Strategies, analysis, and news for FX traders

October 2011 Volume 8, No. 10

Norwegian krone: No safe haven p. 6 Is there a forex end-of-year pattern? p. 22

FX volume and the Swiss franc p. 12 The dollar and Treasury returns p. 26

Contributors .................................................4 Global Markets Is the Norwegian krone the new Swiss franc? ...........................................................6
Norway’s currency might have a risk-hedge component, but traders and investors should be wary of treating it as a safe haven. By Currency Trader Staff

Global Economic Calendar ........................ 30
Important dates for currency traders.

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

Currency Futures Snapshot ................. 31 International Markets ............................ 32
Numbers from the global forex, stock, and interest-rate markets.

On the Money Volume and the mysteriously shrinking Swiss franc market .......... 12
It’s difficult to get accurate volume information in the FX market, but surveying the available data reveals interesting things about the Swissie. By Barbara Rockefeller

Spot Check Dollar/Canada........................................ 20
The pair’s September surge was impressive. What’s happened after similar moves in the past? By Currency Trader Staff

Looking for an advertiser?
Click on the company name for a direct link to the ad in this month’s issue. eSignal FXCM Nadex Price Futures Group

Trading Strategies Holiday volatility: Analyzing DecemberJanuary FX price ranges ......................... 22
Does daily volatility change during the traditional holiday period? By Daniel Fernandez

Advanced Concepts The dollar and prospective Treasury returns....................................................... 26
History lesson: Analysis undermines the supposition that a weaker dollar hurts the Treasury market. By Howard L. Simons

Questions or comments?
Submit editorial queries or comments to
2 October 2011 • CURRENCY TRADER

q Howard Simons is president of Rosewood Trading Inc. and a strategist for Bianco Research. He writes and speaks frequently on a wide range of economic and financial market issues.
A publication of Active Trader ®

For all subscriber services:

Editor-in-chief: Mark Etzkorn Managing editor: Molly Goad Contributing editor: Howard Simons

q Barbara Rockefeller ( is an international economist with a focus on foreign exchange. She has worked as a forecaster, trader, and consultant at Citibank and other financial institutions, and currently publishes two daily reports on foreign exchange. Rockefeller is the author of Technical Analysis for Dummies, Second Edition (Wiley, 2011), 24/7 Trading Around the Clock, Around the World (John Wiley & Sons, 2000), The Global Trader (John Wiley & Sons, 2001), and How to Invest Internationally, published in Japan in 1999. A book tentatively titled How to Trade FX is in the works. Rockefeller is on the board of directors of a large European hedge fund. q Daniel Fernandez is an active trader with a strong interest in calculus, statistics, and economics who has been focusing on the analysis of forex trading strategies, particularly algorithmic trading and the mathematical evaluation of long-term system profitability. For the past two years he has published his research and opinions on his blog “Reviewing Everything Forex,” which also includes reviews of commercial and free trading systems and general interest articles on forex trading ( Fernandez is a graduate of the National University of Colombia, where he majored in chemistry, concentrating in computational chemistry. He can be reached at

Contributing writers: Barbara Rockefeller, Daniel Fernandez, Chris Peters Editorial assistant and webmaster: Kesha Green

President: Phil Dorman Publisher, ad sales: Bob Dorman Classified ad sales: Mark Seger

Volume 8, Issue 10. Currency Trader is published monthly by TechInfo, Inc., PO Box 487, Lake Zurich, Illinois 60047. Copyright © 2011 TechInfo, Inc. All rights reserved. Information in this publication may not be stored or reproduced in any form without written permission from the publisher. The information in Currency Trader magazine is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.


October 2011 • CURRENCY TRADER

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Is the Norwegian krone the new Swiss franc?
Norway’s currency might have a risk-hedge component, but traders and investors should be wary of treating it as a safe haven.

In the wake of the Swiss National Bank’s (SNB) establishment of a de facto ceiling for the surging Swiss franc in early September, investors around the globe began scrambling to find another so-called “safe-haven” play. Some began turning to the Norwegian krone (NOK), a currency that boasts solid fundamentals, a good fiscal

position, a relatively high interest rate and positive carry. However, it turns out Norway’s central bank, the Norges Bank, is also apparently unafraid to draw a line in the sand regarding its currency — and quickly. Trading dynamics in the U.S. dollar/krone (USD/ NOK) and Euro/krone (EUR/NOK) pairs are driven by various factors, and despite market chatter that the NOK could be a good FIGURE 1: KRONE CORRECTION safe-haven alternative, the market action in September shows otherwise. Throughout much of the month NOK weakened vs. both the U.S. dollar and the Euro (Figure 1), although analysts say there were several reasons for the correction. “There has been some talk the large drop in the NOK on Sept. 12 was triggered by the dismantling of a large hedge fund,” says Jenny Mannent, FX strategist at Handelsbanken Capital Markets in Stockholm. “The SEK (Swedish krona) also fell sharply the same day, and we saw some general currency volatility just before and after that date.” Mannent adds that, because several emerging-market currencies began large declines during the preceding week (and the EUR/USD fell sharply The Norwegian krone weakened against both the dollar and the Euro in much of on Sept. 9), the Sept. 12 decline was September, reflected in rallies in the USD/NOK (top) and EUR/NOK (bottom) pairs. not Norway-specific, and the subseSource for all charts: TradeStation quent down move can be explained by increased risk aversion. “Although
October 2011 • CURRENCY TRADER


both the SEK and the NOK have been able to withstand the European debt turmoil well, both currencies can’t resist larger declines in risk appetite,” she says.

Norway’s economic lubricant

Oil and related industries represent about 70 percent of Norway’s total exports. Norway, an oil producer, benefits from the inflow of petroleum dollars into its economy, but in the FX markets the krone can also trade as a “commodity currency” alongside the Aussie, Kiwi, and Canadian dollars. When concerns rise about a potential global slowdown and reduced demand for commodities and crude oil, the NOK tends to sell-off. “The Norwegian economy is highly dependent on oil and gas activities,” says Knut Anton Mork, chief economist at Handelsbanken Capital Markets in Oslo. “The national accounts distinguish between total FIGURE 2: THE OIL FACTOR and ‘mainland’ GDP, where the latter is ex oil and gas extraction and ex international shipping.” However, Mork adds, a significant portion of the mainland economy is directly or indirectly dependent on the oil sector as the main source of end-use demand, including the financial industry, hotels and restaurants, and many government-funded projects, such as the recent opening of a rock and pop museum. Crude oil prices suffered a sharp setback in August and September (Figure 2). Nearby WTI crude futures (CL) fell from around $100 per barrel in late July to below $77 in early August. After a rebound to around $90 in early September, the market again slammed down to test the August low toward the end of As crude oil (bottom) rallied in late 2010 and early 2011, the USD/NOK rate September on renewed fears of a (top) declined as the krone strengthened. The subsequent oil sell-off was double-dip global recession. mirrored in the dollar/krone’s consolidation and eventual rally. “NOK is positively correlated with oil and positively correlated with risk
CURRENCY TRADER • October 2011

sentiment. It is not a safe-haven when markets are volatile,” says Vassili Serebriakov, currency strategist at Wells Fargo in New York. While Norway is a relatively small country, with a population of fewer than 5 million people, it is relatively wealthy, in large part because of its role as an oil producer of North Sea Brent crude oil. “Per capita, the average income is about $55,000, with a very generous state welfare system,” says James Pressler, economist at the Northern Trust Company in Chicago. Norway has been prudent with its oil wealth, diverting all state oil company profits over the past 20 years into The Government Pension fund, a sovereign wealth fund previously called The Petroleum Fund. Northern Trust’s Pressler says the estimated 2010 value of that fund stood at $571 billion. “The value of the fund is bigger than their



