ctm 201212

7/29/2019 Ctm 201212

1/29

December 2012

Volume 9, No. 12

Strategies, analysis, and news for FX traders

TAKING THE PULSE OF FEVERISH DOLLAR/YEN PAIR P. 16

God Save The Queen (and Her currency):

British pound searches for a catalyst p. 6

Dollar/yen pullback setup p. 29

Dont be fooled by currency wars p. 14

Dissecting the dollar index/Aussie dollar relationship p. 20

Figuring out what matters in FX right now p. 10

7/29/2019 Ctm 201212

2/292 December2012CURRENCY TRADER

CONTENTS

Contributors................................................. 4

Global Markets

British pound has potential near-term

edge over Euro ............................................6

The UK currency isnt poised to make a huge

move either way, but it has more potential

upside vs. the Euro than the U.S. dollar.

By Currency Trader Staff

On the Money

What matters? ..........................................10

To understand whats important in the forex

market, start with what isnt.By Barbara Rockefeller

The misdirection of currency wars ........14

Distracting rhetoric obscures the real dynamics

ofglobalcapitalowsandcurrencyvaluations.

By Marc Chandler

Spot Check

Dollar/yen makes another swing ............16

But is it the real thing?

By Currency Trader Staff

Advanced Concepts

Spreading the dollar index

and Australian dollar ...............................20

Trading the U.S. dollar against the Australian

dollar is different than trading the dollar indexs

components against the AUD.

By Howard L. Simons

Global Economic Calendar ........................24

Important dates for currency traders.

Currency Futures Snapshot.................25

Managed Money Review .......................25

Top-ranked managed money programs

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

Numbers from the global forex, stock, and

interest-rate markets.

Forex Journal ........................................... 29

Pullback sets up long entry in hot dollar/yen

pair.

Looking for an

advertiser?

Click on the company

name for a direct link to the

ad in this months issue.

Ablesys

eSignal

FXCM

New York Traders Expo

NinjaTrader

Questions or comments?Submit editorial queries or comments to

[email protected]
mailto:[email protected]:[email protected]://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671

7/29/2019 Ctm 201212

3/29

Trade like a pro with eSignalthe platform the pros use

Buy Online or Call Nowfor your 30-day, risk-free trial.*

800.245.9432 | www.eSignal.com

smarter trading tools

eSignal, an Interactive Data company.*If youre not completely satisfied during the trial, cancel the service, and we will refund your subscription fees. Exchange fees are non-refundable. x14652

eSignal connecting the best in technical analysis software with your choice of broker

eSignal offers the serious trader everything you

need to turn your market strategy into profit, all

from one easy-to-use platform.

Lightning-fast data: futures, stocks, options, Forex

Real-time stock market scanners

Advanced Charting with customizable indicators

Trading integration with multiple brokers

Award-Winning Products

eSignal products have consistently

been voted #1 by users worldwide

TODD HARRISON

CEO and Founder, Minyanville Media, Inc.

Access the world's

markets anywhere

with eSignals mobile

version, QuoTrek,

offering streaming

quotes, charts and

news on-the-go.

eSignal delivers the industrys best qualitydata at lightning fast speeds even onyour smart phone or mobile device.
http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671http://www.esignal.com/ads/esignal/default.aspx?CPID=PAC-ESPTUCT0912&tc=14671

7/29/2019 Ctm 201212

4/29

CONTRIBUTORS

4 December2012CURRENCY TRADER

Editor-in-chief: Mark Etzkorn

[email protected]

Managing editor: Molly Goad

[email protected]

Contributing editor:

Howard Simons

Contributing writers:

Barbara Rockefeller,

Marc Chandler, Chris Peters

Editorial assistant and

webmaster: Kesha Green

[email protected]

President: Phil Dorman

[email protected]

Publisher, ad sales:

Bob Dorman

[email protected]

Classifed ad sales: Mark Seger

[email protected]

Volume 9, Issue 12. Currency Trader is published monthly by TechInfo,Inc., PO Box 487, Lake Zurich, Illinois 60047. Copyright 2012 TechInfo,Inc. All rights reserved. Information in this publication may not be stored orreproduced in any form without written permission from the publisher.

The information in Currency Trader magazine is intended for educationalpurposes only. It is not meant to recommend, promote or in any way implythe effectiveness of any trading sys tem, strategy or approach. Traders areadvised to do their own research and testing to determine the validity of atrading idea. Trading and investing carry a high level of risk. Past perfor-mance does not guarantee future results.

For all subscriber services:www.currencytradermag.com

A publication of Active Trader

CONTRIBUTORS

qHoward 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 nancial market issues.

q Marc Chandler([email protected]) is the

head of global foreign exchange strategies at

Brown Brothers Harriman and an associate profes-

sor at New York Universitys School of Continuing

and Professional Studies. Chandler has spent more

than 20 years analyzing, writing, and speaking

about global capital markets. He is the author of Making Sense of

the Dollar: Exposing Dangerous Myths about Trade and Foreign

Exchange (Bloomberg Press, 2009).

qBarbara Rockefeller(www.rts-forex.com) is an international

economist with a focus on foreign exchange. She has worked as a

forecaster, trader, and consultant at Citibank and other nancial

institutions, and currently publishes two daily reports on foreign

exchange. Rockefeller is the author ofTechnical Analysis for Dum-

mies, Second Edition (Wiley, 2011), 24/7 Trading Around the Clock,

Around the World (John Wiley & Sons, 2000), The Global Trader

(John Wiley & Sons, 2001), How to Invest Internationally, published

in Japan in 1999, and The Foreign Exchange Matrix (Harriman

House, January 2013). Rockefeller is on the board of directors of alarge European hedge fund.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.currencytradermag.com/http://www.rts-forex.com/http://www.rts-forex.com/http://www.currencytradermag.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

7/29/2019 Ctm 201212

5/29
http://clk.atdmt.com/FXM/go/420584290/direct/01/

7/29/2019 Ctm 201212


GLOBAL MARKETS

While the financial world fixates on the U.S. fiscal-cliffcrisis and never-ending Eurozone sovereign-debt crisis,the UK continues to trudge along rather quietly and itseconomy is finally beginning to show modest signs ofimprovement.

The last several years in the UK have been tough inthe wake of massive fiscal austerity implemented bythe British government, with GDP growth basicallyunchanged in 2012.

Theyve had a very sluggish recovery, says Jay Bryson,global economist at Wells Fargo. Whereas the U.S. isabove precrisis levels, the UK is still 3% below. Up untilthe third quarter, GDP was roughly unchanged over thepast two years. Theyve been completely stagnant.

However, there are some signs that the worst could beover and that could be bullish in the months ahead forthe British pound (GBP), especially vs. the Euro (EUR).

Double dipTechnically, the UK economy retreated back intorecession defined as back-to-back quarters of negativeGDP at the beginning of 2012. Stephen Webster, direc-tor of UK-based economic consultancy Top Econ, notes the

country registered consecutive quarters of negative growth(-0.3% in Q1 after -0.4% in Q4 2011).This was followed by -0.4% in the second quarter [this

year], owing largely to the impact of an extra bank holidayin June on the occasion of the Queens Diamond Jubilee,he says.

Britains third-quarter GDP posted a 1% gain. However,economists point out this positive figure was inflated byseveral unique factors, including the summer Olympics,and is unlikely to be sustained.

Given relatively strong third quarter growth, somepare-back is anticipated for the final quarter of 2012, saysMelanie Bowler, economist at Moodys Analytics. Both

the services and manufacturing purchasing managersindexes deteriorated in October.

However, Bowler adds the Purchasing Managers Index(PMI) for the services sector which accounts for around75% of the UK economy remains in expansionary ter-ritory (expansionary is a reading over 50), which she sayssuggests the sector will soon recover the output lost since2008. The construction PMI also moved into expansion-ary territory in October, she says. As such, modest butwell-below-potential growth is anticipated in the fourthquarter.

Bowler pegs 2012 GDP at -0.1%, the same pace cited byWebster.

Lucky 13?For 2013, however, growth forecasts are edging marginallyhigher. The good news is they are not in recession, thebad news is they still have a ways to go, Bryson notes. Heforecasts the UKs 2013 GDP at 1.6%.

Webster also has a positive, although slightly moremodest, GDP outlook. Im looking for UK 2013 GDPgrowth to turn out around 1.2%, he says. The EuropeanCommission is forecasting 0.9% and the Bank of England

1.2%. Recession in 2013 is unlikely, but persistent weaknessin global growth is a clear downside risk.Meanwhile, Bowler forecasts the UK economy to

expand by around 1.2% in 2013. But overall GDP is notexpected to surpass its 2008 level until late 2014, she says.Furthermore, the risks remain firmly weighted to thedownside. The lingering crisis in the Eurozone, with whichthe UK has strong financial and trade ties, remains the keyconcern, but a new recession in the U.S. would also weighon the UK.

Headwinds remainBritain still faces significant challenges, though. Fifty per-

British pound has potential

near-term edge over EuroThe UK currency isnt poised to make a huge move either way, but it

has more potential upside vs. the Euro than the U.S. dollar.

