkei 225 7,461.22 -2.88% -10.36% -42.07% 14,601.30 6,994.90 12
5 Australia All ordinaries 3,281.50 -3.27% -8.22% -35.53% 6,059.50 3,201.50 4
6 South Africa FTSE/JSE All Share 18,817.56 -6.64% -7.13% -29.53% 33,232.89 17,814.42 7
7 Mexico IPC 18,200.70 -7.06% -5.68% -31.10% 32,292.90 16,480.00 15
8 Canada S&P/TSX composite 7,932.30 -8.37% -6.05% -40.31% 15,154.80 7,566.32 2
9 Singapore Straits Times 1,616.79 -8.45% -2.21% -93.95% 3,269.88 1,473.77 3
10 UK FTSE 100 3,849.00 -8.55% -7.73% -29.64% 6,377.00 3,665.20 6
11 U.S. S&P 500 764.90 -8.57% -10.79% -39.62% 1,440.24 741.02 5
12 France CAC 40 2,696.92 -8.75% -15.97% -38.09% 5,142.10 2,662.73 11
13 Germany Xetra Dax 3,846.21 -11.11% -15.66% -38.92% 7,231.86 3,790.79 13
14 Italy MIBTel 12,494.00 -11.92% -18.90% -42.01% 26,458.00 12,349.00 10
15 Switzerland Swiss Market 4,702.50 -13.19% -14.16% -33.42% 7,802.60 4,660.90 9
GLOBAL SHORT-TERM INTEREST RATES
Country Interest rate Rate (%) Last change Aug. 08 Feb. 08
U.S. Fed funds rate 0-0.25 0.5 (Dec. 08) 2 3
Japan Overnight call rate 0.1 0.2 (Dec. 08) 0.5 0.5
Eurozone Refi rate 2 0.5 (Jan. 09) 4.25 4
UK Repo rate 1 0.5 (Feb. 09) 5 5.25
Canada Overnight funding rate 1 0.5 (Jan. 09) 3 4
Switzerland 3-month Swiss Libor 0.5 0.5 (Dec. 08) 2.75 2.75
Australia Cash rate 3.25 1.00 (Feb. 09) 7.25 6.75
New Zealand Cash rate 3.5 1.50 (Jan. 09) 8 8.25
Brazil Selic rate 12.75 1.00 (Jan. 09) 13 11.25
Korea Overnight call rate 2.5 0.5 (Jan. 09) 5.25 5
Taiwan Discount rate 1.25 0.25 (Feb. 09) 3.625 3.375
India Repo rate 5.5 1.00 (Jan. 09) 9 7.75
South Africa Repurchase rate 10.5 1.00 (Feb. 08) 12 11
GLOBAL BOND RATES
Rank Country Rate Feb. 25 1-month 3-month 6-month High Low Previous
1 Germany BUND 125.82 2.05% 4.13% 9.75% 126.53 109.65 1
2 Australia 10-year bonds 95.765 -0.14% 0.47% 1.62% 96.16 93.18 4
3 UK Short sterling 98.13 -0.37% 1.47% 4.14% 98.705 93.595 2
4 Japan Government Bond 139.2 -0.42% 0.04% 0.69% 141.9 132.09 5
5 U.S. 10-year T-note 121.63 -1.84% 0.38% 4.13% 128.65 111.15 3