economy,” he notes. This fund has provided relative economic stability, even during the 2008-2009 financial collapse and recession. “There is a provision in the constitution that allows them to access 4 percent of the fund per year,” he explains. “When the global recession kicked in, they had access to extra stimulus spending, but without the worry of going into debt. It kept them from experiencing a drastic recession.” Pressler also points out Norway is in an enviable fiscal position, having run budget surpluses for the greater part of the past decade. “The North Sea oil is the single largest factor keeping their trade balance in surplus,” he says. Pressler says Norwegian GDP increased at a 0.7-percent annual pace in 2008, while it contracted 1.7 percent in 2009. The economy bounced back in 2010 to a 0.3-percent GDP pace, and Pressler forecasts a 1.3-percent rate for 2011 and 1.5 percent for 2012. “Consider that a coup when you consider how the Eurozone is struggling to exist,” he says. Norway is a Eurozone trading partner, but it is more peripheral than many other Europeans countries in this respect, and for now is not getting dragged down by the ongoing sovereign-debt concerns in the zone. “Just like the world economy, the Norwegian economy is losing momentum,” says Handelsbanken’s Mannent. “However, we expect a decent rate of growth going forward, but with downside risks depending on global developments.” She adds that her firm does not expect a new recession. “Norway is less affected by the global cycle in the near term due to prospects of strong capital spending in the oil sector, which will lend demand impulses to the rest of the economy,” says Erica Blomgren, chief strategist Norway at SEB. “In addition, exports of non-oil goods accounts for only 16 percent of mainland GDP with the majority being

exported to Northern Europe and Asia. A superb fiscal position also means Norway has ample resources to stimulate the economy if needed.” However, she adds Norway will not be entirely unaffected by the Eurozone debt crisis, with the likely result being a slowdown in the manufacturing sector. “We saw GDP growth accelerating in Q2,” said Bjørn Roger Wilhlemsen, chief FX strategist at Swedbank. “The contributions from housing investments and oil and gas investments have been particularly strong, and this is set to continue in the second half of 2011. However, there are tentative signs of weaker growth in private consumption, manufacturing production, and exports. Overall, growth is likely to slow, but to remain in positive territory.”

A safe haven?

While Norway does boast solid fundamentals, a strong fiscal position, and positive carry (the Norges bank official rate was 2.25 percent as of September), many analysts are skeptical the NOK could be an alternative to the Swiss franc as a safe-haven currency. Among the factors preventing the NOK back from stepping into Switzerland’s timehonored role is a relative lack of liquidity. “The NOK has some very strong fundamentals, the growth outlook is relative healthy, and the financial sector is not exposed to the Eurozone debt concerns. Hence, the NOK does have some of the properties of a safehaven currency, or a hedge against a Euro break-up. But it lacks one important thing, and that’s liquidity. The NOK accounts for less than 1 percent of the global FX turnover,” notes Arne Lohmann Rasmussen, chief analyst at Danske Markets in Denmark. “We focus a lot on weekly flow data from Norges Bank that indicate the market is speculative long the NOK.” Others agree that although the NOK is attractive for
October 2011 • CURRENCY TRADER

other reasons, it should not be used as a safe-haven. In addition to the liquidity issue, Wilhlemsen cites two other factors. “The government bond market is very small in Norway, which means that there are few underlying safehaven assets to buy. Also, the correlation between oil prices and the NOK is too strong for safe-haven investors,” he says. That said, Wilhlemsen offers three other reasons the NOK could be seen as an attractive currency to buy: “First, relatively strong macroeconomic fundamentals, including a positive current account surplus and a fiscal surplus. Second, relatively strong domestic demand (oil and gas investments). Third, the NOK offers carry, with positive interest rate differentials to trading partners,” he says. SEB’s Blomgrem agrees the NOK’s limitations make it unsuited to safe-haven status and describes its recent action as a function of market disruption. “We would characterize NOK as part of the ‘flight-to-quality’ process.”

the bank’s attitude. “In November 2008, they allowed their currency to depreciate vs. the dollar and Euro, and let it stay weak vs. both currencies,” he says. “Experience has told us they will do whatever it takes.”

The default issue

The question still looming large in many currency traders’ minds in early October is whether Greece will officially default on its debt obligations, or even leave the European Union. Some analysts say the NOK could potentially be a hedge against either scenario. “As a hedge against a Euro breakup we think the NOK looks interesting,” Danske Market’s Rasmussen says. “We think the risk of a complete collapse, where most of the old

Central bank draws the line

Rounding out this picture is the Norges Bank, which has a reputation as a tough, no-nonsense central bank that is unlikely to tolerate a sustained rush of speculative money into its small country and currency. “The SNB decision to peg EUR/CHF at 1.20 on Sept. 6 triggered demand for NOK by international funds, but investors failed to maintain the downward trend when Norges Bank Governor Øystein Olsen later the same week warned that monetary policy will be used if the NOK were to become too strong,” Swedbank’s Wilhlemsen says. Moody’s Analytics associate economist Justin Irving notes the absence of “political constraints” on the Norges Bank. “They will do whatever it takes to stabilize the Norwegian economy, and that could include serious devaluation of the krone,” he says. “They will not allow the krone to appreciate vs. the Euro.” Irving points to a recent example of
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European currencies are re-introduced, is still contained and rather low. But if we talk about Greece or perhaps Portugal leaving the Eurozone the probability is significantly higher — 10 percent, I would say. If Greece defaults and leaves the Eurozone in a disorderly manner, the ramifications could potentially be very grave for the global economy. The risk of contagion would be very high.” Norway, however, could hold up better than other industrialized countries, especially because of its lack of financial and banking exposure to the peripheral Eurozone countries. “A Greek default or a similar severe event for the Eurozone would impact the krone and lower domestic growth prospects,” SEB’s Blomgrem says. “However, studies presented in Norges Bank’s Financial Stability Report show Norwegian banks are well prepared to withstand renewed turbulence in credit and money markets and potential loan losses. The largest effect would be from slower global growth and the impact on financial markets. Obviously, that’s a negative scenario for the krone, as safe-

haven flows are likely to increase initially. However, the banking sector should be strong enough to cope with such a scenario and the government and the Norges Bank are ready to act if needed.” Northern Trust’s Pressler stresses Norway’s unique position. “Norway doesn’t have a high exposure to the ‘Club Med’ countries — Portugal, Spain, Italy and Greece,” he notes. “They are in a very good position — they would be able to withstand it.” Additionally, if global growth were to slow this year and next, Pressler adds, “Norway has a substantial cushion, even if oil prices fall off. Their budget surplus last year was over 9 percent of GDP. They have a significant amount of extra money to work with.”

Of the NOK’s near-term outlook Handelsbanken’s Mannent says, “The key risk is if we see more large declines on equity markets and a sharp slowdown in global growth. That will weigh on the NOK, which is sensitive to the global business cycle and risk appetite. But on the other hand, if FIGURE 3: EURO/KRONE European politicians show some more pro-activeness, the NOK should be able to outperform again.” SEB’s Blomgrem was cautious about short-term NOK appreciation. “Lackluster risk appetite will continue to weigh on the NOK,” she says of the currency’s prospects in the next few weeks. “We expect EUR/NOK to trade in a 7.70-8.00 range (USD/NOK 5.71), with upside pressure (Figure 3),” she says. She’s more bullish on the intermediate-term horizon: “We are optimistic on fundamentally strong currencies characterized by defensive qualities, such as external/internal surpluses, which we believe will attract further capital inflows once financial market stress settles and risk sentiment improves,” Blomgren says. “Against this backNorway is not immune to the Eurozone’s current problems, but it is less ground, the NOK stands out as a susceptible to collateral damage than many other European trading partners. strong alternative for investors seekOctober 2011 • CURRENCY TRADER

NOK price action



ing to continue diversifying currency reserves. In the medium-term we are optimistic about the NOK, expecting it to gradually strengthen vs. the EUR towards 7.50 by the first half of 2012 (USD/NOK 5.20, Figure 4).” Brian Dolan, chief currency strategist at adds: “At a certain point it does make sense to sell Euro and buy NOK, but we need a stabilization in the global outlook. Now is not that time.” y

Most analysts have bearish short-term outlooks on the krone and a more bullish perspective on an intermediate horizon.