BY CURRENCY TRADER STAFF

7/29/2019 Ctm 201212

7/29CURRENCY TRADERDecember2012

cent of UK exports head to the Eurozoneand forecasts for a mild recession in theEurozone in 2013 should continue toweigh on UK growth prospects.

Consumer spending and sentiment arefar from turbo-charged, Bowler notes.The outlook for the countrys retailers

remains subdued, she says. Consumerconfidence is still well below its long-term average, weighing on discretionaryspending. A number of high-profile retail-ers have fallen into administration thisyear, and more are possible. Austerity willremain the key drag on UK householdsthrough 2013.

Also, inflation has been moderatelytroublesome, edging just above the Bankof Englands (BOE) official 2% target raterecently. The UKs Consumer Price Index(CPI) rose by 0.1% month-over-month inOctober, lifting the headline inflation rateto a five-month high of 2.7%, according toWebster.

Domestic gas and electricity prices [are expected toadd] around 0.4 percentage points to CPI inflation by early2013, Webster says. There is very little the BOE can doabout it, and other prices in the economy, including wages,would need to be correspondingly lower in order toachieve the 2% inflation target. Overall then inflation is notexpected to return to target until around second or thirdquarter 2014.

Central bank shake-upIn a surprise announcement in late November, Bank ofCanada Governor Mark Carney was tapped to replaceoutgoing BOE governor Mervyn King. Although thistransition wont take place until July 2013, speculation onwhat this could mean for BOE monetary policy has runrampant.

As is the case in the U.S., there has been some criticismand questioning of the effectiveness ofquantitative easingin the UK, especially because lending to businesses andindividuals has remained sluggish.

With the governments hands tied to austerity morefiscal tightening measures are expected to be announced

in the governments annual autumn statement the Bankof England is being relied upon to bolster the economy,Bowler says. Interest rates have been on hold at therecord low of 0.5% since March 2009 and are expectedto remain steady well into 2014. One monetary policycommittee member voted to increase asset purchasesin November, and further purchases or the use of newunconventional monetary policy tools cannot be ruled out,especially if the economy fails to continue to expand asexpected or if it is subject to a shock.

Greg Anderson, North American head of FX strategy atCitigroup, thinks Carneys appointment might nudge theBOE in another direction. Its a fresh set of eyes from an

outsider, he says. It probably makes it a little less likelythe BOE will extend QE programs.

Bowler sees it differently. The choice of Carney shouldlift confidence in the UK banking system, but it is unlikelyto alter the direction of British monetary policy, which weexpect to remain expansionary through late 2014, shesays. The BOCs Carney has a good, clean track record,which the BOE will be hoping to take advantage of.

Some market watchers say whether additional monetarypolicy accommodation or more quantitative easing willoccur could simply depend on economic performance in

coming months. You could potentially see more quantita-tive easing. Its a close call at 55% odds of no more QE and45% odds of more QE, Bryson says.

The UKs asset-purchase program remained unchangedat 375 billion in November, according to Bowler. TheBOE restarted purchases in October 2011 after ending themin early 2010, she says. Central bankers last increased thefund by 50 billion in July.Monetary policy action will be key in the coming monthsif the BOE ends its QE programs ahead of the Fed or theECB; that could be a bullish factor for the pound on thecrosses.

Pound positioningThe pound/dollar pair (GBP/USD) has been decliningmodestly since the mid-September peak around $1.63(Figure 1). The high represents strong resistance, havingturned back the early-2012 rally around the same level.However, the main driver of the mid-September to mid-November pullback was primarily a U.S. dollar rally.

There was a better overall performance for the U.S.dollar over the period, while the pound began to loseground as the fundamental UK data proved disappoint-ing, Webster says. The inability of the UK government toreduce debt also put a question mark over the durability of

the UKs AAA rating, and limited attractiveness of pound-

FIGURE 1: DOLLAR/POUND

The GBP/USD pair pulled back after challenging the late-April high in

September.
http://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Concepts

7/29/2019 Ctm 201212


GLOBAL MARKETS

based assets.Price action in the U.S. dollar, which

could be volatile into the final weeks ofthe year because of fiscal-cliff uncertainty,will be the key factor driving the pound/dollar pair.

Webster holds a cautious view. Theconfirmation of third-quarter UK GDPgrowth at 1% should help support thepound, and with no obvious deal in sighton the fiscal cliff, I expect GBP/USD willbe underpinned in the near term, hesays. However, once the U.S. gets its fis-cal act together, I see [the dollar] betterplaced than most for growth next year,and the pound could lose groundagain and quite sharply so, at leastinitially if the AAA rating is removed.

Moodys has promised a review early in2013.Meanwhile, BNP Paribas analysts have

a strong bullish view, which targets a move in pound/dol-lar toward $1.68 by the end of the first quarter 2013 and ashigh as $1.74 by the second quarter. However, the funda-mental factors of this forecast primarily come down to dol-lar weakness, as opposed to pound strength.

We have a fairly aggressive view for the Fed, saysVassili Serebriakov, FX strategist at BNP Paribas. Webelieve the Fed will continue easing policy through QE3.While the Fed is currently embarking on the program of$40 billion in monthly purchases of mortgage-backed secu-

rities it announced in September, BNP Paribas expects theprogram to expand.

Operation Twist ends in December, Serebriakov says.That is where they sell around $45 billion in short-termsecurities and buy longer-term securities. Thats balance-sheet neutral. We think they will roll that into outright pur-chases of Treasuries of $45billion starting in January. Rightnow they are expanding the balance sheet by $40 billion,but that would bring it to $85 billion [per month].

If the Fed were to enact that shift it, would be dollarnegative and we think the dollar will weaken across theboard, Serebriakov says.

HSBC offers a more tepid outlook. We see the pound

at $1.60 at the end of the year and at $1.62 by the endof March, says Bob Lynch, head of G-10 FX strategyAmericas HSBC. From a pound perspective, we seeissues with the UK and the U.S. and really dont have thepound/dollar exchange rate moving a great deal.

Euro/poundForex traders interested in trading a more specificallyUK outlook might prefer the cross rates. If you want toisolate the UK story, the Euro/pound is a better guide,Serebriakov says.

Anderson agrees. Seventy percent of the move in

pound/dollar [in September-November] was really Euro/

dollar, he says.Ultimately, trajectory of the pound/dollar pair is in large

part predicated by the direction of the U.S. dollar, whereasthe Euro/pound (EUR/GBP) represents a purer growth-differential play between the UK and the Eurozone (Figure2). Some analysts make the case that the pound could havea growth-differential edge vs. the Euro. Since late July, theEuro/pound pair has been rallying, but its upside prog-ress stalled in late November below the late-October peakaround .8165.

We generally expect to see the pound appreciate slowlyagainst the Euro as the UK economy does better than theEurozone, Anderson says.

Serebriakov sees a similar UK edge. The cyclical posi-tion of the UK economy appears slightly more advanta-geous to the Eurozones, he says. The economic under-performance of the Eurozone and the European debtcrisis will not be fully solved. For investors looking toput money into Europe, the UK remains a more attractiveoption because the UK is not associated with the extremefiscal risks of the Eurozone.

In the months ahead, BNP Paribas forecasts the pound tooutperform the Euro, with a fourth-quarter 2012 target at

79.00 for the Euro/pound, a 78.00 target for the end of Q12013, and a 76.00 target for the end of the second quarter.

Volatility pickup?Heading into the final month of 2012, Lynch notes thathistorical volatilities for many currencies are at fairly lowlevels. However, several risk factors could heat up actionin the near term, some foreseeable and others that mightemerge unexpectedly.

Theres the U.S. fiscal backdrop and the threat of atemporary disruption to the Eurozone financial system,he says. If and when something upsets the apple cart, it

often is something you didnt flag ahead of time.y

FIGURE 2: EURO/POUND

Traders interested in isolating the pounds dynamics should favor the EUR/

GBP pair over the GBP/USD pair.

7/29/2019 Ctm 201212

9/29CURRENCY TRADERDecember2012 9

Trading can be HARD.

Make the smart easy choice, download

NinjaTrader and get:FREE award winning software

FREE EOD Data from Kinetick.com

FREE technical support

FREE daily training webinars

And much, much more!

Download today atninjatrader.com/AT

30,000 plus users. 300 plus add on and education partners. Trade through 100s of brokers worldwide.

To learn more about the thriving NinjaTrader Ecosystem, visit ninjatrader.com/partners.

eotprolive.com topdogtrading.com interactivebrokers.com
http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/http://www.ninjatrader.com/

7/29/2019 Ctm 201212

10/29

The factors that matter in FX are ever-changing. Even oldthemes get recycled in slightly different ways, as the mixof factors differs over time e.g., raising the U.S. debtceiling will be different this time from what it was in 1995.Looking ahead to 2013, can we say what matters to the FXmarket?