INTERNATIONAL MARKETS continued
Gross Domestic Product*

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

GLOBAL ECONOMIC CALENDAR MARCH/APRIL
Legend March
CPI: Consumer price index
1 18 U.S.: FOMC interest-rate
ECB: European Central Bank
announcement; February CPI
FDD (first delivery day): The 2 U.S.: February ISM; January
first day on which delivery of a
Japan: Bank of Japan interest-rate
personal income
commodity in fulfillment of a announcement
Canada: Q4 GDP
futures contract can take place. FDD: March U.S. dollar index
FND (first notice day): Also 3 Canada: Bank of Canada futures (ICE); March currency
known as first intent day, this is
interest-rate announcement futures
the first day on which a clearing-
house can give notice to a buyer 4
of a futures contract that it
U.S.: Fed. beige book 19 U.S.: February leading indicators
intends to deliver a commodity in Australia: Q4 GDP Canada: February CPI
fulfillment of a futures contract.
The clearinghouse also informs
5 France: Q4 employment report; 20 Germany: February PPI
the seller. January PPI Hong Kong: Q4 GDP;
FOMC: Federal Open Market UK: Bank of England interest-rate February CPI
Committee announcement
GDP: Gross domestic product 21
ECB: Governing council
ISM: Institute for supply interest-rate announcement 22
management
LTD (last trading day): The final 6 U.S.: February employment report 23
day trading can take place in a Germany: January PPI
futures or options contract. 24 U.S.: February durable goods
LTD: March U.S. dollar index
PMI: Purchasing managers Mexico: February employment
index options (ICE); March currency
report; March 15 CPI
PPI: Producer price index options
S. Africa: Q4 employment report
Economic Release time 7 Brazil: February PPI
25 S. Africa: February CPI
release (U.S.) (ET)
GDP 8:30 a.m. 8 26 Brazil: February employment
CPI 8:30 a.m.
ECI 8:30 a.m.
9 Mexico: February PPI; Feb. 28 CPI report
PPI 8:30 a.m. S. Africa: February PPI
10 Brazil: Q4 GDP
ISM 10:00 a.m.
Unemployment 8:30 a.m.
Germany: February CPI 27 Japan: February CPI
UK: Q4 GDP
Personal income 8:30 a.m. 11 Japan: February PPI
Durable goods 8:30 a.m.
28
Retail sales 8:30 a.m. 12 U.S.: February retail sales
Trade balance 8:30 a.m. Australia: February employment 29
Leading indicators 10 a.m. report
30
France: February CPI
MARCH 2009
31 Canada: February PPI
1 2 3 4 5 6 7 13 U.S.: January trade balance
Germany: February employment
8 9 10 11 12 13 14 Canada: February employment
report
15 16 17 18 19 20 21 report
India: February CPI
22 23 24 25 26 27 28 Hong Kong: Q4 PPI
Japan: February employment
29 30 31 1 2 3 4 India: February PPI
report
14
APRIL 2009
15 April
29 30 31 1 2 3 4
5 6 7 8 9 10 11 16 LTD: March U.S. dollar index futures 1 U.S.: March ISM
(ICE); March currency futures
12 13 14 15 16 17 18 2 France: February PPI
19 20 21 22 23 24 25 17 U.S.: February PPI and housing
3 U.S.: March employment report
26 27 28 29 30 1 2 starts
LTD: April U.S. dollar index (ICE);
Hong Kong: Dec.-Feb. employment
April currency options
report
The information on this page is
subject to change. Currency FND: March U.S. dollar index
Trader is not responsible for futures (ICE)
the accuracy of calendar dates
beyond press time.
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 ICE’s new currency contracts — ICE Millions — the exchange’s
O
year-over-year forex volume dropped by more than 40 percent for three months
n Feb. 18, the CME Group in a row.
announced it would begin
offering currency futures contracts of
one-tenth the size of its standard con-
tracts. 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) E-
Micro contracts will be fully fungible
with their full-sized counterparts, with
margins and exchange fees propor-
tionally scaled down to one-tenth of
the full-contract cost. The three sents only one-tenth of the currency for the CME’s standard Australian dol-
remaining contracts, U.S. units of a standard contract, a one-tick lar/U.S. dollar futures contract (AD),
dollar/Japanese yen (USD/JPY), U.S. move represents the gain or loss of a which represents 100,000 Australian
dollar/Swiss franc (USD/CHF), and much smaller amount. For example, dollars, a single tick is 0.0001, or $10
U.S. dollar/Canadian dollar
(USD/CAD), cannot be directly offset TABLE 1 — ICE MILLIONS MONTHLY VOLUME TOTALS
because of the reversal of the base and
A few of the contracts, which represent 10 times as many units of currency as
quote currencies from the full-contract
their standard counterparts, saw a burst of interest in their first month of trading,
convention. but quickly fell off over the following months.
The CME Group says it hopes to
attract the retail crowd with its new Currency Futures Feb.
contracts, not only with its small-trad- pair symbol (through 25th) Jan. Dec. Nov. Total
ing size, but also by offering an alter- EUR/USD IEO 552 852 722 4,082 6,208
native to the interbank, over-the- GBP/USD IMP 13 8 44 283 348
counter (OTC) forex market with cen- USD/CAD ISV 0 0 0 0 0
tralized clearing and guaranteed coun- USD/JPY ISN 684 590 305 1,478 3,057
terparty credit by trading on CME’s USD/CHF IMF 1 0 2 47 50
Globex electronic platform. USD/SEK IKX 0 0 0 0 0
This is the opposite direction the EUR/GBP IGB 0 0 0 0 0
IntercontinentalExchange (ICE) went
EUR/CAD IEP 27 0 0 0 27
with its ICE Millions FX Futures,
EUR/JPY IEJ 2 0 0 0 2
launched in November 2008. These
EUR/SEK IRK 0 0 0 0 0
contracts represent a million units of
EUR/CHF IRZ 0 0 0 0 0
the base currency — 10 times the size
of its standard forex futures contracts. AUD/USD IAU 0 0 1 2 3
Because an E-Micro contract repre-

