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October 2011

Volume 8, No. 10

Strategies, analysis, and news for FX traders

ANALYZING THE DOLLAR/CANADA SPIKE P. 20

Norwegian krone:No safe haven p. 6

Is there a forexend-of-year pattern?

p. 22

FX volume andthe Swiss franc

p. 12

The dollar andTreasury returns

p. 26

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2/342 October2011CURRENCY TRADER

CONTENTS

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

Global Markets

Is the Norwegian krone the new Swiss

franc? ...........................................................6

Norways 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

On the Money

Volume and the mysteriously

shrinking Swiss franc market..........12

Itsdifculttogetaccuratevolumeinformationin

the FX market, but surveying the available datareveals interesting things about the Swissie.

By Barbara Rockefeller

Spot Check

Dollar/Canada........................................ 20

The pairs September surge was impressive.

Whats happened after similar moves in the

past?

By Currency Trader Staff

Trading Strategies

Holiday volatility: Analyzing December-

January FX price ranges .........................22

Does daily volatility change during the traditional

holiday period?

By Daniel Fernandez

Advanced Concepts

The dollar and prospective Treasury

returns....................................................... 26History lesson: Analysis undermines the

supposition that a weaker dollar hurts the

Treasury market.

By Howard L. Simons

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.

Looking for an

advertiser?

Click on the company

name for a direct link to thead in this months issue.

eSignal

FXCM

Nadex

Price Futures Group

Questions or comments?Submit editorial queries or comments to

[email protected]
mailto:[email protected]:[email protected]

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http://www.fxcm.com/freeguide

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CONTRIBUTORS

4 October2011CURRENCY TRADER

Editor-in-chief: Mark Etzkorn

[email protected]

Managing editor: Molly Goad

[email protected]

Contributing editor:

Howard Simons

Contributing writers:

Barbara Rockefeller,

Daniel Fernandez, 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 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 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.

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

national 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 ofTechni-

cal 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 Interna-

tionally, 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.

qDaniel Fernandezis an active trader with a

strong interest in calculus, statistics, and econom-

ics who has been focusing on the analysis of forex

trading strategies, particularly algorithmic trad-

ing and the mathematical evaluation of long-term

system protability. For the past two years he has

published his research and opinions on his blog Reviewing Eve-

rything Forex, which also includes reviews of commercial and

free trading systems and general interest articles on forex trading

(http://mechanicalforex.com). Fernandez is a graduate of theNational University of Colombia, where he majored in chemistry,

concentrating in computational chemistry. He can be reached at

[email protected].
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.currencytradermag.com/http://www.rts-forex.com/http://mechanicalforex.com/mailto:[email protected]:[email protected]://mechanicalforex.com/http://www.rts-forex.com/http://www.currencytradermag.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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GLOBAL MARKETS

In the wake of the Swiss National Banks (SNB) establish-ment of a de facto ceiling for the surging Swiss franc inearly September, investors around the globe began scram-bling 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 Norways central bank, the NorgesBank, is also apparently unafraid to draw a line in the sandregarding 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 goodsafe-haven alternative, the marketaction in September shows otherwise.Throughout much of the month NOKweakened vs. both the U.S. dollar andthe Euro (Figure 1), although analystssay there were several reasons for thecorrection.

There has been some talk the largedrop in the NOK on Sept. 12 was trig-gered by the dismantling of a largehedge fund, says Jenny Mannent, FXstrategist at Handelsbanken Capital

Markets in Stockholm. The SEK(Swedish krona) also fell sharply thesame day, and we saw some generalcurrency volatility just before andafter that date.

Mannent adds that, because severalemerging-market currencies beganlarge declines during the precedingweek (and the EUR/USD fell sharplyon Sept. 9), the Sept. 12 decline wasnot Norway-specific, and the subse-quent down move can be explainedby increased risk aversion. Although

Is the Norwegian krone

the new Swiss franc?

Norways 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

FIGURE 1: KRONE CORRECTION

The Norwegian krone weakened against both the dollar and the Euro in much of

September, reflected in rallies in the USD/NOK (top) and EUR/NOK (bottom) pairs.