CURRENCY TRADER • October 2011


On THE MONEY ON the Money

Volume and the mysteriously shrinking Swiss franc market
It’s difficult to get accurate volume information in the FX market, but surveying the available data reveals interesting things about the Swissie
We all know trading FX is a zero-sum game — every trade has a single winner and single loser — so it makes sense to try to figure out what other players are up to. But even if we have the information about how other players are positioned, do we necessarily want to join them? Going with the flow is the way to capture gains, but what if the flow is about to reverse? There are some limited (and often unreliable) technical tools to help with that problem, including overbought/oversold indicators, but it sure would be nice to have other information, too, especially volume. Instead of buying low and selling high, sometimes traders seek to buy high and sell higher. How do they know when to do that? In extreme situations, the Bayesian rule

applies: As new events occur, information about those events changes perception of the pre-existing conditions. This year we are being given a perfect example of Bayesian adaption and crowd decision making: sporadic intervention over the previous two years by the Swiss National Bank (SNB) that culminated in an official statement on Sept. 6 that the SNB preferred a fixed cap on the Euro/ Swiss franc rate (EUR/CHF) at 1.2000, and that it would take whatever action was necessary to achieve it. In previous instances of one-party intervention by both the SNB and Bank of Japan, the FX market challenged the central bank and its line in the sand, either stated or assumed. This time, however, traders seem to be altering their cusOctober 2011 • CURRENCY TRADER

tomary behavior — so far they are obeying the SNB. how to trade? We might consult reports from wire services Figure 1 is one of the most interesting charts in a long such as Reuters, Bloomberg and Market News about who is while. Along with a 200-day moving average (green line), buying or selling. But relying on wire service reports is the straight diagonal lines are hand-drawn support and a high-risk undertaking, since most reporters have never resistance. After the EUR/CHF broke resistance to the traded themselves and are young and naïve, without the downside at the end of July, the SNB intervened and jawjudgment to know when a big-bank trader is blowing boned several times, but it was the Aug. 9 intervention smoke. A big-bank trader might tell a reporter he sees Barbara Rockefeller that did the trick. The SNB launched swaps toTrader Mag Oct 2011 flood the “demand from the Middle East” at a specific level when in Currency Figure 1: Euro/Swiss Franc market with francs, and while some FIGURE 1: EURO/SWISS FRANC news wire reports at the time quoted traders as being unimpressed, the 1.55 Euro/CHF retraced 50 percent of the weekly drop in a single day. As of 1.50 the end of September, the Euro had 1.45 retraced more than 38 percent of the down move from the June 2009 high, 1.40 surpassed the 1.2000 line in the sand, 1.35 and matched the 200-day moving average. It will meet resistance at 1.30 around 1.2460. 1.25 What comes next? In a normal (non-intervention) situation, we 1.20 might expect the pullback to end at Swiss Natonal Bank 1.15 Target of 1.2000 the 200-day moving average or the resistance line, and since there is no 1.10 fundamental reason for the Euro to be 1.05 rising — and plenty of institutional reasons for it to be falling — the 1.00 downtrend “should” resume. Even in pr May Jun Jul Aug Sep Oct Nov Dec 2010Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec the face of expected intervention to maintain the line in the sand, the SNB By the end of September, the Euro/Swiss had retraced more than 38 percent of the down move from the June 2009 high, surpassed the SNB’s 1.2000 line might let it slip into a little below that in the sand, and matched the 200-day moving average. It will meet resistance level and establish a new range on at around 1.2460. either side of 1.2000. Source: Chart — Metastock; data — Reuters and eSignal How can we get information that is not on the chart to help determine
100.0% 61.8% 50.0% 38.2% 23.6% 0.0%

CURRENCY TRADER • October 2011



fact he is the one who wants to see that level serve as support (since his stop-loss is just below it).

price move can be named a trend. An orderly trend tracks its own trendline with low variability. Several important technical indicators are based on No real volume comparing price to its associated volume, including Joe In the professional foreign exchange market, there is no Granville’s on-balance volume (OBV) and Marc Chaikin’s hard trading-volume data. Each trade conducted by a later refinements. The theory is the trader should derive major bank for its own account (or on behalf of a client) is comfort and confidence from volume moving in the same a private contract between the two parties and privileged direction as the price trend, while a divergence between information. Professional traders at banks never disclose price and volume is a warning. The OBV indicator cumulaclient names, let alone the currencies or amounts traded. tively adds volume on days when the close is higher than Only in retail FX do we get information on trading the day before and subtracts it when the close is lower. volume. This is a horrible shortcoming in the industry. In Rising volume in a rising price trend confirms the price equities, volume is a tremendously valuable in evaluatrise is not an aberration, and declining volume means a ing price moves. If a price is making higher highs but at trend is weakening. Volume spikes mark the beginning a decelerating pace and volume is spiking to new highs, and end of many trends. It may seem counterintuitive, but we can deduce the up move is nearing exhaustion: it takes if prices are falling and volume is also declining, a bottom more and more volume to get less and less of a price rise. (and buying opportunity) is getting close. Volume denotes liquidity and, as a rule, the higher the Some retail FX brokers that cater to the individual trader Barbara Rockefeller liquidity, Mag Octlower the volatility and the more likely a the 2011 display volume from their own order flow (accounting for Currency Trader Figure 2: Long/Short Balance at Retail Broker Oanda perhaps a fraction of 1 percent of total Source: FIGURE 2: OANDA LONG-SHORT BALANCE daily volume) and assert it’s valid to extrapolate that volume to the total FX market. This strains credulity. If small retail traders are of so little importance the Commodity Futures Trading Commission (CFTC) doesn’t bother to add their trades to the Commitments of Traders report, and further, if it’s true a very high percentage of retail traders fail after only a short while, why would anyone want to know what they are doing? Having said that, retail FX broker Oanda publishes the open positions of its customer base, and this information is sometimes useful (Figure 2). The Oanda report doesn’t show EUR/ CHF but it does show USD/CHF, and this market is about 54 percent long the dollar. At the same time, it’s long the Euro vs. the dollar, but by only 52 percent. The market is also extremely Internal customer data from Oanda shows its USD/CHF market about 54 long gold and silver against the dollar, percent long the dollar, while also being long the Euro vs. the dollar, but by only 52 percent. and that implies the Swiss franc, also a Source: safe haven, “should” be getting more longs. Oanda also publishes historical
14 October 2011 • CURRENCY TRADER

long-short position ratios showing, for example, that as the Euro, pound, and AUD fell over the past 30 days, the Euro fell the most in ratio and percentage terms. What we can deduce from the Oanda information this time is that traders are respecting the SNB and not venturing into long Swissie positions in any significant way. This may imply they are unwilling to play a game of chicken with the SNB the way they did in the 2003-2004 Bank of Japan intervention.

Currency futures volume

In the U.S. futures market, the Chicago Mercantile Exchange (CME) publishes volume data, but not until after a trading day ends. There’s also a metric called tick volume, which is a price change that is recorded as a tick regardless of how many contracts were actually traded. A change in tick volume associated with a move from $1.6500 to $1.6501 in sterling could be one contract or 1,000 contracts. It’s obvious tick volume is not actual volume and to use it as a substitute for true volume is questionable. But it may be useful when prices are moving quickly, from which we can safely deduce there is real volume behind the ticks. Traders can, for example, compare the number of ticks in each hour of the trading day to the number in the first hour to determine whether activity is robust or languishing. Since the open typically sees a surge in trading activity, it’s not clear whether the first-hour benchmark is all that useful, although there are two occasions when tick volume might come in handy. The first is the end of the day, when traders normally pare positions. The end-of-day tick volume, if high and associated with the usual end-of-day pullback, may mean fewer traders willing to hold positions overnight. It they do not pare positions and tick volume is low as price closes at or near the high or low of the day, the price can be expected to keep going in the trend direction during the next session. The second is when a divergence between tick volume and price occurs — e.g., tick volume is moribund during a big price move or tick volume is very high when prices are moribund. A divergence between price and tick volume marks a stalemate, and low volatility in either measure almost always precedes a directional breakout. Another potential use of tick volume requires in-depth chart reading. We expect to see higher volume (and more ticks) as prices approach important levels like support and
CURRENCY TRADER • October 2011

resistance lines, previous highs/lows, or a Fibonacci level. Such levels are used to place stop-loss and take-profit orders, and if tick volume does not rise near them, the market may have the bit between its teeth and be running away. Once a key level is broken, you would expect to see tick volume rise. Some spot FX analysts will go to the trouble of consulting spot retail broker volume, futures volume (even if a day late and if not the exact market they are trading), or tick volume in a nearly desperate search for information on market sentiment. Why? One reason is that volume can indicate traders are positioned so long or short the next move pretty much has to be a reversal. Except in Event Shock conditions, traders want to make sure the trade they are looking at is not too crowded.