CURRENCY FUTURES SNAPSHOT The information does NOT constitute trade signals. It is intended only to provide a brief synopsis of each market’s
as of Feb. 27 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: previous moves of the same size and in the same volatility (10-day standard deviation of prices) divided
Volume: 30-day average daily volume, in thousands. direction. For example, the % rank for 10-day move by the long-term volatility (100-day standard deviation
shows how the most recent 10-day move compares to of prices). The % rank is the percentile rank of the
OI: 30-day open interest, in thousands.
the past twenty 10-day moves; for the 20-day move, volatility ratio over the past 60 days.
10-day move: The percentage price move from the
the % rank field shows how the most recent 20-day
close 10 days ago to today’s close. This information is for educational purposes only.
move compares to the past sixty 20-day moves; for
20-day move: The percentage price move from the the 60-day move, the % rank field shows how the Currency Trader provides this data in good faith, but
close 20 days ago to today’s close. most recent 60-day move compares to the past one- assumes no responsibility for the use of this infor-
mation. Currency Trader does not recommend buy-
60-day move: The percentage price move from the hundred-twenty 60-day moves. A reading of 100%
ing or selling any market, nor does it solicit orders to
close 60 days ago to today’s close. means the current reading is larger than all the past
buy or sell any market. There is a high level of risk
The “% rank” fields for each time window (10-day readings, while a reading of 0% means the current in trading, especially for traders who use leverage.
moves, 20-day moves, etc.) show the percentile rank reading is lower than the previous readings. The reader assumes all responsibility for his or her
of the most recent move to a certain number of the Volatility ratio/% rank: The ratio is the short-term actions in the market.
per contract. However, for the E-Micro more than 4,000 contracts in its first
equivalent, a single tick would be month, but has been unable to rival
worth only $1 per contract. By con- that number in subsequent months.
trast, a single tick for an ICE Millions However, because of its inflated
contract, which is set at 0.0005, is size, each ICE Millions trade repre-
equivalent to $500. sents 10 times the volume of a trade in
Figure 1 shows the year-over-year a standard-sized contract. For exam-
changes in monthly average daily cur- ple, total January volume for the ICE’s
rency volume (ADV) for the CME standard Euro/U.S. dollar futures
Group and ICE. ICE volume began to contract (EO) was 10,615, with each
decline in mid-2008. Despite the contract representing 100,000 units of
launch of the new Millions contracts in currency. In the same month, 552 IEO
November, the exchange’s monthly contracts traded, but because each
ADV dropped by more than 40 per- represents a million currency units,
cent in November, December, and volume was equivalent to 5,520 trades
January. in the EO contract.
Table 1 shows the total monthly vol- While the demand for currency
ume for the ICE Millions contracts products from the CME Group hasn’t
through Feb. 25. Five contracts in the suffered as much as ICE’s, the
Millions suite had yet to trade by that exchange still posted year-over-year
date, and four of the contracts had yet drops in excess of 20 percent in both
to see more than 50 contracts change November and December following
hands. The Euro/U.S. dollar contract mostly steady growth throughout
(IEO), by far the most popular, traded much of 2008.