Source for all charts: TradeStation

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9/34CURRENCY TRADEROctober2011 9

other reasons, it should not be used as a safe-haven. Inaddition to the liquidity issue, Wilhlemsen cites two otherfactors. The government bond market is very small inNorway, which means that there are few underlying safe-haven assets to buy. Also, the correlation between oilprices and the NOK is too strong for safe-haven investors,he says.

That said, Wilhlemsen offers three other reasons theNOK could be seen as an attractive currency to buy: First,relatively strong macroeconomic fundamentals, includinga positive current account surplus and a fiscal surplus.Second, relatively strong domestic demand (oil and gasinvestments). Third, the NOK offers carry, with positiveinterest rate differentials to trading partners, he says.

SEBs Blomgrem agrees the NOKslimitations make it unsuited to safe-hav-en status and describes its recent actionas a function of market disruption. Wewould characterize NOK as part of theflight-to-quality process.

Central bank draws the lineRounding out this picture is the NorgesBank, which has a reputation as a tough,no-nonsense central bank that is unlikelyto tolerate a sustained rush of specula-tive money into its small country andcurrency.

The SNB decision to peg EUR/CHFat 1.20 on Sept. 6 triggered demand forNOK by international funds, but inves-tors failed to maintain the downwardtrend when Norges Bank Governor

ystein Olsen later the same weekwarned that monetary policy will beused if the NOK were to become toostrong, Swedbanks Wilhlemsen says.

Moodys Analytics associate economistJustin Irving notes the absence of politi-cal constraints on the Norges Bank.They will do whatever it takes to sta-bilize the Norwegian economy, and thatcould include serious devaluation of thekrone, he says. They will not allow thekrone to appreciate vs. the Euro.

Irving points to a recent example of

the banks attitude. In November 2008, they allowed theircurrency to depreciate vs. the dollar and Euro, and let itstay weak vs. both currencies, he says. Experience hastold us they will do whatever it takes.

The default issueThe question still looming large in many currency tradersminds in early October is whether Greece will officiallydefault on its debt obligations, or even leave the EuropeanUnion. Some analysts say the NOK could potentially be ahedge against either scenario.

As a hedge against a Euro breakup we think the NOKlooks interesting, Danske Markets Rasmussen says. Wethink the risk of a complete collapse, where most of the old

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GLOBAL MARKETS

European currencies are re-introduced, is still containedand rather low. But if we talk about Greece or perhapsPortugal leaving the Eurozone the probability is signifi-cantly higher 10 percent, I would say. If Greece defaultsand leaves the Eurozone in a disorderly manner, the rami-fications could potentially be very grave for the globaleconomy. The risk of contagion would be very high.

Norway, however, could hold up better than otherindustrialized countries, especially because of its lack offinancial and banking exposure to the peripheral Eurozonecountries.

A Greek default or a similar severe event for theEurozone would impact the krone and lower domesticgrowth prospects, SEBs Blomgrem says. However, stud-ies presented in Norges Banks Financial Stability Reportshow Norwegian banks are well prepared to withstandrenewed turbulence in credit and money markets andpotential loan losses. The largest effect would be fromslower global growth and the impact on financial markets.Obviously, thats a negative scenario for the krone, as safe-

haven flows are likely to increase initially. However, thebanking sector should be strong enough to cope with sucha scenario and the government and the Norges Bank areready to act if needed.

Northern Trusts Pressler stresses Norways unique posi-tion. Norway doesnt have a high exposure to the ClubMed countries Portugal, Spain, Italy and Greece, he

notes. They are in a very good position they would beable to withstand it.

Additionally, if global growth were to slow this year andnext, Pressler adds, Norway has a substantial cushion,even if oil prices fall off. Their budget surplus last yearwas over 9 percent of GDP. They have a significant amountof extra money to work with.

NOK price actionOf the NOKs near-term outlook HandelsbankensMannent says, The key risk is if we see more largedeclines on equity markets and a sharp slowdown inglobal growth. That will weigh on the NOK, which is sen-

sitive to the global business cycle andrisk appetite. But on the other hand, ifEuropean politicians show some morepro-activeness, the NOK should beable to outperform again.