We can start with what does not matter.Greece doesnt matter. As the Eurogroup held three

meetings on the delayed tranche of the second Greek bail-out disbursement, the Euro rallied. A rally in the midst ofa financial crisis means the crisis is one-sided its a crisis

for Greece, just not for anyone else.Greece doesnt matter to the FX markets perception of

the Euro because its a small economy and no one actuallybelieves Greece will accept reform and come out of thecrisis with a well-functioning economy. Its citizens do notaccept the fact that they need to pay taxes; the state cantprivatize assets, chiefly real estate, because it doesnt havean accounting of titled properties.

Weve had a long time to get used to Greek problems.Catastrophe in Greece is already priced in. Theres noth-ing worse about Greece that can come along and harmthe Euro. Even a Grexit would not be Euro-negative.(A Greek exit from the Eurozone would, in fact, be Euro-

favorable.)Spain doesnt matter, either. Spain has the fourth-largest

Eurozone economy and faces some severe challenges,including a possible Catalan referendum on secession anda banking sector bailout delayed by however long it willtake to get the European Central Bank (ECB)-managedEurozone bank supervisor in place. Technically, it will existas of year-end, but officials say it will be six to 18 monthsbefore Spain can expect any cash. Still, despite near-beg-ging by ECB chief Mario Draghi, Spain seems determinedto postpone asking for a sovereign bailout. As SpainsPrime Minister Mariano Rajoy says, as long as bond yieldsare tame, Spain gets to rack up the cost savings. And as

November rolled to an end, the bond gang was supportingthe viability of the delay. The 10-year yield was about 5.7%compared to 7.75% at the July peak. The Madrid IBEX isperforming about the same as the Paris CAC.

And big-picture macro doesnt matter. The Eurozoneis officially in recession, with Q3 GDP down 0.1% after a0.2% contraction in Q2. The International Monetary Fund(IMF) predicts an 80% probability of Eurozone recession in2013. The European Commission says 2012 growth will be0.4% and cut its Eurozone growth forecast to 0.1% in 2013(from 1% in May). German growth was cut in half to 0.8%

from 1.7%. France will contract by 1.4%.S&P cut Spains rating two notches to triple-B-minus,

one step above junk; Moodys cut Frances rating by onenotch to Aa1, leaving Finland as the only Eurozone coun-try with a triple-A rating. The Economist named France thetime-bomb at the heart of Europe on labor market rigid-ity and loss of competitiveness.

In a nutshell, the equity and FX markets get jittery fromtime to time as each new chapter of the Eurozone trainwreck comes to light, but since July the Euro has beenresilient (Figure 1). From the low at 1.2043 on July 24the Euro rallied to 1.3172 in mid-September, and by lateNovember, it was rallying again after a dip. The upside

breakout in September carried the Euro above resistanceat the top of the standard error channel, and the Eurohas barely glanced back. If we hand-draw support andresistance lines, we can easily see the Euro surpassing theSeptember high at 1.3172 and reaching, perhaps, 1.3500 byyear-end. (As a happy coincidence, 1.3500 is near the 50%retracement of the down move from May 2011 to July 2012.As we know, a 50% retracement has magic properties insome traders imagination.)

Crisis, perception, and realityHow can the chart be so divorced from any reasonable

interpretation of Eurozone conditions? There are two pos-

On the Money


ON THE MONEY

What matters?

To understand whats important in the forex market, start with what isnt.

BY BARBARA ROCKEFELLER
http://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Concepts

7/29/2019 Ctm 201212


sible answers, and they depend on time frame. On theshorter time frame (weeks and months), a Euro upside

breakout is justified because a lot of terrible things hap-pened and the world didnt end. With each new crisis,the power to influence the Euro was diluted. When crisisbecomes routine, its very concept and experience is deval-ued. Traders become weary and jaded; it takes ever-biggercrises to get their attention.

This is not to say all crises are created equal. For exam-ple, if and when confidence in Spanish brinkmanshipwith the ECB is lost and Spanish 10-year yields again top7.5%, you can expect the Euro to be punished with a largedrop. And savvy traders are planning against this day.According to the CFTCs Commitments of Traders (COT)report, as of Nov. 13 speculative accounts were net short

Euro futures by 83,646 contracts, up from 67,141 the weekbefore. The record Euro short is 214,418 contracts, fromJune 5, 2012.

This gives us a clue that over the longer time frame say, to March-June 2013 the market expects the Eurowont be able to resist the drag of recession that may bringwith it an ECB rate cut, ratings agency downgrades, possi-ble bank failures, probable Grexit, and heaven only knowswhat else. Fundamentals and institutional factors can beshrugged off in the short run, but in the long run, surelythese things add up and do matter. The warning here is theold saw from Keynes: The life of a market is only a seriesof short runs, and in the long run, were all dead.

The Euro and the U.S.The problem arises when we ask, against what currency

will the Euro fall as these negatives develop? The Japaneseyen is already on one of its periodic bouts of weakening(see Deciphering the yen, Currency Trader, November2012). The Euro/pound chart looks a lot like the Euro/dol-lar chart. Maybe the Euro will fall against all of them.

So lets consider the U.S., since the Euro/dollar is theindustry benchmark. First, theres the so-called fiscal cliff.If the tax and spending changes go forward as designed,the U.S. faces recession, rising unemployment, and areturn to a falling stock market. The S&P 500 fell 9% frommid-September to mid-November, with one of the rea-sons given as expected higher taxes on dividends andcapital gains, so players were cashing in early. Nobody

knows if this is an accurate description of investor senti-ment, although its fun to note the presidential electionwas Nov. 6 and most of the down move was done by then.Therefore, the drop has to be attributed to stock marketplayers correctly expecting the president to be re-elected,and thats more than most analysts can swallow. Instead,we might look to actual stock market factors, such as earn-ings.

As of late November, the debate about the fiscal cliff wasall over the map, with many confident some deal, howeversuboptimal, will get done, and an equal number sayingthe fiscal cliff is not so steep, anyway. It will take monthsfor contractionary effects to occur, and by then a new pic-

FIGURE 1: EURO UPSIDE BREAKOUT

The equity and FX markets tend to get unsettled as each new chapter of the

Eurozone train wreck unfolds, but the Euro has been resilient since July.

Source: Chart Metastock; data Reuters and eSignal

7/29/2019 Ctm 201212


ON THE MONEY

ture will have formed.Its possible the fiscal cliff doesnt matter, either. Its a

problem and not a crisis. Despite protestations from FedChairman Ben Bernanke that the Fed cannot manage all

economic problems and its Congress job to fix the fiscalcliff (which was Bernankes phrase, by the way), mar-kets are still reliant on central banks to save them. AndBernanke delivered. On Nov. 20, he told the EconomicClub of New York, We will continue to do our best toadd monetary-policy support to the recovery[W]hat theFederal Reserve can do and will do is continue its statedpolicy, which is to do additional asset purchases, buy MBS,and take whatever actions are appropriate to try to ensurethat the outlook for labor markets improves in a sustainedway and a substantial way.

Bernanke called for a not-too-aggressive long-run deficit-reduction plan that would reduce business uncertainty.

He said, Even as fiscal policy makers address the urgentissue of longer-run fiscal sustainability, they should notignore a second key objective: to avoid unnecessarily add-ing to the headwinds that are already holding back theeconomic recovery. With Bernankes caveats, his state-ment is on a par with Draghis whatever it takes com-ment introducing Outright Monetary Operations last sum-mer, whereby the ECB will buy sovereign paper.

Although two central banks are announcing whateverit takes, it means two different things. In the U.S., thebuyer of government paper (the Fed) is a close cousin tothe issuer (the Treasury). Both are part of the executivebranch of the government and their interests are the same.Particularly, they have no ability to affect fiscal policyexcept as scolds. This is not the case in Europe, where theECB may become a buyer of sovereign paper but its notrelated to the issuers of such, and will assert the power todemand fiscal conditions (hence Spains reluctance). Thus,the ECB has a stake in those whose paper it is buyingbeing able to repay, and repayment depends on fiscal aus-terity. Promoting growth is secondary. In contrast, the Fedand Treasury are not worried about the governments abil-ity to repay the government can just print more money.

Maybe this will create inflation down the road ormaybe it wont, but the key point is fiscal austerity isnt

an ingredient. Without opening the can of worms that isthe Keynesian stimulus policy debate, note that Keynesianstimulus is the only policy that has ever worked, althoughthe sample size is too small and the social science of eco-nomics is hardly scientific enough to judge. In the end, itis likely the U.S. will resume growth, however subpar, andEurope will remain mired in recession.

Here we have growth vs. fiscal restraint, the most impor-tant divergence. The Eurozone was literally built on therequirement of debt and deficits not exceeding a certainratio of GDP. This is the source of the underlying magicof the Euro controlling sovereign debt is the gold stan-dard of government management. That the Eurozone is

not actually accomplishing the goal seems not to matter asmuch as the statement, written in stone, that it is the goal.