Commitments of Traders

Another source of hard information is the CFTC’s Commitments of Traders (COT) report, which is published every Friday and reflects the open futures (and futures options) positions as of the end of the day the previous Tuesday. The COT report is broken up into commercial and noncommercial positions. Non-commercial is a semantically neutral way of saying “speculator.” To qualify as a commercial trader, the trader has to apply for that status and claim his trades are for hedging, such as an importer buying goods priced in a foreign currency. The classic example


of a hedge is the farmer who sells wheat and the bakery that buys it — both are hedgers. A trader may be classified as a commercial trader in some commodities and as a noncommercial trader in others, but has to pick one designation or the other in a single commodity. Market players typically look at the number of noncommercial contracts (ex-options) that are outstanding in a given currency as a good indication of the consensus view held by the speculative community. If the market is net long or net short a record (or near-record) number of contracts, such extended positions may prompt a trader to rethink his outlook. The line between commercial trader and speculator is a wavy one, not only because commercials usually receive preferential margin conditions and so participants strive to get that designation, but also because day-today trading decisions are a blend of both activities. For example, here’s a case where a commercial trader is executing a transaction: • Bank A has a client who wants do to a swap — i.e., to sell and buy €10 million from spot to Sept. 19 at +15 forward points. • Bank A’s forward trader then does the other side of the FX swap and he buys €10 million from the client in the spot date at $1.2300 and then sells €10 million to the client on the forward outright date of Sept. 19 at $1.2315. In a perfect world, the forward trader would go into the forward market and get a price to do the opposite trade — that is, sell and buy €10 million spot to Sept. 19 with another bank, hopefully at a profit (less than 15 points). At times, however, the forward trader will realize that

A bank trader might tell a reporter he sees “demand from the Middle East” at a certain price level when, in fact, he wants that level to serve as support because his stop-loss is just below it.

Sept. 19 is also the expiration of the September contract (always the Wednesday following the third Monday of March, June, September, and December). If he does the spot deal to sell Euros at $1.2300 and then buys them back on the futures exchange at an outright price of $1.2313, he will be up two points. The portion of the artificial swap created (spot deal plus futures deal) that is done on the futures exchange would be included in the “commercial” section of the CFTC report, because it is effectively part of a hedge of the original swap done with the corporate client of Bank A — and yet it surely has a speculative component. Now consider the example of a noncommercial trader (say, a hedge fund) that buys 20,000 Swiss franc contracts (or CHF 2.5 million) as a pure speculative bet. Meanwhile, a commodity-trading advisor may decide to sell 15,000 Swiss franc contracts as a hedge against one of its other currency positions. The CFTC would look at this trade as just another speculative punt even if one leg of it is a true hedge. If these two deals were the only transactions completed that week, then Friday’s CFTC data would be that speculative accounts had a net Swiss long of 5,000 contracts. Any trader looking at the Swiss CFTC data would not be swayed one way or the other by the position, since it’s small. But in many instances, extended CFTC positions of over 100,000 contracts quickly lead to a sharp reversal. This is what FX analysts are looking for — extreme positioning. A textbook-perfect case of the usefulness of the COT report was the Euro in early 2010, which began to show ever-bigger net short positions as Eurozone peripheral debt jitters began to cause nail-biting about holding Euros.
October 2011 • CURRENCY TRADER

By early February 2010, a new record short Euro posiThe bottom window shows open interest, or the numtion was reported and it kept getting bigger, to more than ber of contracts that are still open. The circle showing the 85,000 contracts in March. By May 11, 2010, the new record drop in what had been high open interest by commercials Euro short was nearly 114,000 contracts. In this instance, is a classic example of high open interest at a market top the Euro bottomed on June 6, 2010, right after this most or bottom — always a danger sign. In this case, as the bearish of reports. June contract was being rolled over to the September Figure 3 is from one of the services that deconstructs the contract, and the liquidation of expiring contracts and almost indigestible CFTC report into useful components. the commercials not renewing them in the new top-step In the top window is the EUR/USD exchange rate itself, contract forced weak hands to exit. There’s often a price in futures terms. It shows the Euro’s fall to the low in May reversal as futures contracts are rolled over. Sometimes on the left side of the chart. The second window shows the it’s a minor event because players just replace the expirnet positions. The top line on the left is the commercials, ing contract with the new one, but not always. In this the opposing position is near the bottom and represents instance, when commercials rolled over to the September the non-commercials, and the center line is the small retail contract, they were reducing long positions as the Euro (“non-reportable”) positions. As the EuroBarbara Rockefeller was falling, com- was rising. Currency Trader Mag Oct 2011 mercials were adding to positions Figure 3: :Commitment of Traders Report, Euro Futures Chart courtesy of and the speculators were taking the FIGURE 3: EURO FUTURES, COMMITMENTS OF TRADERS short side. This observation may seem to confirm the market lore “follow the commercials,” but in FX that is not always the case. The line from high to low and left to right shows that later in the year, as the Euro was again rising, the commercials were the ones who were short the Euro and it was the speculators who were earning the gains. The triangle marks where none of the parties had a strong feeling and the number of contracts traded was very small. The third window shows the strength of the position held by each category of trader. Let’s say in one case the commercials have total long and short positions of 500,000 contracts, and a net position of 5,000 long. Now consider a second case where the commercials have 5,500 As of Sept. 20, net short speculative positions in the Euro had reached contracts total and 5,000 net long. In 79,460 contracts — the highest level since June 8, 2010, but still only about the first case, the net long of 5,000 is 50 percent of the record position of 113,890 from May 11, 2010. hardly a strong consensus, while in Source: the second case it is.

CURRENCY TRADER • October 2011



Note that as of Sept. 20, net short speculative positions in the Euro had reached 79,460 contracts, more than the week before (54,459) and the biggest net short position since June 8, 2010 (111,945 contracts). But this was still only about 50 percent of the record short Euro position of 113,890 contracts from May 11, 2010. In other words, traders were more short the Euro at the beginning of the sovereign-debt crisis than in late September, when the crisis had gotten much worse and Europe was still dithering over how to bail out Greece and failing to implement the July remedies. One inference we might draw is the market is giving too much credit to European leaders and institutions, and if confidence is lost and short Euro positions double to the May 2010 level or beyond, the Swiss franc will again be overwhelmed by buyers.

To return to the question of what the market really thinks of the Swiss franc these days, what does the COT say? In the Sept. 20 report ( htm), non-commercials had reduced net long Swiss contracts from 5,493 contracts to 4,221, or about 20 percent. Since each contract is CHF 125,000, this is a total of CHF 527.625 million, or $596.427 million as of the close on Tuesday, Sept. 20. It’s interesting that the number of noncommercials reporting is only nine long and eight short, or a total of 17 parties (plus two spread traders), making the average position really quite big, about $35 million and the number of parties balanced. Even more interesting is the SNB has scared off the speculators. As of the Dec. 28, 2010, COT report, non-commercials were net long the Swiss franc by 14,468 contracts; Barbara Rockefeller Currency Trader Mag Oct 2011 the Sept. 20 number was only about Figure 4: USD/CHF 40 percent of that. Figure 4 shows the FIGURE 4: DOLLAR/SWISS FRANC U.S. dollar/Swiss franc pair (USD/ 1.20 CHF). We can understand why speculators are less long than they were at 1.15 the beginning of the year, considering how much the dollar has risen, but 1.10 why are they long at all? An upside 1.05 breakout has occurred, by any measure. And yet the number of contracts 1.00 is relatively small, fewer than 5,000. We might say they are modestly long 0.95 the Swissie against the day it again becomes a favored safe-haven on 0.90 European peripheral debt problems. 0.85 Some traders, including Larry Williams, swear by the COT, but it’s 0.80 difficult to get much meat off these Swiss franc bones. The best we can 0.75 come up with is that traders are 0.70 authentically scared by the prospect of SNB intervention, although they are May June July August September October November December 2011 February March April May June July August September October Novem still holding a lingering and perhaps stale bias for the Swissie to strengthen Speculators may be modestly long the Swiss franc against the day it again again — i.e., for the dollar and Euro to becomes a favored safe-haven. Source: Chart — Metastock; data — Reuters and eSignal resume their downtrends. y
100.0% 61.8% 50.0% 38.2% 23.6% 0.0%

The mysterious shrinking Swiss franc market

For information on the author, see p. 4.