SEBs Blomgrem was cautiousabout short-term NOK appreciation.Lackluster risk appetite will continueto weigh on the NOK, she says ofthe currencys prospects in the nextfew weeks. We expect EUR/NOK totrade in a 7.70-8.00 range (USD/NOK

5.71), with upside pressure (Figure 3),she says.Shes more bullish on the intermedi-

ate-term horizon: We are optimistic onfundamentally strong currencies char-acterized by defensive qualities, suchas external/internal surpluses, whichwe believe will attract further capitalinflows once financial market stresssettles and risk sentiment improves,Blomgren says. Against this back-ground, the NOK stands out as astrong alternative for investors seek-

FIGURE 3: EURO/KRONE

Norway is not immune to the Eurozones current problems, but it is less

susceptible to collateral damage than many other European trading partners.

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ing to continue diversifying currencyreserves. In the medium-term we areoptimistic about the NOK, expectingit to gradually strengthen vs. the EURtowards 7.50 by the first half of 2012(USD/NOK 5.20, Figure 4).

Brian Dolan, chief currency strate-

gist at Forex.com adds: At a certainpoint it does make sense to sell Euroand buy NOK, but we need a stabili-zation in the global outlook. Now isnot that time.y

FIGURE 4: DOLLAR/KRONE

Most analysts have bearish short-term outlooks on the krone and a more bullish

perspective on an intermediate horizon.
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We all know trading FX is a zero-sum game every tradehas a single winner and single loser so it makes sense totry to figure out what other players are up to. But even ifwe have the information about how other players are posi-tioned, do we necessarily want to join them? Going withthe flow is the way to capture gains, but what if the flow isabout to reverse? There are some limited (and often unreli-able) technical tools to help with that problem, includingoverbought/oversold indicators, but it sure would be niceto have other information, too, especially volume.

Instead of buying low and selling high, sometimes trad-ers seek to buy high and sell higher. How do they knowwhen to do that? In extreme situations, the Bayesian rule

applies: As new events occur, information about thoseevents changes perception of the pre-existing conditions.This year we are being given a perfect example of Bayesianadaption and crowd decision making: sporadic interven-tion over the previous two years by the Swiss NationalBank (SNB) that culminated in an official statement onSept. 6 that the SNB preferred a fixed cap on the Euro/Swiss franc rate (EUR/CHF) at 1.2000, and that it wouldtake whatever action was necessary to achieve it. In previ-ous instances of one-party intervention by both the SNBand Bank of Japan, the FX market challenged the centralbank and its line in the sand, either stated or assumed.This time, however, traders seem to be altering their cus-

On the Money


ON THE MONEY

Volume and the mysteriously

shrinking Swiss franc marketIts difficult to get accurate volume information in the FX market, but surveying

the available data reveals interesting things about the Swissie

BY BARBARA ROCKEFELLER

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tomary behavior so far they are obeying the SNB.Figure 1 is one of the most interesting charts in a long

while. Along with a 200-day moving average (green line),the straight diagonal lines are hand-drawn support andresistance. After the EUR/CHF broke resistance to thedownside at the end of July, the SNB intervened and jaw-boned several times, but it was the Aug. 9 interventionthat did the trick. The SNB launched swaps to flood themarket with francs, and while somenews wire reports at the time quoted

traders as being unimpressed, theEuro/CHF retraced 50 percent of theweekly drop in a single day. As ofthe end of September, the Euro hadretraced more than 38 percent of thedown move from the June 2009 high,surpassed the 1.2000 line in the sand,and matched the 200-day movingaverage. It will meet resistance ataround 1.2460.

What comes next? In a normal(non-intervention) situation, wemight expect the pullback to end at

the 200-day moving average or theresistance line, and since there is nofundamental reason for the Euro to berising and plenty of institutionalreasons for it to be falling thedowntrend should resume. Even inthe face of expected intervention tomaintain the line in the sand, the SNBmight let it slip into a little below thatlevel and establish a new range oneither side of 1.2000.

How can we get information thatis not on the chart to help determine

how to trade? We might consult reports from wire servicessuch as Reuters, Bloomberg andMarket News about who isbuying or selling. But relying on wire service reports isa high-risk undertaking, since most reporters have nevertraded themselves and are young and nave, without thejudgment to know when a big-bank trader is blowingsmoke. A big-bank trader might tell a reporter he seesdemand from the Middle East at a specific level when in

FIGURE 1: EURO/SWISS FRANC

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 SNBs 1.2000 line

in the sand, and matched the 200-day moving average. It will meet resistance

at around 1.2460.