INDUSTRY NEWS continued
Southeast Asian coalition increases

monetary support fund
Group of Asian nations decides to increase stabilization fund to $120 billion following summit.
F ollowing their most recent sum-

mit in Phuket, Thailand, the
Association of Southeast Asian
economies are in a better position to
face challenges due to the structural
reforms undertaken since the Asian
FIGURE 1 — U.S. DOLLAR/
SINGAPORE DOLLAR
Along with many other Southeast
Nations plus the East Asian nations of financial crisis, we recognize that the Asian currencies, the Singapore dol-
regional economy is now facing great lar has fallen recently, prompting the
China, Japan, and Korea (ASEAN+3)
region’s financial leaders to approve a
announced on Feb. 22 their intention challenges,” the groups announced in
$40 billion monetary stabilization fund
to increase their combined monetary their joint statement. increase.
stabilization fund from $80 billion to The stabilization fund, called the
$120 billion. Multilateralised Chiang Mai Initiative
“While we note that the Asian (CMIM), which began in 1997 follow-
Managed money: Barclay Trading Group’s

currency trader rankings for January 2009
Top 10 currency traders managing more than $10 million
as of Jan. 31, ranked by January 2009 return.
2009 $ Under
Rank Trading January YTD mgmt.
advisor return return (millions)
1. Goldman Sachs (Fund. Currency) 6.47% 6.47% 306.8
2. Alder Cap'l (Alder Global 20) 5.20% 5.20% 170.0
3. Rhicon Currency Mgmt (4XiM) 4.71% 4.71% 20.0
4. Dominion Capital Mgmt. (FX) 4.08% 4.08% 10.0 Source: eSignal
5. IKOS G10 Currency Fund 3.79% 3.79% 719.7
6. Alder Cap'l (Alder Global 10) 2.90% 2.90% 36.0 ing the Asian financial crisis that
7. Geo Economic Mgmt. System Ltd 2.66% 2.66% 44.7 severely damaged the currencies of
8. IKOS Currency 2.31% 2.31% 719.7 the ASEAN member nations, provides
9. JB Currency Hedge (Discr Seg Port) 2.28% 2.28% 20.4 funding for a multilateral currency
10. Capricorn Advisory Mgmt (FXG10) 2.15% 2.15% 11.8 swap scheme intended to combat
short-term liquidity issues, similar to
Top 10 currency traders managing less than $10 million and more than the International Monetary Fund
$1 million as of Jan. 31, ranked by January 2009 return. (IMF).
1. Quant Trading (FX Quant 11) 8.00% 8.00% 1.0 The finance ministers of the 13
2. Informed Funds (Trend Strategies) 6.94% 6.94% 7.2 countries involved in the agreement
3. Mellon Capital Mgmt (Currency Opp) 5.64% 5.64% 9.0 will make the final decisions for the
4. Zone Cap'l FX Managed Account 4.11% 4.11% 1.0 increase when they meet again in
5. Wealth Builder FX Group 3.70% 3.70% 1.1 March 2009. China, Japan, and South
6. M2 Global Mgmt (5X) 3.27% 3.27% 1.0 Korea are expected to foot a large por-
7. Putnam Currency Alpha Fund 3.24% 3.24% 1.8 tion of the bill.
8. Blue Fin Capital (Managed Currency) 3.11% 3.11% 1.3 Currencies in the region fell hard vs.
9. Capricorn Advisory Mgmt (fxMT Growth) 1.71% 1.71% 1.0 the dollar in early 2009. The Singapore
10. Aspect Capital (Gl. Currency) 1.66% 1.66% 5.0 dollar lost 6.9 percent in 2009 through
Source: BarclayHedge (http://www.barclayhedge.com). Based on estimates of the composite of all Feb. 25 (Figure 1). The Thai bhat,
accounts or the fully funded subset method. Does not reflect the performance of any single account. which collapsed during the 1997 crisis,
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. fell 3 percent in the same period, while
the Japanese yen lost 7.4 percent.