In contrast, the U.S. doesnt have any such rules. Inpractice, it may not matter. Investors continue to buy U.S.

government paper whatever the ratings and whateverthe fiscal outlook. This is the exorbitant privilege of thereserve currency issuer it is spared, so far, the rise inrisk premium that normally accompanies a fiscal mess. Inother words, the U.S. is getting away with failing to adopta fiscal standard. Getting away with it means lowerfinancing costs but it comes, ironically, at the expense ofthe dollar.

Finally, theres violence and potentially a war in theMiddle East. The Gaza cease-fire reduced the strain on oilprices, but nobody imagines other problems will notarise such as the direction Egyptian leader MohamedMorsi is going. Egypt is a net importer of crude oil, but

it controls the Suez Canal and the Suez-MediterraneanPipeline (SUMED). The canal moves 800,000 barrels perday of crude oil and 1.4 million barrels per day of petro-leum products, while the SUMED pipeline averages 1.7million barrels per day. This is Mediterranean Europesoil supply, and yet it is the dollar that falls when oil pricesrise on fear of war. At some point, however, an outbreak ofhostilities in the Middle East benefits the dollar as the safehaven.

In the conflict between growth vs. fiscal restraint, theU.S. chooses growth and Europe chooses fiscal restraint. Sofar, the resulting European recession has not scared every-body, although the COT report indicates this is the mainbias. As long as the U.S. avoids outright recession, U.S.conditions make the world safe for risk appetite, and thatincludes short-term plays favoring the Euro. Perversely, ifthe U.S. were to fall off the fiscal cliff entirely, it would bedollar-favorable, not because the U.S. is adopting Europesgold standard, but because of the sheer messiness of grid-lock, something S&P named in downgrading the U.S. sov-ereign rating last year.

Still, at this point a fiscal cliff fix is likely, and it willrequire knowing that outcome to be able to generategrowth forecasts. Longer term, U.S. growth over Europeangrowth and U.S. leadership in the Middle East should

favor the dollar. Spain doesnt matter until it does, andnobody today can name the catalyst that would send sov-ereign debt rates back to 7.5%. The U.S. fiscal cliff doesntmatter until it does, when rates fly up or a rating agencysays so.

The problem is that a switch in sentiment needs a trig-ger, and short of a shooting war its hard to see what thatwill be, given traders are so blas about bad economic andinstitutional developments in Europe. Its hard to knowtoday whats a real crisis, but well know it when we getit, because the proof will be a rising dollar.y

For information on the author, see p. 4.

7/29/2019 Ctm 201212


THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PER-

FORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OROVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSOSUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS ORLOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTUREPERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.

Able

Trend

7.0

AwardWinningTrading

Software

1997 - 2012

For StocksFutures

FOREX &

Options

CTA Firm

Readers Choice Awards1997-2012 in Stock TradingSystem; Futures Trading Sy& Option Trading System

LINKS

TRADERS'RESOURCE

Get Started Today! Call Free (888) 272-1688www.ablesys.comAblesys Corp. 20954 Corsair Blvd. Hayward, CA 94545 Tel: 510-265-1883 Fax: 510-265-1993

If You Knew The True Market Support Levels,You Could Cut Your Losses Short And Let

Your Profits Run For Your Entire Portfolio.

SINCE 19

CTAREGISTER

WITH TH

CFTC

1. T2 stops are defined by the markets own support andresistance levels and are therefore 100% objective.

2. The scientific calculations behind T2 stops are universal,not curve-fitted.

3. T2 stops can be back-tested to reveal the characteristics ofindividual markets.

4. T2 stops are updated with each new tick so there are nodelays.

5. T2 stops are proprietary, not shareware, and are for theexclusive use of software owners.

6. Successful AbleTrend users around the world have reliedon T2. Their common conclusion: Never fight T2 stops.

1. Small blue dots are T2 stops for buy positionsshowing the market support levels

2. Small red dots are T2 stops for sell positionsshowing market resistance levels

3. T2 stops helps to define the retracements 4. T2 stops helps to define the reversal

Test Drive AbleTrend 7.0 and Discover theTrue Market Support Levels for the Markets You Trade

AbleTrend T2 offers the following advantages:

30 DAY TRIAL START TODAY!$20 DISCOUNT CODE: ACT1212
http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/http://www.ablesys.com/

7/29/2019 Ctm 201212

14/2914 October2010CURRENCY TRADER

The misdirection of

currency warsDistracting rhetoric obscures the real dynamics of global capital flows and currency valuations.

BY MARC CHANDLER

Misdirection is a standard ploy of magicians and politi-cians. A feint of some type distracts the audience from thereal movement or purpose. Currency war, which hasbecome the title of countless books, articles, and confer-ences, is such a misdirection.

Some officials, notably Brazilian Finance Minister GuidoMantega, have been leading the charge that by pursuingunorthodox monetary policy, the U.S. has sparked power-ful forces that destabilize the emerging-market economiesthrough capital flows, driving their currencies sharplyhigher.

It is indisputable that international capital movement isvolatile, and the accommodative monetary policy in the

U.S. and other developed economies has shifted interest-rate differentials more in favor of emerging markets.Further, this shift has likely spurred private capital flows.

However, capital inflows into the emerging markets aredriven by a number of factors, not just interest-rate dif-ferentials. Consider, for example, that growth differentialsand higher returns on investments have also been attract-ing inflows, especially in recent years.

The general investment climate is shaped in part bythe risk appetite of investors. The risk-on, risk-off matrixhas shifted in recent years, not as much by the pursuit ofU.S. monetary policy as by the shifting response to theEuropean debt crisis.

In a recent speech, Federal Reserve Chairman BenBernanke cited research by the International MonetaryFund (IMF) and others that the monetary policies of theadvanced economies were not the dominant drivers ofprivate savings into emerging markets. He went furtherand noted that capital flows into emerging markets haveslowed considerably over the past couple of years, andeven the U.S., Europe, and Japan continued to ease mon-etary policy.

If the cry of currency war is a misdirection, whatexactly is it trying to distract us from? Many emergingmarket countries want currency valuations that economistsargue are below fair value. They do so to promote exports

and bypass domestic structural obstacles to growth.Undervalued currencies in and of themselves may

attract foreign capital flows anticipating currency appre-ciation. Moreover, purposefully weak currency strategiesoften leave developing countries more vulnerable to infla-tion, and more sensitive to the monetary policies of othercountries.

Currency flexibilityThe U.S., through numerous administrations, and in vari-ous declarations of the Group of Seven industrial nations,has consistently advocated greater currency flexibility.Such flexibility would allow greater independence in the

conduct of monetary policy and offer greater insulationfrom external developments.This, of course, applies not only to Brazil, but also to

China, the worlds second-largest economy. A more flex-ible currency regime would help officials refocus theireconomy from one driven by external demand to one ledby domestic consumption. It would allow the Chinesepeople to enjoy a greater share of their countrys economicsuccess and prowess.

Brazils finance minister claimed the U.S. was beingselfish in pursuing monetary policy without taking intoaccount the impact of such a policy on other countries.Yet, the real selfishness and beggar-thy-neighbor policies

are not the easing of the U.S. and other advanced econo-mies, but the reluctance of many emerging countries toallow their currencies to appreciate in the face of strongergrowth, capital inflows, and larger reserve positions.

Monetary policyEven if there are costs for developing countries as a resultof the easy monetary policy of the advanced economies,there are also benefits. Part of the reason the economies ofmany developing countries have slowed is their exportsto the U.S. and Europe have decreased as those economieshave decelerated.

Easier monetary policy, which has taken on an unortho-

ON THE MONEY


7/29/2019 Ctm 201212


dox characteristic given that policy rates are near zero,is meant to help fuel a recovery in aggregate demand.Stronger U.S. and European growth would stimulate trade,as well as underpin growth in emerging markets.

Aggressive monetary policy in the face of weak domestic

economies is not the equivalent of a currency war. On thecontrary, the fact that some developing economies insist onhaving undervalued currencies is a more directly recogniz-able shot in a currency war. Such policies can be associatedwith costs, such as greater sensitivity to inflation and limitson the independence of their own monetary policies. Thereare various drivers of capital flows to emerging markets,and those capital flows do not appear to be correlated withU.S. or European monetary policies.

It is interesting to note that for the better part of the pastfour months, as the Federal Reserve pursued QE3+, theEuropean Central Bank announced its Outright MarketTransactions, and the Bank of Japan expanded its assetpurchase program in both September and October, theBrazilian real (BRL) has been largely flat. The dollar islargely confined to a 2.00-2.05 trading range (Figure 1).

Investors recognize there are a number of emerging-mar-ket countries, such as Mexico, Poland, Turkey, and SouthAfrica, that have embraced currency flexibility to a greaterextent. They have increased the capacity of their capitalmarkets to absorb inflows, as well as a greater part of theirdomestic savings.

U.S. dollar and Chinese renminbiThere is another dimension to debate about currency wars.

Many observers argue the U.S. dollar is in an inexorabledecline and it will be increasingly sup-planted by the Chinese renminbi. Onthe other hand, China is not abovedeflecting criticism of its rigid currencyregime by criticizing the internationalmonetary regime and the role of thedollar.