Source: Chart Metastock; data Reuters and eSignal

:

r 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

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

Swiss Natonal Bank

Target of 1.2000

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long-short position ratios showing, for example, that as theEuro, pound, and AUD fell over the past 30 days, the Eurofell the most in ratio and percentage terms.

What we can deduce from the Oanda information thistime is that traders are respecting the SNB and not ventur-ing into long Swissie positions in any significant way. Thismay imply they are unwilling to play a game of chicken

with the SNB the way they did in the 2003-2004 Bank ofJapan intervention.

Currency futures volumeIn the U.S. futures market, the Chicago MercantileExchange (CME) publishes volume data, but not untilafter a trading day ends. Theres also a metric called tickvolume, which is a price change that is recorded as a tickregardless 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 1,000contracts. Its obvious tick volume is not actual volumeand to use it as a substitute for true volume is question-

able. But it may be useful when prices are moving quickly,from which we can safely deduce there is real volumebehind the ticks. Traders can, for example, compare thenumber of ticks in each hour of the trading day to thenumber in the first hour to determine whether activity isrobust or languishing.

Since the open typically sees a surge in trading activity,its not clear whether the first-hour benchmark is all thatuseful, although there are two occasions when tick vol-ume might come in handy. The first is the end of the day,when traders normally pare positions. The end-of-day tickvolume, if high and associated with the usual end-of-daypullback, may mean fewer traders willing to hold positions

overnight. It they do not pare positions and tick volumeis 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 direc-tion during the next session.

The second is when a divergence between tick volumeand price occurs e.g., tick volume is moribund during abig price move or tick volume is very high when prices aremoribund. A divergence between price and tick volumemarks a stalemate, and low volatility in either measurealmost always precedes a directional breakout.

Another potential use of tick volume requires in-depthchart reading. We expect to see higher volume (and moreticks) as prices approach important levels like support and

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, themarket may have the bit between its teeth and be runningaway. Once a key level is broken, you would expect to seetick volume rise.

Some spot FX analysts will go to the trouble of consult-ing spot retail broker volume, futures volume (even if aday late and if not the exact market they are trading), ortick volume in a nearly desperate search for informationon market sentiment. Why? One reason is that volume canindicate traders are positioned so long or short the nextmove pretty much has to be a reversal. Except in EventShock conditions, traders want to make sure the trade theyare looking at is not too crowded.

Commitments of TradersAnother source of hard information is the CFTCsCommitments of Traders (COT) report, which is publishedevery Friday and reflects the open futures (and futuresoptions) positions as of the end of the day the previousTuesday.

The COT report is broken up into commercial and non-commercial positions. Non-commercial is a semanticallyneutral way of saying speculator. To qualify as a com-mercial trader, the trader has to apply for that status andclaim his trades are for hedging, such as an importer buy-ing goods priced in a foreign currency. The classic example
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ON THE MONEY

of a hedge is the farmer who sells wheat and the bakerythat buys it both are hedgers. A trader may be classifiedas a commercial trader in some commodities and as a non-commercial trader in others, but has to pick one designa-

tion or the other in a single commodity.Market players typically look at the number of non-

commercial contracts (ex-options) that are outstanding ina given currency as a good indication of the consensusview held by the speculative community. If the market isnet long or net short a record (or near-record) number ofcontracts, such extended positions may prompt a trader torethink his outlook.

The line between com-mercial trader and specu-lator is a wavy one, notonly because commercialsusually receive prefer-

ential margin conditionsand so participants striveto get that designation,but also because day-to-day trading decisions area blend of both activities.For example, heres acase where a commer-cial trader is executing atransaction:

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 for-ward points.

Bank As forward trader then does the other side of theFX swap and he buys 10 million from the client in thespot date at $1.2300 and then sells 10 million to the clienton the forward outright date of Sept. 19 at $1.2315.

In a perfect world, the forward trader would go into theforward market and get a price to do the opposite trade that is, sell and buy 10 million spot to Sept. 19 withanother bank, hopefully at a profit (less than 15 points).

At times, however, the forward trader will realize that

Sept. 19 is also the expiration of the September contract(always the Wednesday following the third Monday ofMarch, June, September, and December). If he does thespot deal to sell Euros at $1.2300 and then buys them back

on the futures exchange at an outright price of $1.2313, hewill be up two points.