October 2011 • CURRENCY TRADER

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Dollar/Canada’s September rally was so big it’s difficult to find historical examples for comparison.

The U.S. dollar surged dramatically against its Canadian cousin in September, with the USD/CAD rate extending nearly 5 percent above its August high and more than 7 percent above its close. The only other monthly closeto-close gain larger than 7 percent occurred in October 2008, when the pair exploded more than 22 percent higher intramonth before closing around 14 percent (Figure 1). Even much smaller monthly jumps have been relatively rare: There have been only four previous monthly close-toclose gains of 5 percent or more and only 10 of 4 percent or more. At its peak, the October 2008 move effectively took the

pair to its financial-crisis high around 1.3000, a level it challenged but never significantly exceeded over the next five months before reverting to the massive downtrend that had been in place since 2002. By April of this year dollar/Canada had dropped below .9500 and looked poised to challenge the all-time low of .9055 from November 2007. But after trading in a range between .9500 and 1.000 for the next four months, the September rally marked a significant break in dollar/Canada’s recent fortunes. The rarity of moves of this magnitude on the monthly time frame makes analysis difficult, even when sidestepping the percentage gains and framing the rally in terms of relative highs and lows. For example, dollar/Canada established its highFIGURE 1: MONTHLY DOLLAR/CANADA est monthly high and closing prices in 11 months in September — not a particularly significant milestone until you factor in that it occurred just two months after its lowest monthly low in 12 months (in July). The USD/ CAD pair has made a comparable move only one time in the past 40 years, in January 1992. Even relaxing this pattern criteria to accept a six-month highest high/close two months after a six-month low produces only two more instances: one in December 1992, making it part of the same up move represented by the January 1992 rally, and one in February 1990. The 1991-92 turnaround was followed by an extended rally; the 1990 move quickly reversed to the downside. Figure 2 shows the September rally was concentrated in the final two The USD/CAD’s 7-percent close-to-close gain in September was the pair’s weeks of the month, with the lion’s second largest in the past 40 years. share occurring in the week endSource: TradeStation ing Sept. 23. Dollar/Canada rallied
October 2011 • CURRENCY TRADER


more than 5 percent that week on a closing basis — another exceedingly rare event, having occurred just two other times in the floating-rate era. It also closed higher than it had in 52 weeks, something that has happened 180 times since September 1972. However, if you look for 52-week high closes that have occurred seven to 10 weeks after a 12-week low — which is one possible definition of the week ending Sept. 23 — you find just six previous examples. Relaxing the 26-week low to a six-week low produces 26 previous instances. Figure 3 compares the median weekly close-to-close moves for 12 weeks after the patterns to the median close-to-close moves for all one- to 12-week moves from October 1971 through September 2011. The mild bullish post-pattern tendency contrasts to the much weaker overall market benchmark, with the gains peaking around week 7. (Dollar/ Canada’s somewhat haphazard benchmark performance reflects the fact that the pair was in an overall uptrend from roughly 1972 to 1986, a downtrend from 1986 to 1991, an uptrend from 1991 to 2001, and a downtrend from 2002 forward.) It’s difficult to read too much into this pattern definition. Twenty-six previous pattern examples provide little to go on, and analysis of individual results shows a great deal of variability; even in instances when the market moved higher, there was often a significant pullback after the initial explosive up move. This time around, the threat of a return to global recession and instability in equity markets will boost the U.S. dollar’s safe-haven bid. Remission of those fears will play against a sustained rally in USD/ CAD. Chart analysts will likely note the pair faces resistance from approximately 1.0700 to the round-number price of 1.1000. y
CURRENCY TRADER • October 2011


Most of the September rally occurred in the final two weeks of the month, with the biggest gain coming the week ending Sept. 23.
Source: TradeStation


The post-pattern returns outpaced the USD/CAD pair’s benchmark performance, but there was a great deal of variability in the individual results.



Holiday volatility: Analyzing December-January FX price ranges
Does daily volatility change during the traditional holiday period?

There is a common notion among certain groups of traders that there is something fundamentally different about trading around the end of the year. Specifically, many traders completely avoid entering new positions until the second or third week of January while others exit all their positions before this period starts. This belief in the unique nature of “holiday trading” seems to be based on the idea that the end-of-year/holiday period offers less liquidity and, therefore, worse trading conditions than other times of the year. Let’s look at the data and see if there is any evidence of a “seasonal inefficiency” of this type in the forex market, or if it’s merely an imaginary artifact transmitted from older to newer traders.

Two months, four currency pairs

To determine whether or not there is some fundamental difference between currency market trading conditions during December-January compared to the rest of the year, we will look at daily price data in four major currency pairs: Euro/U.S. dollar (EUR/USD), British pound/U.S. dollar (GBP/USD), U.S. dollar/Swiss franc (USD/CHF), and U.S. dollar/Japanese yen (USD/JPY). We will focus on the period generally perceived to have the least liquidity,

Dec. 10 to Jan. 10, and look for differences over an 11-year period (2000-2010). Before venturing into the analysis it is worth mentioning that it is impossible to accurately measure volume in the forex market because of its decentralized nature. There is no true, consolidated volume information; an individual bank or forex trading firm might be able to provide its individual volume data, but this would represent only a fraction of the global forex volume. One option is to substitute tick volume (the number of transactions that occur, regardless of size), which is a good proxy for real volume in most markets. However, tick volume in the forex market can vary significantly from broker to broker. As a result, the best decision is to compare the actual price behavior during the December-January period relative to the rest of the year. The first characteristic we will analyze is the average open-close range. Figure 1 shows this comparison (in pips) for all four currency pairs; there doesn’t appear to be any significant difference between these ranges for the holiday period (red) vs. the rest of the year (blue). In the EUR/ USD, USD/JPY, and USD/CHF pairs, for example, the range was larger during the holiday period in five of the
October 2011 • CURRENCY TRADER October 2010 • CURRENCY


Red bars show the average open-close holiday period range in pips, while blue bars shows the average open-close range for the rest of the year.

years and smaller in six, and the differences were generally small. (The GBP/USD pair was slightly different in that the holiday open-close range was higher in seven of the 11 years and equal in another.) There doesn’t seem to be any statistically meaningful correlation between past and future values, except perhaps that an increase or decrease in the yearly average often corresponded to an increase or decrease in the holiday net range for that year. However this correlation is still very weak and breaks down during lower-volatility years, particularly the 2005-2007 period. Although EUR/USD, GBP/USD, and USD/CHF pairs exhibit similar distributions in Figure 1, the USD/JPY pair displays very different behavior. For example, in 2008
CURRENCY TRADER • October 2011

the first three pairs had very high open-to-close volatility during the holiday period (a result of the financial crisis), while the USD/JPY’s 2008 holiday volatility was essentially equivalent to the rest of the year. (This might be a function of the Occidental end-of-year/Christmas holidays having much less significance in Eastern cultures.) However, except for 2008, all holiday deviations in the net open-to-close range are insignificant compared to the differences that usually occur between the yearly average and every other month. There is no significant, predictable seasonal effect during this time of the year in terms of daily range. Figure 2 is similar to Figure 1 except it shows the differ23


FIGURE 2: HIGH-LOW PRICE MOVES ences in daily high-low range rather than open-close daily range. Again, there is no evidence of a seasonal variation in any of the four pairs. Variations in the daily range appear to be almost random and in magnitude similar to what would be expected in any other month. And as was the case in Figure 1, only 2008 shows a large difference between the holiday period and the rest of the year. What happens if we further narrow the analysis window to see if the heart of the holiday period (Dec. 20 to Jan. 4) reveals any seasonal effect? Figure 3 shows the results for this analysis for the EUR/USD pair. Although there is a tendency for this shortened period’s average high-low daily range to be smaller than the average range for the rest of year (seven out of 11 years), there is no definitive seasonal effect: There were, in fact, years when the movement in this period was significantly above the yearly average; the probability of seeing this distribution is actually as high as for any other 14-day period during the year.