The internationalization of theChinese renminbi has been more blus-ter than substance. The role of the ren-minbi in the world economy remainsminor. The numerous swap lines that

China arranged with many developingcountries, which captured the imagina-tion of many critics of the U.S., havenot been used. Few countries havechosen to add the renminbi to theirreserves.

The Dim Sum market, the offshorerenminbi market in Hong Kong, aspecial administrative region of China,is dominated by Chinese state-ownedcompanies, banks, and property com-panies. Renminbi in Hong Kong isnot fungible with renminbi onshore.

The currency requires special authority to be used withinChina itself. Outside of Chinese trade with Hong Kong,most of Chinese trade continues to be conducted in U.S.dollars.

There has been some diversification of reserves away

from the dollar and Euro in recent years. However, it hasnot gone to the Chinese renminbi, but to the Australianand Canadian dollars. The kind of transparency and flex-ibility that an international currency requires still seemsbeyond the ken of Chinese officials.

More rhetoric than politicsCurrency wars then, in either expression, seem to be morein the realm of rhetoric than politics. There has been along and sustained push from the developed countries toget emerging markets to embrace more flexible currencyregimes. The adoption of unorthodox monetary policy bythe U.S., Europe, and Japan may, on the margins, increasesuch pressure, but few have capitulated.

Instead, they have developed a host of other tools, suchas macro-prudential policies (administrative measuressuch as Brazil taxing foreign purchases of stocks andbonds, or Taiwan prohibiting foreign investment in short-term instruments such as T-bills), to blunt the impact.China may one day provide the worlds key currency, butthat day is not in sight, and the role of the dollar as thenumraire continues.y


FIGURE 1: DOLLAR/REAL

The U.S. dollar/Brazilian real (USD/BRL) pair has been mostly flat in recent

months as the Fed pursued QE3+, the European Central Bank announced

its Outright Market Transactions, and the Bank of Japan expanded its asset

purchase program.

7/29/2019 Ctm 201212

16/2916 October2010CURRENCY TRADER16 December2012CURRENCY TRADER

For more than a generation, calling a bottom in the dol-

lar/yen pair (USD/JPY) has been akin to the search for

extraterrestrial intelligence looking for something that

should exist in theory but turns out to be remarkably

elusive in reality. Witness the huge spike low in March

2011: Not only did this intramonth breakdown and recov-

ery take the USD/JPY nearly 6% below the previous

months low, it shot well below the long-standing 1995

bottom that had just been penetrated five months earlier.

Nonetheless, the pair eclipsed this low a few months later,

in August, September, and October (Figure 1).

There have been a few two- to four-year bull moves in

the dollar/yen since the beginning of the floating-rate era

(the most recent being the roughly 23% upswing from the

beginning of 2005 to mid-2007), but as Figure 2 shows, the

long-term history of the pair reveals these rallies to be little

more than respites in a long, downward slog that has seen

the dollars value relative to the yen shrink to approxi-

mately 25% of what it was in 1975.

But as of the end of November, the USD/JPY rate was

more than a year removed from its record low of 75.57 set

in October 2011. Having sold off nearly 40% from its June

2007 peak and making repeated record lows in the lat-

ter half of 2011, this years consolidation and eventualupturn marked the longest the dollar/yen

has gone without making a new 12-month low

in more than five years.

In fact, the pairs seemingly modest two-

month run concluding in November two

consecutive months of higher monthly

highs and closes following a six-month low

(September) is a feat the pair has accom-

plished only 13 previous times since 1975

(the most recent and previous three instances

marked with arrows in Figure 1). Andalthough thats a small sample upon which to

base projections, the majority of these points

have been followed by further (although not

necessarily extended) gains in the dollar/yen

pair.

Although only a fool would claim the bot-

tom is finally in, its worthwhile to consider

whether the current rally is just another fluke,

or if it has the potential to follow through, at

least for a while.

SPOT CHECK

Dollar/yen

makes another swingBut is it the real thing?

BY CURRENCY TRADER STAFF

FIGURE 1: A RARE BUMP

It might be hard to believe, but the dollar/yen has rarely established

two consecutive months with higher highs and higher closes after a

six-month (or longer) low, as it did in November.

Source for all charts: TradeStation

7/29/2019 Ctm 201212


Weekly perspective

Figure 3s weekly chart highlights the fact that

although the dollar/yen has managed to estab-

lish higher lows this year, it faces near-term

resistance as it approaches the 84.00-85.00 zone,

which encompasses the March 2012 and April

2010 highs as well as the November 2009 low.

A move above the March 2012 high of 84.17

would constitute a new 52-week high for the

pair, a milestone that has in the past been asso-

ciated with, at best, modest short-term gains.

Since 1975, after an initial 52-week new high(measured in terms of the high price, not the

weekly closing price), the dollar/yen has made

an average of two more consecutive higher

weekly highs (i.e., two more higher weekly

highs after the initial new 52-week high); the

median number of additional weekly highs

was one. The longest stretch of consecutive

higher weekly highs after 52-week highs was

nine, which occurred in October-November

2005. But the most common occurrence after a

new 52-week high was a lower weekly high.(However, many times a new 52-week high was

followed by one or two weeks with lower highs,

at which point price turned upward again to

establish additional 52-week highs.)

Table 1 compares the average and median

12-week price moves after initial new 52-week

highs to all 12-week dollar/yen price moves

from January 1974 through November 2012. The

moves are measured both in terms of closing

prices (the close of the week of the 52-week high

FIGURE 3: RESISTANCE

The dollar/yen faces resistance as it attempts to establish a new

52-week high for the first time since 2007.

FIGURE 2: DOWN AND DOWNER

The dollar/yens long-term history is one of selling interrupted by

sporadic bull moves.

7/29/2019 Ctm 201212

18/29

to the close 12 weeks later) and the largest up move (LUM,

the move from the close of the week of the 52-week high to

the highest high of the next 12 weeks). Although the aver-

age 12-week close-to-close move after a new 52-week high

was -0.07%, the median change was a gain of 0.43%, which

suggests the more representative outcome was a modest

gain, while a smaller number of negative moves skewed

the average figure lower. The average and median price

changes for all 12-week periods in the analysis period were

both negative (-0.60 and -0.40%, respectively). The LUM

comparison also shows a modest bullish edge after new

52-week highs.

The daily view

Figure 4s daily chart shows, despite a solid rally in

October that took the pair to its highest levels in six

months, the dollar/yens real fireworks occurred mostly

during a two-week period last month, when price jumped

4.8 percent from the Nov. 9 low to the Nov. 22

high of 82.83.

After a multi-day pullback (which set up the

trade described in this months Forex Trade

Journal), the pair turned sharply higher again

the last day of the month. The looming resis-

tance/target of the March high appears at the

left side of the chart.

At the beginning of December the dollar/

yen pair was certainly overheated, and his-tory shows long-term dollar/yen rallies have

been mostly few and far between. If recent

history is a guide, the most likely intermediate

outcome would be for the pair to continue to

wallow in a trading range near its lows. In the

short term, the prospect of a challenge to resis-

tance and the establishment of a 52-week high

(despite a likely correction at that juncture)

might provide some upside trading opportu-

nities.y


SPOT CHECK

FIGURE 4: DAILY DOLLAR/YEN

After a solid rally in October, the dollar/yen exploded to the upside in

November.

TABLE 1

12-week +/- after

52-week highAll 12-week +/-

12-week LUM after

52-week highAll 12-week LUMs

Avg. -0.07% -0.60% 3.90% 3.36%

Med. 0.43% -0.40% 3.35% 2.51%

Price action was modestly more bullish after new 52-week highs, but there was a great deal of

variability.

7/29/2019 Ctm 201212


Register to Attend FREE atwww.NewYorkTradersExpo.com

New York

FEBRUARY1719 , 2013MARRIOTT MARQUIS HOTEL

| NYC, NEW YORK

Media Partner

To Exhibit: Call 800/822-1134

or Call 800/970-4355 Today! Mention Priority Code 029751

a Production of

OPTIONS

MICHAEL KHOUW

technical analysis

LINDA RASCHKE

Strategies

JACK SCHWAGER

commodities

LARRY WILLIAMS

options

TOM SOSNOFF

technical analysis

ANDREW CARDWELL

FOrex

TODD GORDON

FUTUREs

JOHN CARTER

Learn how to SPOT MONEY-MAKING

CHART PATTERNS

Find the MOST RELIABLE TRADING

INDICATORS

Demo the LATEST TRADING

PLATFORMS and software

TALK STRATEGY with thousands of

fellow traders

GET THE

STRATEGIES

INDICATORS Y O U N E E DA

ND

TO MAKE CONSISTENT TRADING PROFITS IN 2013

Currencies

KATHY LIEN

Silver SponsorsGold Sponsor
http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/http://www.newyorktradersexpo.com/

7/29/2019 Ctm 201212


TRADING STRATEGIESADVANCED CONCEPTS

One of the enduring puzzles of markets in general and

exchange-traded markets in particular is the combination

of the first-mover and network effects: For every major

market category, one network node or exchange domi-

nates, and the first product to claim that node essentially

claims it forever. This combination goes a long way toward

explaining why successful assaults on a competitors estab-

lished contracts tend to have survival rates only slightly

greater than those of kamikaze pilots and car-bomb driv-

ers; at least the latter two categories have the excuse of

having failure as their established objective.