The portion of the artificial swap created (spot deal plusfutures deal) that is done on the futures exchange wouldbe included in the commercial section of the CFTCreport, because it is effectively part of a hedge of the origi-nal swap done with the corporate client of Bank A andyet it surely has a speculative component.

Now consider theexample of a non-commercial trader (say,a hedge fund) thatbuys 20,000 Swiss franc

contracts (or CHF 2.5million) as a pure specu-lative bet. Meanwhile,a commodity-tradingadvisor may decide tosell 15,000 Swiss franccontracts as a hedgeagainst one of its othercurrency positions. TheCFTC would look at this

trade as just another speculative punt even if one leg of itis a true hedge.

If these two deals were the only transactions completedthat week, then Fridays CFTC data would be that specu-lative accounts had a net Swiss long of 5,000 contracts.Any trader looking at the Swiss CFTC data would not beswayed one way or the other by the position, since itssmall. But in many instances, extended CFTC positionsof over 100,000 contracts quickly lead to a sharp reversal.This is what FX analysts are looking for extreme posi-tioning.

A textbook-perfect case of the usefulness of the COTreport was the Euro in early 2010, which began to showever-bigger net short positions as Eurozone peripheraldebt jitters began to cause nail-biting about holding Euros.

A bank trader might tell a reporter he

sees demand from the Middle Eastat a certain price level when, in fact,

he wants that level to serve as support

because his stop-loss is just below it.

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By early February 2010, a new record short Euro posi -tion was reported and it kept getting bigger, to more than85,000 contracts in March. By May 11, 2010, the new recordEuro short was nearly 114,000 contracts. In this instance,

the Euro bottomed on June 6, 2010, right after this mostbearish of reports.

Figure 3 is from one of the services that deconstructs thealmost indigestible CFTC report into useful components.In the top window is the EUR/USD exchange rate itself,in futures terms. It shows the Euros fall to the low in Mayon the left side of the chart. The second window shows thenet positions. The top line on the left is the commercials,the opposing position is near the bottom and representsthe non-commercials, and the center line is the small retail(non-reportable) positions. As the Euro was falling, com-mercials were adding to positionsand the speculators were taking the

short side. This observation mayseem to confirm the market lore fol-low the commercials, but in FX thatis not always the case. The line fromhigh to low and left to right showsthat later in the year, as the Eurowas again rising, the commercialswere the ones who were short theEuro and it was the speculators whowere earning the gains. The trianglemarks where none of the parties hada strong feeling and the number of

contracts traded was very small.The third window shows thestrength of the position held byeach category of trader. Lets say inone case the commercials have totallong and short positions of 500,000contracts, and a net position of 5,000long. Now consider a second casewhere the commercials have 5,500contracts total and 5,000 net long. Inthe first case, the net long of 5,000 ishardly a strong consensus, while inthe second case it is.

The bottom window shows open interest, or the num-ber of contracts that are still open. The circle showing thedrop in what had been high open interest by commercialsis a classic example of high open interest at a market top

or bottom always a danger sign. In this case, as theJune contract was being rolled over to the Septembercontract, and the liquidation of expiring contracts andthe commercials not renewing them in the new top-stepcontract forced weak hands to exit. Theres often a pricereversal as futures contracts are rolled over. Sometimesits a minor event because players just replace the expir-ing contract with the new one, but not always. In thisinstance, when commercials rolled over to the Septembercontract, they were reducing long positions as the Eurowas rising.

FIGURE 3: EURO FUTURES, COMMITMENTS OF TRADERS

As of Sept. 20, net short speculative positions in the Euro had reached

79,460 contracts the highest level since June 8, 2010, but still only about

50 percent of the record position of 113,890 from May 11, 2010.

Source: Shatterfield.com

: :

.

CURRENCY TRADEROctober2011 17

8/2/2019 Ctm 201110


ON THE MONEY

Note that as of Sept. 20, net short speculative positionsin the Euro had reached 79,460 contracts, more than theweek before (54,459) and the biggest net short positionsince June 8, 2010 (111,945 contracts). But this was stillonly 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 thesovereign-debt crisis than in late September, when the cri-sis had gotten much worse and Europe was still ditheringover how to bail out Greece and failing to implement theJuly remedies.