The high-low range figures were similar to the open-close range figures.


No real difference

The shortened holiday period high-low daily range was smaller than the average high-low daily range in seven of the 11 years, but the effects of a seasonal influence aren’t definitive.

The analysis indicates there is no seasonal effect in terms of either the open-to-close range or the high-low range for these four currency pairs. As a result, there appears to be no real reason to stop trading during this period, especially trading (such as swing trading or long-term trend following) that does not rely on heavy liquidity, since the holiday period’s volatility is comparable to what you would expect during any other month. y
For information on the author, see p. 4.


October 2011 • CURRENCY TRADER


The dollar and prospective Treasury returns
History lesson: Analysis undermines the supposition that a weaker dollar hurts the Treasury market.

The philosopher George Santayana once said something profound, but who can remember it anymore with all the blogging, texting and tweeting? I wrote a piece way back in 1998 about the precious metals’ complete lack of movement for a trading generation. An e-mail came from what was obviously a retail commodity broker in the Ft. Lauderdale, Fla., area who asked, “Will gold ever get over $500 again?” Fair enough. My response went along these lines: Ever is a long time. Had someone asked me in 1981 if longterm Treasury yields would ever fall below 6 percent again, I would have said, “Yes,” even though it seemed improbable at the time. So, yes, gold can get over $500 again, but not within an immediate trading horizon. Gold was trading around $300 per ounce at the time and did not close above that level for good until the second quarter of 2002, four years later. By mid-2010, that same broker or his spiritual successor might reverse the question and wonder whether short-term interest rates ever would rise above 1 percent again, and if long-term Treasury bond yields went over 6 percent, would grass be growing in the streets? Let’s not even contemplate the question of whether gold will ever fall below $300 an ounce again.

The dollar and bonds

If we go back to the era of high Treasury yields and the

major (and politically engineered) decline in the dollar between 1985 and 1988, few would have disagreed that a declining dollar posed a threat to the U.S. Treasury market, as foreign creditors had to demand higher yields in recompense. Indeed, one of the major contributors to the liquidity premium, or spread between long- and short-term interest rates, is currency volatility. However, facts can be disagreeable things and have been known to wreak havoc on perfectly good economic theories, some of which can take the better part of an afternoon to concoct. U.S. Treasuries began a bull market in September 1981 and, with some spectacular corrections along the way, such as 1994, 1999 and 2009, have continued in that bull market all the way into mid-2011, even as the simple mathematics of fixed-income investing dictate the party will be over once interest rates approach zero percent along the yield curve. Fixed-income indexers split up the yield curve along the maturity spectrum. The categories we will follow here are calculated by Bank of America-Merrill Lynch, and include the segments of 1-3, 3-5, 5-7, 7-10, 10-15 and 15-plus years. We can calculate their net carry returns, or total return minus the opportunity cost of three-month LIBOR, and display these time series along a common (base-10) logarithmic scale going back to January 1995. This can be mapped against the Bloomberg correlation-weighted U.S. dollar index (see “Weighting for correlation,” Currency Trader, July 2011), also displayed on a common logarithmic scale.
October 2011 • CURRENCY TRADER

We would be hard-pressed to look FIGURE 1: NET TREASURY CARRY RETURNS AND THE DOLLAR at Figure 1 and determine what the long-term dependence of net Treasury carry returns on the dollar is. Yes, bonds rallied during the dollar’s 2008-2009 financial-crisis rally and fell once the crisis was over, at least over for the first time, and the dollar fell again for the remainder of 2009, but that would ignore the longterm rallies in Treasuries between 2002 and 2008 and again in 2011 when the greenback was taking it on the chin. Should we stop here and taunt the Fates by declaring, “Mission Accomplished?” No. We need to add There is no evidence of any long-term dependence of net Treasury carry returns a linking variable such as the shape on the dollar. of the money-market yield curve. Here we will use the same tool so common to many of our FIGURE 2: THREE-MONTH RETURN AHEAD RETURNS ON 1- TO 3-YEAR CARRY analyses, the forward rate ratio between six and nine months (FRR6,9). This is the rate at which we can lock in borrowing for three months starting six months from now, divided by the nine-month rate itself. The more the FRR6,9 exceeds 1.00, the steeper the yield curve and the greater the expectations for higher short-term interest rates in the near future. The theory (there’s that word again) behind the FRR6,9 as a linking variable is lower prospective hedgeable short-term interest rates allow bond investors to carry their positions for at least another six months without fear of increased funding costs; a steeper FRR6,9 used Observations from Figures 2-7: Three-month dollar gains of more than 10 percent are to be associated with a stronger followed by gains in the Treasury market, and the longer the maturity, the greater the number and magnitude of negative returns. dollar, but that was until an era of “perma-expectations” for
CURRENCY TRADER • October 2011 27

FIGURE 3: THREE-MONTH RETURN AHEAD RETURNS ON 3- TO 5-YEAR CARRY higher interest rates emerged in 2009. These expectations were rolled forward continuously in a manner akin to a tavern with a “Free Beer Tomorrow” window sign (see “Investing under a constant expectation,” Active Trader, November 2010).

Prospecting for returns


Now let’s map three monthahead net carry returns for the various maturity segments against the dimensions of the preceding three-month change in the dollar and the FRR6,9. In Figures 2-7, colored bubbles denote positive returns, white bubbles denote negative returns; the diameter of the bubbles corresponds to the absolute magnitude of the return. The most recent datum, from three months ago, is highlighted in an opposite color and the current values of the dollar’s change and the FRR6,9 are marked with a green bombsight. Finally, an arrow is drawn from the three-monthago datum to the current value.

Key takeaways


For all of their apparent complexity, these charts lend themselves to three major observations. First, gains in the dollar of more than 10 percent over the preceding three months are followed by gains in the Treasury market. The stronger greenback pulls in portfolio investment. Second, there is a maturitydependent response to declines in the dollar of more than 10 percent over the preceding three months. The longer the maturity, the greater the number and magnitude of negative returns. Global creditors to Uncle Sam can live with a weaker dollar for their shorterterm investments, but they start to get nervous about their longer-term investments when the dollar weakens. Finally, there is a maturitydependent response to the FRR6,9. At shorter maturities, prospective Treasury gains are
October 2011 • CURRENCY TRADER


Gains in the dollar of more than 10 percent over the preceding three months are followed by gains in the Treasury market. The stronger greenback pulls in portfolio investment.

positive for both very steep and very flat money-market yield curves. At longer maturities, prospective returns turn negative as holders become nervous about the FRR6,9 being unsustainable at those levels and future carry costs rising. Does any of this confirm or deny the 1980s-era supposition a weaker dollar would damage the Treasury market? Only at the extreme: If long-term creditors see the currency weakening rapidly and the yield curve steepening beyond reason, they will unload their long-term holdings. Then they will tiptoe back into the U.S. market, as most of Uncle Sam’s creditors recognize the need to finance their major customer’s deficits. To mix metaphors from past eras, what we see here are Bond Vigilantes practicing compassionate conservatism. They are as hooked on financing the debt, at ever-lower yields and with a currency in long-term decline, of a customer unwilling and increasingly unable to pay them back. Considering the experiences of creditors over the centuries lending to toolarge debtors, you would think they would have learned the lessons of history, but to paraphrase Santayana, all we learn from history is people do not learn from history. y
For information on the author, see p. 4.



CURRENCY TRADER • October 2011


CPI: Consumer price index ECB: European Central Bank FDD (first delivery day): The first day on which delivery of a commodity in fulfillment of a futures contract can take place. FND (first notice day): Also known as first intent day, this is the first day on which a clearinghouse can give notice to a buyer of a futures contract that it intends to deliver a commodity in fulfillment of a futures contract. The clearinghouse also informs the seller. FOMC: Federal Open Market Committee GDP: Gross domestic product ISM: Institute for supply management LTD (last trading day): The final day trading can take place in a futures or options contract. PMI: Purchasing managers index PPI: Producer price index Economic release (U.S.) GDP CPI ECI PPI ISM Unemployment Personal income Durable goods Retail sales Trade balance Leading indicators Release time (ET) 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 10:00 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 10:00 a.m.