Such is the case with the venerable dollar index (DXY),

something we dealt with seven

long years ago (see The DollarIndex and Firm Exchange

Rates, December 2005). It has

frozen the world of 1973 in time

with the sole exception of con-

solidating the various European

currencies into the singular cur-

rency of the euro; you are free to

express your own opinion on the

wisdom of that latter move.

While the composition of the

DXY is open to criticism, andarguments exist as to why the

Swedish krona is included while

the currencies of important trad-

ing partners such as Mexico,

Brazil and China are not, the

DXY has established itself as the

dollar index to trade if you must

trade a dollar index. Perhaps

it is the indexs constancy of

composition we should credit;

unlike those stock indices whose

Spreading the dollar index

and Australian dollar

Trading the U.S. dollar against the Australian dollar is different than

trading the dollar indexs components against the AUD.

BY HOWARD L. SIMONS

Borrowing any of the DXY components and lending them into the AUD has produced

excess carry returns over time.

FIGURE 1: EXCESS CARRY RETURNS FOR DOLLAR INDEXCOMPONENTS INTO AUD (UNWEIGHTED)

7/29/2019 Ctm 201212


weights change with rebalancing

and corporate actions, the 57.6%

weight of the euro is one of the

few things we can count on toremain fixed. Moreover, while

an argument can be made for a

trade-weighted index, such as

that maintained by the Federal

Reserve, the central bank is not

in the licensing business and has

to remain above the fray. The

conclusion reached in July 2011s

Weighting For Correlation remains:

You do not want to be in the

index management business.

Enter the Aussie

If the DXY and DXY futures are

a fact of life, should you look

to trade individual currencies

against them instead of just the

greenback itself? Lets return to a

structure introduced a year ago

(see Decomposing The Dollar

Index, December 2011) of look-

ing at the dollar index as the

weighted sum of its components.

First, lets look at the excess

carry returns of the six DXY

components into the AUD on an

unweighted basis since the EURs

January 1999 inception (Figure 1).

Now lets apply the weights

to these excess carry returns and

sum them up visually in a short

DXY-component/long AUD trade

(Figure 2).

The Australian dollar and its futures are based on the USD carry, not the carry from the

DXY components.

FIGURE 3: AUD OFTEN MOVES OUT OF SYNC WITHEXCESS CARRY (DXY COMPONENTS)

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

95

105

115

125

135

145

155

165

175

185

195

205

215

Jan-99

Sep-99

Jun-00

Mar-01

Nov-01

Aug-02

May-03

Jan-04

Oct-04

Jul-05

Apr-06

Dec-06

Sep-07

Jun-08

Feb-09

Nov-09

Aug-10

Apr-11

Jan-12

Oct-12

AUD

Spot&

Front-MonthFutures

WeightedExce

ssCarryReturn,

DXY:AUD

Jan.

4,

1999=100

DXY : AUD

AUD Spot

AD Futures

The weighted-sum of excess carry returns into the AUD depicts a long-running bull

market for the Australian dollar.

FIGURE 2: EXCESS CARRY RETURN FOR DOLLARINDEX COMPONENTS INTO AUD (INDEX-WEIGHTED)

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

Jan-99

Sep-99

Jun-00

Mar-01

Nov-01

Aug-02

May-03

Jan-04

Oct-04

Jul-05

Apr-06

Dec-06

Sep-07

Jun-08

Feb-09

Nov-09

Aug-10

Apr-11

Jan-12

Oct-12

Ja

nuary

4,

1999

=

100

CHF

SEK

CAD

GBP

JPY

EUR

7/29/2019 Ctm 201212

22/29

ON THE MONEY


ADVANCED CONCEPTS

Dominance of

interest rates

A similar difference in behavior

can be observed if we replace the

weighted sum of the DXY com-

ponents excess carry returns into

the AUD with the simple excesscarry return from borrowing the

USD and lending into the AUD

(Figure 3). We can see how all

three AUD measures converged

after the events of September

2008, marked with a vertical line

on Figures 3-5, unfolded and the

drive toward zero percent interest

rates began. That event reduced

non-interest rate factors between

the USD and AUD, such as pro-spective asset returns, to insignifi-

cance.

Indeed, if we map the relative

total returns of the Australian

stock market vis--vis the U.S.

stock market, we see a marked

deterioration in the quality of

fit before and after the Lehman

bankruptcy; the r2 or percentage

of variance explained fell from

0.89 to 0.29 (Figure 4).

Relative total returns of the Australian stock market mapped vis--vis the U.S. stock

market shows a marked deterioration in the quality of fit before and after the Lehman

bankruptcy; the r2or percentage of variance explained fell from 0.89 to 0.29.

FIGURE 4: RELATIVE PERFORMANCE DIVERGED FROM EXCESS CARRYRETURN AFTER LEHMAN BANKRUPTCY (USD)

75%

100%

125%

150%

175%

200%

225%

250%

275%

300%

325%

350%

375%

400%

75

85

95

105

115

125

135

145

155

165

175

185

195

205

215

225

235

245

Jan-99

Sep-99

Jun-00

Mar-01

Nov-01

Aug-02

May-03

Jan-04

Oct-04

Jul-05

Apr-06

Dec-06

Sep-07

Jun-08

Feb-09

Nov-09

Aug-10

Apr-11

Jan-12

Oct-12

RelativePerformance,AustraliaVs.U.S.

Jan.4,1999=100

%

WeightedEx

cessCarryReturn,

USD:AUD

Jan.

4,

1999=100

USD : AUD

Rel. Perf.

r2 = 0.89 r2 = 0.29

Converting the DXY and AUD futures into contract values and constructing a simple

model of the AUD future being a function of the DXY future, we see a marked change

in behavior after September 2008.

FIGURE 5: AUSTRALIAN DOLLAR DISCONNECTEDFROM DXY AFTER LEHMAN BANKRUPTCY

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

Jan-99

Sep-99

Jun-00

Mar-01

Nov-01

Aug-02

May-03

Jan-04

Oct-04

Jul-05

Apr-06

Dec-06

Sep-07

Jun-08

Feb-09

Nov-09

Aug-10

Apr-11

Jan-12

Oct-12

AUDFutures&FittedValu

es,$Thousand

ModelResiduals:AUD

Future=f(DXY)Future

AD Res

AD Val

AD Fit

7/29/2019 Ctm 201212


A simple model

If we convert the DXY and AUD futures into contract val-ues and construct a simple model of the AUD future being

a function of the DXY future, we see a marked change in

behavior after the September 2008 Lehman Brothers bank-

ruptcy; the probability the relationship before and after

this event was different approaches 100% (Figure 5).

Please note how the models residuals, or the difference

between the actual and fitted values of AUD futures, bal-

loon in variance after September 2008. If the AUD futures

were a direct and stable function of the DXY futures, we

should see a normal distribution, the familiar bell-shaped

curve, in the residuals. We do not: The distribution is

extremely flat and skewed toward positive values (Figure

6). This confirms the AUD is capable of putting in sus-tained uptrends against the DXY with the sort of abrupt

and violent retracements characteristic of a trending mar-

ket.

One day interest rates will rise over the 0% level they

have been pinned to since the 2008 financial crisis. When

that day arrives, we will see the carry trade from the

DXYs components into the AUD diverge from the straight

AUD futures and create a robust and trending trade.y


The distribution is extremely flat and skewed toward positive values.

FIGURE 6: AUD FUTURES SKEWED POSITIVELY

0%

5%

10%

15%

20%

25%

30%

35%

40%

0.1

1

10

100

-18250

-16000

-13750

-11500

-9250

-7000

-4750

-2500

-250

2000

4250

6500

8750

11000

13250

15500

17750

20000

NormalProbabilityDensityN

umberOfObservations

Model Residuals

Observations

Probability Skew: 0.613

7/29/2019 Ctm 201212


CPI: Consumer price index

ECB: European Central Bank

FDD(rstdeliveryday):Therst

day on which delivery of a com-modityinfulllmentofafutures

contract can take place.

FND(rstnoticeday):Also

knownasrstintentday,thisis

therstdayonwhichaclear-nghouse can give notice to abuyer of a futures contract that itntends to deliver a commodity in

fulllmentofafuturescontract.

The clearinghouse also informsthe seller.

FOMC: Federal Open MarketCommittee

GDP: Gross domestic product

ISM: Institute for supplymanagement

LTD(lasttradingday):Thenal

day trading can take place in a

futures or options contract.

PMI: Purchasing managers index

PPI: Producer price index

Economic Releaserelease(U.S.) time(ET)

GDP 8:30 a.m.

CPI 8:30 a.m.

ECI 8:30 a.m.

PPI 8:30 a.m.

SM 10:00 a.m.

Unemployment 8:30 a.m.

Personal income 8:30 a.m.