One inference we might draw is the market is givingtoo much credit to European leaders and institutions, andif confidence is lost and short Euro positions double to theMay 2010 level or beyond, the Swiss franc will again beoverwhelmed by buyers.

The mysterious shrinking Swiss franc marketTo return to the question of what the market really thinksof the Swiss franc these days, what does the COT say? Inthe Sept. 20 report (www.cftc.gov/dea/futures/deacmesf.htm), non-commercials had reduced net long Swiss con-

tracts from 5,493 contracts to 4,221, or about 20 percent.Since each contract is CHF 125,000, this is a total of CHF527.625 million, or $596.427 million as of the close onTuesday, Sept. 20. Its interesting that the number of non-commercials reporting is only nine long and eight short, ora total of 17 parties (plus two spread traders), making theaverage position really quite big, about $35 million and thenumber of parties balanced.

Even more interesting is the SNB has scared off thespeculators. As of the Dec. 28, 2010, COT report, non-com-mercials were net long the Swiss franc by 14,468 contracts;

the Sept. 20 number was only about40 percent of that. Figure 4 shows theU.S. dollar/Swiss franc pair (USD/CHF). We can understand why specu-lators are less long than they were atthe beginning of the year, consideringhow much the dollar has risen, butwhy are they long at all? An upsidebreakout has occurred, by any mea-sure. And yet the number of contractsis relatively small, fewer than 5,000.We might say they are modestly longthe Swissie against the day it againbecomes a favored safe-haven on

European peripheral debt problems.Some traders, including LarryWilliams, swear by the COT, but itsdifficult to get much meat off theseSwiss franc bones. The best we cancome up with is that traders areauthentically scared by the prospect ofSNB intervention, although they arestill holding a lingering and perhapsstale bias for the Swissie to strengthenagain i.e., for the dollar and Euro toresume their downtrends.yFor information on the author, see p. 4.

FIGURE 4: DOLLAR/SWISS FRANC

Speculators may be modestly long the Swiss franc against the day it again

becomes a favored safe-haven.

Source: Chart Metastock; data Reuters and eSignal

:

May June July August SeptemberOctoberNovemberDecember2011 FebruaryMarch Apr il May June July August SeptemberOctober Nove

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%
http://www.cftc.gov/dea/futures/deacmesf.htmhttp://www.cftc.gov/dea/futures/deacmesf.htmhttp://www.cftc.gov/dea/futures/deacmesf.htmhttp://www.cftc.gov/dea/futures/deacmesf.htmhttp://www.cftc.gov/dea/futures/deacmesf.htm

8/2/2019 Ctm 201110


Futures trading and options trading involve risk, which may result in financial loss, and are not suitable for everyone. Any trading decisions that you may make are solely your responsibility. The informationpresented herein is for informational purposes only. The contents hereof are not an offer, or a solicitation of an offer, to buy or sell any particular financial instrument listed on Nadex. Past performance is notndicative of future results.

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8/2/2019 Ctm 201110

20/34

Dollar/Canada

Dollar/Canadas September rally was so big its difficult

to find historical examples for comparison.

BY CURRENCY TRADER STAFF


SPOT CHECK

The U.S. dollar surged dramatically against its Canadian

cousin in September, with the USD/CAD rate extendingnearly 5 percent above its August high and more than 7percent above its close. The only other monthly close-to-close gain larger than 7 percent occurred in October2008, when the pair exploded more than 22 percent higherintramonth before closing around 14 percent (Figure 1).Even much smaller monthly jumps have been relativelyrare: There have been only four previous monthly close-to-close gains of 5 percent or more and only 10 of 4 percentor 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 nextfive months before reverting to the massive downtrendthat had been in place since 2002. By April of this year dol-lar/Canada had dropped below .9500 and looked poisedto challenge the all-time low of .9055 from November 2007.But after trading in a range between .9500 and 1.000 forthe next four months, the September rally marked a sig-nificant break in dollar/Canadas recent fortunes.