October 1 2 3 4 5 6
U.S.: September ISM manufacturing report UK: Q2 GDP Brazil: September PPI UK: Bank of England interest-rate announcement ECB: Governing council interest-rate announcement U.S.: September employment report Brazil: September CPI Canada: September employment report Japan: Bank of Japan interest-rate announcement Mexico: Sept. 30 CPI and September PPI UK: September PPI LTD: October forex options; October U.S. dollar index options (ICE)

19 20 21 22 23 24 25 26 27 28 29 30 31

U.S.: Fed beige book and September CPI and housing starts South Africa: September CPI Canada: September CPI Hong Kong: September CPI Mexico: September employment report


Australia: Q3 PPI Mexico: Oct. 15 CPI Canada: Bank of Canada interest-rate announcement U.S.: September durable goods Australia: Q3 CPI U.S.: Q3 GDP (advance) Brazil: September employment report South Africa: September PPI U.S.: Q3 employment cost index and September personal income Japan: September employment report and CPI

8 9 10 11 12 13 14 15 16 17 18
U.S.: September PPI Hong Kong: July-Sept. employment report UK: September CPI France: September CPI UK: September employment report U.S.: August trade balance Australia: September employment report Germany: September CPI U.S.: September retail sales India: September PPI Japan: September PPI

Canada: September PPI France: September PPI India: September CPI South Africa: Q3 employment report

November 1 2 3 4
U.S.: October ISM manufacturing index U.S.: FOMC interest-rate announcement Germany: September employment report ECB: Governing council interest-rate announcement U.S.: October employment report Canada: October employment report LTD: November forex options; November U.S. dollar index options

The information on this page is subject to change. Currency Trader is not responsible for the accuracy of calendar dates beyond press time.

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October 2011 • CURRENCY TRADER

Market EUR/USD AUD/USD GBP/USD CAD/USD JPY/USD MXN/USD U.S. dollar index CHF/USD NZD/USD E-Mini EUR/USD Sym EC AD BP CD JY MP DX SF NE ZE Exch CME CME CME CME CME CME ICE CME CME CME Vol 330.6 126.0 104.7 97.2 95.8 36.2 29.8 27.9 6.7 4.8 OI 186.7 97.9 114.5 86.2 120.1 87.0 53.4 35.2 24.7 5.0 10-day move / rank -2.40% / 45% -6.68% / 85% -1.45% / 15% -5.45% / 100% 0.01% / 8% -6.08% / 68% 3.06% / 70% -3.10% / 40% -7.40% / 100% -2.40% / 45% 20-day move / rank -5.71% / 86% -9.68% / 100% -4.06% / 66% -5.87% / 100% -0.08% / 9% -10.40% / 98% 5.43% / 83% -10.36% / 52% -10.50% / 100% -5.71% / 86% 60-day move / rank -4.98% / 90% -8.98% / 97% -2.42% / 82% -7.02% / 100% 5.55% / 88% -15.07% / 98% 4.45% / 93% -6.42% / 82% -7.42% / 100% -4.98% / 90% Volatility ratio / rank .38 / 22% .86 / 72% .48 / 40% 1.03 / 80% .09 / 5% .41 / 43% .62 / 63% .21 / 20% .91 / 95% .38 / 22%

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.

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. Note: Average volume and open interest data includes both pit and side-byside electronic contracts (where applicable). LEGEND: Volume: 30-day average daily volume, in thousands. OI: 30-day open interest, in thousands. 10-day move: The percentage price move from the close 10 days ago to today’s close. 20-day move: The percentage price move from the close 20 days ago to today’s close. 60-day move: The percentage price move from the close 60 days ago to today’s close. The “% rank” fields for each time window (10-day moves, 20-day moves, etc.) show the percentile rank of the most recent move to a certain number of the previous moves of the same size and in the same direction. For example, the % rank for the 10-day move shows how the most recent 10-day move compares to the past twenty 10-day moves; for the 20-day move, it shows how the most recent 20-day move compares to the past sixty 20-day moves; for the 60-day move, it shows how the most recent 60-day move compares to the past one-hundred-twenty 60-day moves. A reading of 100% means the current reading is larger than all the past readings, while a reading of 0% means the current reading is smaller than the previous readings. Volatility ratio/% rank: The ratio is the shortterm volatility (10-day standard deviation of prices) divided by the long-term volatility (100-day standard deviation of prices). The % rank is the percentile rank of the volatility ratio over the past 60 days.

BarclayHedge Rankings: Top 10 currency traders managing more than $10 million
(as of August 31 ranked by August 2011 return) August return 12.30% 4.40% 4.28% 2.91% 1.81% 1.74% 1.37% 1.23% 1.19% 1.16% 8.89% 7.76% 3.10% 2.30% 1.53% 1.20% 0.67% 0.37% 0.34% 0.05% 2011 YTD return 41.16% -27.64% 14.21% -7.18% 6.22% -1.52% -0.96% 7.50% 12.58% -7.82% 20.73% 25.48% 23.91% 24.19% 0.44% 7.19% 7.13% 2.19% 1.69% -2.04% $ Under mgmt. (millions) 45.0 108.8 14.2 377.0 35.8 525.0 104.0 15.8 56.9 592.7 1.5 2.9 2.4 3.0 2.4 3.8 4.0 1.8 2.0 1.8

Trading advisor 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. MIGFX Inc (Retail) Friedberg Comm. Mgmt. (Curr.) Gedamo (FX Alpha) First Quadrant (Managed Currency) Gedamo (FX One) Hathersage (Long Term Currency) Capricorn Currency Mgmt. (fxST MAP) Capricorn Currency Mgmt. (FXG10 CHF) A-Venture Capital Premium Currency (Currencies) Adantia (FX Aggressive) Iron Fortress FX Mgmt. Valhalla Capital Group (Int'l AB) Wealth Builder FX Group (Low Risk) GTA Group (FX Trading) Capricorn Currency Mgmt. (FXG10 USD) Greenwave Capital Mgmt. (GDS Beta) MatadorFX (MFX1) BEAM (FX Prop) Four Capital (FX)

Top 10 currency traders managing less than $10M & more than $1M

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.

CURRENCY TRADER • October 2011


Rank Currency 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Japanese yen Chinese yuan Hong Kong dollar Thai baht Canadian dollar Great Britain pound Taiwan dollar Euro New Zealand dollar Singapore dollar Australian dollar Swedish krona Indian rupee South African rand Russian ruble Swiss franc Brazilian real Sept. 29 price vs. U.S. dollar 0.013065 0.1568 0.128285 0.032275 0.97643 1.56312 0.03289 1.359515 0.78518 0.776905 0.988045 0.148045 0.02017 0.12719 0.031505 1.114465 0.554565 1-month gain/loss 0.19% 0.04% 0.01% -3.31% -4.18% -4.50% -4.93% -6.23% -6.51% -6.54% -6.55% -6.80% -6.94% -9.06% -9.31% -10.12% -10.96% 3-month gain/loss 5.66% 1.47% -0.11% -0.11% -3.78% -2.18% -4.85% -5.01% -2.63% -3.96% -5.72% -4.60% -8.15% -12.72% -11.43% -7.12% -12.55% 6-month gain/loss 6.70% 2.90% 0.04% -2.24% -4.39% -2.31% -3.17% -3.34% 4.47% -1.93% -3.76% -5.39% -8.34% -12.60% -10.66% 2.48% -7.96% 52-week high 0.0131 0.1568 0.129 0.0338 1.059 1.6702 0.03510 1.4842 0.8797 0.832 1.1028 0.1662 0.0227 0.1518 0.0366 1.3779 0.65 52-week low 0.0117 0.1492 0.1281 0.0316 0.9691 1.5407 0.0318 1.2901 0.7207 0.7572 0.9611 0.1422 0.0198 0.12 0.0309 0.996 0.5305 Previous 2 4 8 10 16 3 9 5 15 6 13 7 11 17 14 1 12