Durable goods 8:30 a.m.Retail sales 8:30 a.m.

Trade balance 8:30 a.m.

Leading indicators 10:00 a.m.

GLOBAL ECONOMIC CALENDAR

December

1

2

3

4Canada: Bank of Canada interest-

rate announcement

5 Australia: Q3GDP

6

Australia: November employment

report

Brazil: November PPI

France: Q3employmentreport

UK: Bank of England interest-rate

announcement

ECB: Governing council interest-rate

announcement

7

U.S.: November employment report

Brazil: November CPI

Canada: November employment

report

Mexico: NovemberPPIandNov.30

CPI

LTD: December forex options;

December U.S. dollar index options

(ICE)

8

9

10

11

12

U.S.: FOMC interest-rate

announcement

France: November CPI

Germany: November CPI

Japan: November PPI

South Africa: November CPI

UK: November employment report

13

U.S.: November PPI and retail sales

Hong Kong: Q3PPI

South Africa: November PPI

14U.S.: November CPI

India: November PPI

15

16

17

LTD: December forex futures;

December U.S. dollar index futures

(ICE)

18

Hong Kong: September-November

employment report

UK: November CPI and PPI

FND: December U.S. dollar index

futures(ICE)

19

U.S.: November housing starts

FDD: December forex futures;December U.S. dollar index futures

(ICE)

20

U.S.: Q3GDP(third)andNovember

leading indicators

Germany: November PPI

Hong Kong: Q3GDPand

November CPI

Japan: Bank of Japan interest-rate

announcement

21

U.S.: November personal incomeBrazil: November employment

report

Canada: November CPI

Mexico: November employment

reportandDec.15CPI

UK: Q3GDP

22

23

24 U.S.: November durable goods

2526

27 France: November PPI

28

France: Q3GDP

Japan: November employment

report and CPI

29

30

31 India: November CPI

January

12

3Germany: November employment

report

4Canada: December employment

report and November PPI

The information on this page is sub-

ect to change. Currency Traderis

not responsible for the accuracy of

calendar dates beyond press time.

7/29/2019 Ctm 201212


CURRENCY FUTURES SNAPSHOT as of Nov. 29

The information does NOT constitute trade

signals. It is intended only to provide a brief

synopsis of each markets liquidity, direction,

and levels of momentum and volatility. See

the legend for explanations of the different

fields. Note: Average volume and open

interest data includes both pit and side-by-

side electronic contracts (where applicable).

LEGEND:

Volume: 30-day average daily volume, in

thousands.

OI: 30-day open interest, in thousands.

10-day move: The percentage price move

from the close 10 days ago to todays close.20-day move: The percentage price move

from the close 20 days ago to todays close.

60-day move: The percentage price move

from the close 60 days ago to todays close.

The % rank fields for each time window

(10-day moves, 20-day moves, etc.) show

the percentile rank of the most recent move

to a certain number of the previous moves of

the same size and in the same direction. For

example, the % rank for 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 pastsixty 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 short-

term volatility (10-day standard deviation

of prices) divided by the long-term volatility

(100-day standard deviation of prices). The

% rank is the percentile rank of the volatility

ratio over the past 60 days.

BarclayHedge Rankings:Top 10 currency traders managing more than $10 million

(as of Oct. 31 ranked by October 2012 return)

Trading advisorOctoberreturn

2012 YTDreturn

$ Undermgmt.

(millions)

1 RegiumAssetMgmt(UltraCurr) 4.23% 11.63% 24.2

2 Sharpe+Signa(Currency) 4.03% 11.91% 87.5

3 CenturionFxLtd(6X) 2.10% 76.38% 24.6

4 DynexCorpLtd.(Currency) 1.85% -0.20% 415 A-Venture Capital 1.74% 2.84% 53.7

6 PremiumCurrency(Currencies) 1.70% -5.49% 729.1

7 MIGFXInc(Retail) 1.61% 23.96% 45

8 FriedbergComm.Mgmt.(Curr.) 1.58% -18.69% 23.9

9 CapricornCurrencyMgmt(FXG10CHF) 1.36% 11.18% 14

10 IPMSystematicCurrency(C) 1.13% -3.91% 86

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

1 JarrattDavis(ManagedFX) 6.20% 27.07% 5.1

2 HartswellCapitalMgmt(Apollo) 2.72% 20.89% 3.4

3 MFG(BulpredUSD)1.42% 12.21% 1.2

4 ValhallaCapitalGroup(Int'lAB) 1.13% 9.92% 1.5

5 CapricornCurrMgmt(FXG10EUR) 0.89% 7.98% 2.6

6 MatadorFX(MFX1) 0.58% -1.30% 1.7

7 FourCapital(FX) 0.43% 0.92% 1.6

8 DelmanSA(AlgopediaFXHarmonyUSD) 0.40% -11.25% 2.7

9 TMS(ArktosGCSII) 0.38% -2.44% 9.4

10 V50CapitalMgmt(FX) 0% -18.08% 3.7

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.

Market Sym Exch Vol OI10-day

move / rank

20-day

move / rank

60-day

move / rank

Volatility

ratio / rank

EUR/USD EC CME 235.5 222.3 1.77% / 67% 0.07% / 2% 2.98% / 40% .30/72%

AUD/USD AD CME 106.9 177.8 0.63%/59% 0.77%/35% 2.35%/36% .50/100%

JPY/USD JY CME 99.3 159.9 -2.40% / 69% -2.89% / 92% -4.52%/94% .37/17%

GBP/USD BP CME 91.7 158.2 1.17% / 100% -0.55%/43% 0.84% / 10% .32/78%CAD/USD CD CME 70.0 166.3 1.12% / 100% 0.86% / 44% -0.18% / 7% .30/73%

MXN/USD MP CME 33.5 185.6 2.66% / 100% 1.48%/59% 1.28% / 21% .50/95%

CHF/USD SF CME 27.3 41.5 1.74%/43% 0.32%/ 15% 2.99% / 46% .34/83%

U.S. dollar index DX ICE 19.1 38.2 -1.14% / 100% 0.09%/3% -1.02% / 19% .29 / 82%

NZD/USD NE CME 15.1 31.2 1.62% / 90% 0.28% / 11% 3.42%/53% .53/88%

E-Mini EUR/USD ZE CME 3.4 6.3 1.77% / 67% 0.07% / 2% 2.98% / 40% .30/72%

Note:Averagevolumeandopeninterestdataincludesbothpitandside-by-sideelectroniccontracts(whereapplicable).Priceactivityis

based on pit-traded contracts.

7/29/2019 Ctm 201212

26/29

INTERNATIONAL MARKETS


CURRENCIES (vs. U.S. DOLLAR)