The rarity of moves of this magnitude on the monthlytime frame makes analysis difficult, even when sidestep-ping the percentage gains and framing the rally in terms of

relative highs and lows. For example,

dollar/Canada established its high-est monthly high and closing pricesin 11 months in September not aparticularly significant milestone untilyou factor in that it occurred just twomonths after its lowest monthly lowin 12 months (in July). The USD/CAD pair has made a comparablemove only one time in the past 40years, in January 1992. Even relax-ing this pattern criteria to accept asix-month highest high/close twomonths after a six-month low pro-

duces only two more instances: onein December 1992, making it partof the same up move representedby the January 1992 rally, and onein February 1990. The 1991-92 turn-around was followed by an extendedrally; the 1990 move quickly reversedto the downside.

Figure 2 shows the September rallywas concentrated in the final twoweeks of the month, with the lionsshare occurring in the week end-ing Sept. 23. Dollar/Canada rallied

FIGURE 1: MONTHLY DOLLAR/CANADA

The USD/CADs 7-percent close-to-close gain in September was the pairs

second largest in the past 40 years.

Source: TradeStation

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21/34

more than 5 percent that week on aclosing basis another exceedinglyrare event, having occurred just twoother times in the floating-rate era. Italso closed higher than it had in 52weeks, something that has happened180 times since September 1972.However, if you look for 52-weekhigh closes that have occurred sevento 10 weeks after a 12-week low which is one possible definition of theweek ending Sept. 23 you find justsix previous examples. Relaxing the

26-week low to a six-week low pro-duces 26 previous instances.

Figure 3 compares the medianweekly close-to-close moves for12 weeks after the patterns to themedian close-to-close moves for allone- to 12-week moves from October1971 through September 2011. Themild bullish post-pattern tendencycontrasts to the much weaker overallmarket benchmark, with the gainspeaking around week 7. (Dollar/

Canadas somewhat haphazardbenchmark performance reflects thefact that the pair was in an overalluptrend from roughly 1972 to 1986,a downtrend from 1986 to 1991, anuptrend from 1991 to 2001, and adowntrend from 2002 forward.)

Its difficult to read too much intothis pattern definition. Twenty-sixprevious pattern examples providelittle to go on, and analysis of indi-vidual results shows a great deal ofvariability; even in instances when

the market moved higher, there wasoften a significant pullback after theinitial explosive up move.

This time around, the threat of areturn to global recession and insta-bility in equity markets will boostthe U.S. dollars safe-haven bid.Remission of those fears will playagainst a sustained rally in USD/CAD. Chart analysts will likely notethe pair faces resistance from approx-imately 1.0700 to the round-numberprice of 1.1000.y

CURRENCY TRADEROctober2011 21

FIGURE 3: WEEKLY PATTERN ANALYSIS

The post-pattern returns outpaced the USD/CAD pairs benchmark performance,

but there was a great deal of variability in the individual results.

FIGURE 2: WEEKLY DOLLAR/CANADA

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

8/2/2019 Ctm 201110

22/3422 October2010CURRENCY TRADER22 October2011CURRENCY TRADER

There is a common notion among certain groups of tradersthat there is something fundamentally different about trad-ing around the end of the year. Specifically, many traderscompletely avoid entering new positions until the secondor third week of January while others exit all their posi-tions before this period starts.

This belief in the unique nature of holiday tradingseems to be based on the idea that the end-of-year/holidayperiod offers less liquidity and, therefore, worse tradingconditions than other times of the year. Lets look at the

data and see if there is any evidence of a seasonal ineffi-ciency of this type in the forex market, or if its merely animaginary artifact transmitted from older to newer traders.

Two months, four currency pairsTo determine whether or not there is some fundamentaldifference between currency market trading conditionsduring December-January compared to the rest of the year,we will look at daily price data in four major currencypairs: 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 onthe period generally perceived to have the least liquidity,

Dec. 10 to Jan. 10, and look for differences over an 11-yearperiod (2000-2010).

Before venturing into the analysis it is worth mentioningthat it is impossible to accurately measure volume in theforex market because of its decentralized nature. There isno true, consolidated volume information; an individualbank or forex trading firm might be able to provide itsindividual volume data, but this would represent only afraction of the global forex volume. One option is to sub-stitute tick volume (the number of transactions that occur,

regardless of size), which is a good proxy for real volumein most markets. However, tick volume in the forex marketcan vary significantly from broker to broker. As a result,the best decision is to compare the actual price behaviorduring the December-January period relative to the rest ofthe year.