EVENTS
Event: 25th Annual Risk Management Conference Event: 10th Free Annual Technical Analysis Expo
Date: March 8-10 Date: March 20-21
Location: The Ritz-Carlton, Laguna Niguel, Location: Paris, France
Dana Point, Calif. For more information: http://www.salonAT.com
For more information: http://www.cboermc.com
Event: Capital Markets Boot Camp
Event: 34th Annual International Date: March 25-26
Futures Industry Conference Location: New York City
Date: March 11-14 For more information: http://www.fmwonline.com
Location: Boca Raton Resort & Club, Boca Raton, Fla.
For more information: Event: Securities Operations World 2009
http://www.futuresindustry.org/boca-2009.asp Date: May 27
Location: New York City
Event: Second Annual Conference For more information: http://www.fmwonline.com
on Institutional Options Trading
Date: March 17 Event: The 15th Forbes Cruise for Investors
Location: New York City Date: June 2-14
For more information: http://www.fmwonline.com Location: Lisbon to Venice
For more information: Go to
Event: The World Money Show http://www.moneyshow.com and click on “Events”
Date: March 17-19 Location: Hong Kong
Date: May 11-14 Location: Las Vegas Event: International Trader’s Expo
For more information: Go to Date: June 3-6
http://www.moneyshow.com and click on “Events” Location: Los Angeles
For more information: http://www.tradersexpo.com
Three good tools for targeting customers
— CONTACT —
Bob Dorman Allison Chee Mark Seger
Ad sales East Coast and Midwest Ad sales West Coast and Southwest Account Executive
bdorman@activetradermag.com achee@activetradermag.com seger@activetradermag.com
(312) 775-5421 (415) 272-0999 (312) 377-9435