Rank CurrencyNov. 29

price vs.U.S. dollar

1-monthgain/loss

3-monthgain/loss

6-monthgain/loss

52-weekhigh

52-weeklow

Previous

1 Russian ruble 0.03214 0.89% 2.78% 2.88% 0.0345 0.0291 11

2 Australian Dollar 1.045295 0.77% 0.80% 6.12% 1.0808 0.9681 10

3 Swiss franc 1.073695 0.36% 2.96% 2.70% 1.1154 1.0074 4

4 Taiwan dollar 0.034315 0.32% 2.82% 1.63% 0.0345 0.032 5

5 Canadian dollar 1.00597 0.30% -0.50% 3.08% 1.0334 0.9601 14

6 Swedish krona 0.149655 0.22% -1.37% 6.95% 0.153 0.1374 15

7 Chinese yuan 0.15927 0.09% 0.94% 0.87% 0.1595 0.1559 1

8 Hong Kong dollar 0.12903 0.00% 0.08% 0.16% 0.12903 0.1283 7

9 Thai baht 0.03256 -0.02% 1.81% 2.81% 0.0329 0.031 2

10 Euro 1.292405 -0.11% 3.19% 2.83% 1.3461 1.2099 6

11 New Zealand dollar 0.821425 -0.16% 1.81% 7.88% 0.8415 0.7504 9

12 Singapore dollar 0.817635 -0.19% 2.47% 4.35% 0.8213 0.764 3

13 Great Britain pound 1.600495 -0.61% 1.33% 2.00% 1.6261 1.5308 12

14 South African rand 0.11307 -2.27% -4.79% -5.78% 0.1338 0.1116 17

15 Japanese yen 0.01221 -2.75% -4.08% -3.02% 0.0131 0.0119 16

16 Brazilian real 0.479145 -2.89% -2.38% -4.91% 0.586 0.4761 8

17 Indian rupee 0.01798 -3.33% 0.11% -0.03% 0.0203 0.0174 13

GLOBAL STOCK INDICES

Country Index Nov. 291-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow

Previo

Japan Nikkei225 9,400.88 5.28% 3.65% 8.59% 10,255.20 8,238.96 11

2 France CAC 40 3,568.88 4.69% 4.54% 15.70% 3,600.48 2,922.26 8

3 Italy FTSE MIB 15,888.00 3.51% 6.32% 21.22% 17,133.40 12,362.50 6

4 Switzerland Swiss Market 6,828.50 3.44% 6.33% 15.45% 6,848.20 5,691.70 5

5 India BSE30 19,170.91 2.87% 9.61% 16.62% 19,372.70 15,135.90 12

6 Germany Xetra Dax 7,400.96 2.75% 5.57% 15.70% 7,478.53 5,637.53 13

7 South Africa FTSE/JSE All Share 37,909.31 2.48% 6.08% 13.36% 37,909.31 31,646.77 4

8 Hong Kong Hang Seng 21,922.89 1.91% 10.79% 15.05% 22,149.70 17,821.50 1

9 UK FTSE 100 5,870.30 1.30% 2.21% 8.89% 5,989.10 5,229.80 7

0 Brazil Bovespa 57,853.00 1.18% 0.84% 5.89% 68,970.00 52,213.00 15

1 Mexico IPC 42,090.69 0.65% 5.47% 10.40% 42,751.00 35,567.30 2

2 Singapore Straits Times 3,045.90 0.54% 0.14% 8.71% 3,110.86 2,606.52 10

3 U.S. S&P500 1,415.95 0.27% 0.39% 6.27% 1,474.51 1,202.37 14

4 Australia All ordinaries 4,490.10 -0.21% 2.48% 7.72% 4,602.50 4,033.40 3

5 Canada S&P/TSX composite 12,202.80 -0.89% 1.61% 5.11% 12,740.50 11.280.60 9

7/29/2019 Ctm 201212


NON-U.S. DOLLAR FOREX CROSS RATES

ank Currency pair Symbol Nov. 29 1-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow

Previou

1 Aussie $ / Real AUD/BRL 2.181595 3.77% 3.25% 11.60% 2.1829 1.8187 17

2 Aussie $ / Yen AUD/JPY 85.615 3.63% 5.06% 9.40% 88.31 75.6 4

3 Canada $ / Real CAD/BRL 2.09952 3.28% 1.92% 8.41% 2.1047 1.7067 20

4 Franc / Yen CHF/JPY 87.94 3.21% 7.31% 5.86% 91.90 78.81 1

5 Canada $ / Yen CAD/JPY 82.395 3.14% 3.71% 6.27% 84.49 74.74 8

6 Euro / Real EUR/BRL 2.697325 2.86% 5.70% 8.14% 2.7071 2.2481 13

7 Euro / Yen EUR/JPY 105.86 2.73% 7.56% 6.01% 110.83 94.65 2

8 New Zeal $ / Yen NZD/JPY 67.28 2.66% 6.13% 11.22% 68.81 58.52 3

9 Pound / Yen GBP/JPY 131.09 2.21% 5.62% 5.15% 132.81 117.58 5

10 Aussie $ / New Zeal $ AUD/NZD 1.2725 0.94% -1.00% -1.63% 1.3229 1.2436 16

11 Euro / Pound EUR/GBP 0.807505 0.49% 1.84% 0.81% 0.859 0.7779 9

12 Aussie $ / Canada $ AUD/CAD 1.03909 0.47% 1.30% 2.95% 1.0755 0.9951 1113 Aussie $ / Franc AUD/CHF 0.97355 0.41% -2.09% 3.34% 1.0328 0.9133 18

14 Yen / Real JPY/BRL 0.025485 0.16% -1.72% 2.04% 0.0262 0.021 21

15 Franc / Canada $ CHF/CAD 1.06732 0.06% 3.47% -0.38% 1.1217 1.0128 6

16 Euro / Canada $ EUR/CAD 1.284735 -0.40% 3.70% -0.25% 1.3822 1.2164 7

17 Euro / Franc EUR/CHF 1.20371 -0.48% 0.23% 0.13% 1.2406 1.2003 14

18 Euro / Aussie $ EUR/AUD 1.236405 -0.87% 2.37% -3.10% 1.3487 1.1614 10

19 Pound / Canada $ GBP/CAD 1.591 -0.91% 1.83% -1.06% 1.6162 1.5515 12

20 Pound / Franc GBP/CHF 1.49061 -0.97% -1.59% -0.68% 1.5434 1.4199 19

21 Pound / Aussie $ GBP/AUD 1.53114 -1.38% 0.52% -3.89% 1.6123 1.4637 15

GLOBAL CENTRAL BANK LENDING RATES

Country Interest rate Rate Last change May 2012 Nov. 2011

United States Fed funds rate 0-0.25 0.5(Dec08) 0-0.25 0-0.25

Japan Overnight call rate 0-0.1 0-0.1(Oct10) 0-0.1 0-0.1

Eurozone Refi rate 0.75 0.25(July12) 1 1.25

England Repo rate 0.5 0.5(March09) 0.5 0.5

Canada Overnight rate 1 0.25(Sept10) 1 1

Switzerland 3-monthSwissLibor 0-0.25 0.25(Aug11) 0-0.25 0-0.25

Australia Cash rate 3.25 0.25(Oct12) 3.75 4.5

New Zealand Cash rate 2.5 0.5(March11) 2.5 2.5

Brazil Selic rate 7.25 0.25(Oct12) 8.5 11

Korea Korea base rate 2.75 0.25(Oct12) 3.25 3.25

Taiwan Discount rate 1.875 0.125(June11) 1.875 1.875

India Repo rate 8 0.5(Apr12) 8 8.5

South Africa Repurchase rate 5 0.5(July12) 5.5 5.5

7/29/2019 Ctm 201212


INTERNATIONAL MARKETS

GDP Period Release date Change 1-year change Next release

AMERICAS

Argentina Q2 9/21 21.2% 15.0% 12/21

Brazil Q3 11/30 -0.3% 4.9% 2/29

Canada Q3 11/30 0.9% 2.9% 2/29

EUROPE

France Q2 9/28 0.0% 0.5% 12/28

Germany Q3 11/15 0.6% 1.8% 2/14

UK Q2 9/27 1.0% 2.2% 12/21

AFRICA S. Africa Q2 9/11 1.2% 8.3% 12/6

ASIA and S.PACIFIC

Australia Q2 9/5 1.0% 3.2% 12/5

Hong Kong Q3 11/16 6.5% 1.3% 2/27

India Q3 11/30 3.4% 12.0% 2/28

Japan Q3 11/12 -0.9% -3.6% 2/14

Singapore Q3 11/23 -0.4% 0.3% 2/22

Unemployment Period Release date Rate Change 1-year change Next release

AMERICAS

Argentina Q3 11/19 7.6% 0.4% 0.4% 2/19

Brazil Oct. 11/22 5.3% -0.1% -0.5% 12/21

Canada Oct. 11/2 7.4% 0.0% 0.0% 12/7

EUROPE

France Q2 9/6 9.7% 0.1% 0.6% 12/11

Germany Oct. 11/2 5.3% 0.2% 0.1% 1/3

UK July-Sept. 11/14 7.8% -0.2% -0.4% 12/12

ASIA andS. PACIFIC

Australia Oct. 11/8 5.4% 0.0% 0.2% 12/6

Hong Kong Aug.-Oct. 11/19 3.4% 0.1% 0.1% 12/18

Japan Oct. 11/30 4.2% 0.0% -0.2% 12/28

Singapore Q3 10/31 1.9% -0.1% -0.1% 1/31

CPI Period Release date Change 1-year change Next release

AMERICAS

Argentina Oct. 11/14 0.9% 10.2% 12/14

Brazil Oct. 11/7 0.6% 4.4% 12/7

Canada Oct. 11/7 0.2% 1.2% 12/20

EUROPEFrance Oct. 11/14 0.2% 1.2% 12/12

Germany Oct. 11/23 0.0% 2.0% 12/12

UK Oct. 11/13 0.6% 2.7% 12/18

AFRICA S. Africa Oct. 11/21 2.0% 8.0% 12/12

ASIA andS. PACIFIC

Australia Q3 10/24 1.4% 2.0% 1/23

Hong Kong Oct. 11/22 3.0% 3.8% 12/20

India Oct. 11/30 0.9% 10.3% 12/31

Japan Oct. 11/30 0.0% -0.4% 12/28

Singapore Oct. 11/23 -0.2% 4.0% 12/24

PPI Period Release date Change 1-year change Next release

AMERICASArgentina Oct. 11/29 1.0% 12.9% 12/14

Canada Oct. 11/29 -0.1% -0.2% 1/4

EUROPE

France Oct. 11/30 0.6% 12.9% 12/27

Germany Oct. 11/20 0.0% 1.5% 12/20

UK Oct. 11/13 0.1% 2.5% 12/18

AFRICA S. Africa Oct. 1/29 0.6% 5.2% 12/13

ASIA andS. PACIFIC

Australia Q3 11/2 0.6% 1.1% 2/1

Hong Kong Q2 9/13 1.5% -0.7% 12/13

India Oct. 11/14 0.2% 7.5% 12/14

Japan Oct. 11/12 -0.4% -0.5% 12/28

Singapore Oct. 11/29 -0.9% -2.1% 12/28

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

7/29/2019 Ctm 201212

29/29

TRADE

Date: Nov. 29, 2012.

ctm 201212

Documents