Country 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Switzerland India Germany Italy UK Japan Brazil South Africa Singapore Mexico France U.S. Australia Canada Hong Kong Index Swiss Market BSE 30 Xetra Dax FTSE MIB FTSE 100 Nikkei 225 Bovespa FTSE/JSE All Share Straits Times IPC CAC 40 S&P 500 All ordinaries S&P/TSX composite Hang Seng Sept. 29 5,608.60 16,698.07 5,639.58 15,046.02 5,196.80 8,701.23 53,385.00 29,488.26 2,708.13 33,686.16 3,027.65 1,160.40 4,067.90 11,686.32 18,011.06 1-month gain/loss 2.98% 1.72% -0.54% -0.63% -1.36% -1.70% -2.69% -2.89% -3.00% -3.80% -4.01% -4.11% -6.13% -6.55% -9.33% 3-month gain/loss -8.08% -10.68% -22.68% -24.26% -11.26% -11.19% -14.36% -7.46% -12.07% -7.91% -22.85% -11.24% -11.18% -11.39% -18.36% 6-month gain loss -11.75% -12.67% -18.67% -30.92% -12.40% -8.01% -20.82% -8.63% -11.41% -8.45% -24.08% -12.05% -16.15% -16.11% -21.90% 52-week high 6,739.10 21,108.60 7,600.41 23,273.80 6,105.80 10,891.60 73,103.00 33,094.06 3,313.61 38,876.80 4,169.87 1,370.58 5,069.50 14,329.50 24,988.60 52-week low 4,695.30 15,765.50 4,965.80 13,115.00 4,791.00 8,227.63 47,793.00 28,391.18 2,627.24 31,659.30 2,693.21 1,101.54 3,829.40 11,293.60 16,999.50 Previous 7 12 15 14 11 8 6 3 9 1 13 10 2 4 5


October 2011 • CURRENCY TRADER

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Currency pair Yen / Real Canada $ / Real Pound / Franc Euro / Real Aussie $ / Real Euro / Franc Aussie $ / Franc Pound / Aussie $ Euro / Aussie $ Aussie $ / New Zeal $ Pound / Canada $ Euro / Pound Euro / Canada $ Aussie $ / Canada $ Canada $ / Yen Pound / Yen Franc / Canada $ Euro / Yen Aussie $ / Yen New Zeal $ / Yen Franc / Yen Symbol JPY/BRL CAD/BRL GBP/CHF EUR/BRL AUD/BRL EUR/CHF AUD/CHF GBP/AUD EUR/AUD AUD/NZD GBP/CAD EUR/GBP EUR/CAD AUD/CAD CAD/JPY GBP/JPY CHF/CAD EUR/JPY AUD/JPY NZD/JPY CHF/JPY Sept. 29 0.02356 1.760705 1.40257 2.45149 1.781655 1.21988 0.886565 1.582035 1.37598 1.258335 1.600855 0.869755 1.392335 1.011895 74.735 119.635 1.14137 104.05 75.62 60.095 85.295 1-month gain/loss 12.57% 7.61% 6.26% 5.30% 4.95% 4.34% 3.97% 2.20% 0.34% -0.06% -0.33% -1.81% -2.14% -2.47% -4.39% -4.70% -6.20% -6.42% -6.71% -6.71% -10.32% 3-month gain/loss 20.82% 10.02% 5.32% 8.62% 7.81% 2.27% 1.51% 3.75% 0.75% -3.17% 1.67% -2.89% -1.27% -2.01% -8.94% -7.43% -3.47% -10.11% -10.77% -7.85% -12.10% 6-month gain loss 15.94% 3.88% -4.68% 5.02% 4.57% -5.68% -6.09% 1.50% 0.44% -7.88% 2.17% -1.05% 1.10% 0.66% -10.40% -8.45% 7.19% -9.42% -9.81% -2.10% -3.96% 52-week high 0.0246 1.8282 1.5936 2.5367 1.8452 1.3766 0.9818 1.6461 1.4294 1.3746 1.634 0.9038 1.4316 1.0513 88.95 139.19 1.3569 122.63 89.46 67.97 105.79 52-week low 0.0186 1.589 1.1778 2.1692 1.5882 1.0376 0.7477 1.4806 1.2947 1.2354 1.5302 0.8297 1.2811 0.9708 74.06 117.7 1.0113 102.88 74.55 56.86 81.55 Previous 2 13 16 7 11 17 21 5 6 10 3 12 4 9 20 14 1 15 18 19 8

Country United States Japan Eurozone England Canada Switzerland Australia New Zealand Brazil Korea Taiwan India South Africa Interest rate Fed funds rate Overnight call rate Refi rate Repo rate Overnight rate 3-month Swiss Libor Cash rate Cash rate Selic rate Korea base rate Discount rate Repo rate Repurchase rate Rate 0-0.25 0-0.1 1.5 0.5 1 0 4.75 2.5 12 3.25 1.875 8.25 5.5 Last change - 0.5 (Dec. 08) - 0.1 (Oct. 10) 0.25 (July 11) - 0.5 (March 09) -0.25 (Sept. 10) -0.25 (Aug. 11) - 0.25 (Nov. 10) - 0.5 (March 11) - 0.5 (Aug. 11) 0.25 (June 11) 0.125 (June 11) - 0.25 (Sept. 11) - 0.5 (Nov.10) March 2011 0-0.25 0.1 1 0.5 1 0.25 4.75 2.5 11.75 3 1.75 6.75 5.5 Sept. 2010 0-0.25 0.1 1 0.5 1 0.25 4.5 3 10.75 2.25 1.5 6 6.5

CURRENCY TRADER • October 2011


Argentina Brazil Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore Argentina Brazil Canada France Germany UK Australia Hong Kong Japan Singapore

Q2 Q2 Q2 Q2 Q2 Q1 Q2 Q2 Q2 Q2 Q2 Q2

Release date
9/16 9/6 8/31 9/28 8/16 6/28 8/30 9/7 8/12 8/31 8/15 8/19

26.1% 8.7% 0.4% 0.4% 0.6% 1.7% -6.4% 2.7% -1.1% 16.7% -0.3% -3.3%

1-year change
20.1% 9.0% 5.6% 3.2% 3.7% 4.6% -3.6% 6.3% 9.9% 7.7% -1.3% 4.2%

Next release
12/16 12/6 11/30 12/23 11/15 10/5 11/29 12/7 11/11 11/30 11/14 11/25


Unemployment AMERICAS

Q2 Aug. Aug. Q2 Aug. May-July Aug. June-Aug. Aug. Q2

Release date
8/22 9/22 9/9 9/1 9/29 9/15 9/8 9/20 9/30 7/29

7.3% 6.0% 7.3% 9.1% 6.0% 7.9% 5.3% 3.2% 4.3% 2.1%

-0.1% 0.0% 0.1% -0.1% 0.0% 0.3% 0.1% -0.2% -0.4% 0.2%

1-year change
-0.6% -0.7% -0.8% -0.2% -0.9% 0.1% 0.2% -1.1% -0.7% -0.1%

Next release
11/21 10/27 10/7 12/1 11/2 10/12 10/13 10/18 10/28 10/31



Argentina Aug. Aug. Aug. Aug. Aug. Aug. Aug. Q2 Aug. Aug. Aug. Aug. Brazil Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore

Release date
9/14 9/6 9/21 9/13 9/9 9/14 9/21 7/26 9/22 9/30 9/30 9/23

0.8% 0.4% 0.2% 0.5% 0.0% 0.6% 0.2% 90.0% -2.9% 0.6% 0.1% 0.7%

1-year change
9.8% 4.4% 3.1% 2.2% -0.9% 4.5% 5.3% 3.6% 5.7% 9.8% 0.2% 5.7%

Next release
10/14 10/7 10/21 10/12 10/13 10/18 10/19 10/26 10/21 10/31 10/28 10/24



Argentina Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore

Aug. Aug. Aug. Aug. Aug. Aug. Q2 Q2 Aug. Aug. Aug.

Release date
9/14 9/29 9/30 9/20 9/12 9/29 7/26 9/15 9/14 9/12 9/29

0.9% 0.5% 0.0% -0.3% 0.1% 1.0% 0.8% 2.8% 0.6% -0.2% -1.3%

1-year change
12.5% 5.2% 6.3% 5.5% 6.1% 9.6% 3.4% 8.9% 9.8% 2.6% 7.7%

Next release
10/14 10/31 10/31 10/20 10/7 10/27 10/24 12/13 10/14 10/14 10/28

As of Sept. 30 LEGEND: Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.


October 2011 • CURRENCY TRADER

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