NEW PRODUCTS & SERVICES
BBForex has upgraded its Web site’s portfolio section. FXStreet.com launched a Japanese Web site,
The new features include streamed quotes for all symbol www.FXStreet.jp, offering some of the main site’s most pop-
pairs within a selected portfolio; advanced charts with ular features, including rates and charts, “Currencies at a
dynamic zoom, chart-window time movement, resizing, re- Glance,” economic calendar, forex tools, and a brokers sec-
arranging, news, indicators, and history bar; statistical data tion. With the Japanese version of FXstreet.com, forex infor-
such as highs and lows for different relevant time periods; mation is now provided in English, Spanish, Chinese
single symbol pair plotting within a specific portfolio or from Simplified, and Japanese. In 2009 the company will also
the complete list of symbol pairs; and multiple symbol pair release Russian, French, and Arab versions.
plotting on one page. The features are available via
http://www.BBForex.com and http://www.BB4X.com. optionsXpress announced three additions to its bro-
kerage platform. The new myOX portal allows users to cus-
Autochartist launched its automated chart-pattern tomize the http://www.optionsXpress site to their specific
service on the Forex Club platform and has expanded its interests and preferences. myOX users design their own
client base to include Forex Club members, who have been “control centers” on the site by using the adaptable modular
provided with a special version of Autochartist’s existing interface to select the information they want to see, its loca-
service. Autochartist recognizes patterns such as channels, tion on the screen, and even how it is displayed. Users can
head and shoulders, triangles, and wedges. Traders are alert- select from 16 different preset myOX modules including
ed to patterns in real time according to their search criteria. account balances, watch lists, charts, positions, futures and
Visit http://www.autochartist.com for more information. options chains, and even RSS feeds from financial news sites
or blogs. Similarly, the new Research Center provides a single
Lightspeed Financial launched Lightspeed access point for research reports, breaking news, market com-
Spotlight, an online social networking community enabling mentary, quotes, and other information. The Research Center
its customers to interact with other Lightspeed customers allows users to read any full report or news item without ever
and participate in online educational courses and seminars. leaving the page. The new Education Center offers investors
Members can participate in group discussions; create groups access to progressive investment education courses, hun-
and personal blogs; gain access to educational information dreds of free online learning events, as well as a library of
and resources including discussions and online Webinars general investing information.
from Lightspeed Trading, Options Industry Council, and the
Chicago Mercantile Exchange; view and post videos, articles Note: New Products and Services is a forum for industry businesses to
and events on Spotlight’s message boards, blogs, and calen- announce new products and upgrades. Listings are adapted from press releases
dar; and access research and analyst Webinars from and are not endorsements or recommendations from the Active Trader Magazine
StreetBrains.com and chart pattern recognition techniques Group. E-mail press releases to editorial@currencytradermag.com. Publication
provided by Recognia, Inc. is not guaranteed.
FOREX TRADE JOURNAL
Don’t blink or you’ll 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 Source: TradeStation
connecting the two most recent swing
lows (blue trendline) and low closes (red recent daily ranges (the median daily range for the 10 days
trendline). preceding the entry was .0172), it was probably not liberal
enough. Unfortunately, we did not take this into considera-
Initial stop: 1.2609. tion before the trade, instead simply placing the stop above
the highs of the past two daily bars. Given the markets’
Initial target: 1.2308. Take partial profits and lower stop. haphazard trading, it would have been wise to at least
Secondary target: 1.2200. 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.
RESULT The fact a stop level that far away might have seemed
excessive casts doubt on the wisdom of the entry level. The
Exit: 1.2609. pair was almost certain to rebound a bit before moving
lower, and entering at a higher price would have resulted in
Profit/loss: -.0197 (-1.6 percent). a smaller loss or possibly still being in the position with a
stop in place at a higher level.
Outcome: This trade was a (irony alert) double feel-good:
The market turned around on a dime — in the wrong direc- 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-
tion — as soon as we entered, and the trade got stopped out
vidual trades are dictated by immediate circumstances, price targets are flexible
by one tick. Yes, 1.2610 was the high on Feb. 25. and are often used as points at which to liquidate a portion of a trade to reduce
Although the stop level seemed fairly liberal, given the exposure. As a result, initial (pre-trade) reward-risk ratios are conjectural by
TRADE SUMMARY
Date Currency Entry price Initial stop Initial target IRR Exit Date P/L LOP LOL Trade length
Point %
2/24/09 USD/CAD 1.2412 1.2609 1.2308 0.53 1.2609 2/25/09 -.0197 -1.6% .0018 -.0197 1 day
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).

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Strategies, analysis, and news for FX traders

THE BRITISH POUND’S WEEKLY BOTTOM

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President: Phil Dorman

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Free market commentary

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FIGURE 1 — EURO/DOLLAR VS. S&P 500, DAILY

Source: data — eSignal and Reuters Online; chart — MetaStock

FIGURE 2 — EURO/DOLLAR VS. S&P 500, WEEKLY

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FIGURE 3 — DOLLAR/YEN VS. S&P 500, DAILY

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CURRENCY TRADER • March 2009 21

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