The first characteristic we will analyze is the averageopen-closerange. Figure 1 shows this comparison (in pips)for all four currency pairs; there doesnt appear to be anysignificant difference between these ranges for the holidayperiod (red) vs. the rest of the year (blue). In the EUR/USD, USD/JPY, and USD/CHF pairs, for example, therange was larger during the holiday period in five of the

TRADING STRATEGIESTRADING STRATEGIES

Holiday volatility:Analyzing December-January

FX price rangesDoes daily volatility change during the traditional holiday period?

BY DANIEL FERNANDEZ

8/2/2019 Ctm 201110


years and smaller in six, and the differences were generallysmall. (The GBP/USD pair was slightly different in thatthe holiday open-close range was higher in seven of the11 years and equal in another.) There doesnt seem to beany statistically meaningful correlation between past andfuture values, except perhaps that an increase or decreasein the yearly average often corresponded to an increase ordecrease in the holiday net range for that year. Howeverthis correlation is still very weak and breaks down duringlower-volatility years, particularly the 2005-2007 period.

Although EUR/USD, GBP/USD, and USD/CHF pairsexhibit similar distributions in Figure 1, the USD/JPY pairdisplays very different behavior. For example, in 2008

the first three pairs had very high open-to-close volatilityduring the holiday period (a result of the financial crisis),while the USD/JPYs 2008 holiday volatility was essen-tially equivalent to the rest of the year. (This might be afunction of the Occidental end-of-year/Christmas holi-days having much less significance in Eastern cultures.)However, except for 2008, all holiday deviations in the netopen-to-close range are insignificant compared to the dif-ferences that usually occur between the yearly average andevery other month. There is no significant, predictable sea-sonal effect during this time of the year in terms of dailyrange.

Figure 2 is similar to Figure 1 except it shows the differ-

FIGURE 1: OPEN-TO-CLOSE PRICE MOVES

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.

8/2/2019 Ctm 201110

24/34

ences in daily high-low range ratherthan open-close daily range. Again,there is no evidence of a seasonalvariation in any of the four pairs.Variations in the daily range appearto be almost random and in magni-tude similar to what would be expect-

ed in any other month. And as wasthe case in Figure 1, only 2008 showsa large difference between the holidayperiod and the rest of the year.

What happens if we further nar-row the analysis window to see ifthe heart of the holiday period (Dec.20 to Jan. 4) reveals any seasonaleffect? Figure 3 shows the results forthis analysis for the EUR/USD pair.Although there is a tendency for thisshortened periods average high-lowdaily range to be smaller than theaverage range for the rest of year(seven out of 11 years), there is nodefinitive seasonal effect: There were,in fact, years when the movement inthis period was significantly abovethe yearly average; the probability ofseeing this distribution is actually ashigh as for any other 14-day periodduring the year.

No real differenceThe analysis indicates there is no

seasonal effect in terms of either theopen-to-close range or the high-lowrange for these four currency pairs.As a result, there appears to be noreal reason to stop trading duringthis period, especially trading (suchas swing trading or long-term trendfollowing) that does not rely on heavyliquidity, since the holiday periodsvolatility is comparable to whatyou would expect during any othermonth.yFor information on the author, see p. 4.


TRADING STRATEGIES

FIGURE 2: HIGH-LOW PRICE MOVES

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

FIGURE 3: HIGH-LOW DAILY RANGE DEC. 20 TO JAN. 4

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 arent definitive.

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25/34
http://www.activetradermag.com/

8/2/2019 Ctm 201110


TRADING STRATEGIESADVANCED CONCEPTS

The philosopher George Santayana once said somethingprofound, but who can remember it anymore with all the

blogging, texting and tweeting?I wrote a piece way back in 1998 about the precious met-als complete lack of movement for a trading generation.An e-mail came from what was obviously a retail com-modity broker in the Ft. Lauderdale, Fla., area who asked,Will gold ever get over $500 again? Fair enough. Myresponse went along these lines:

Ever is a long time. Had someone asked me in 1981 if long-term Treasury yields would ever fall below 6 percent again, Iwould have said, Yes, even though it seemed improbable atthe time. So, yes, gold can get over $500 again, but not withinan immediate trading horizon.

Gold was trading around $300 per ounce at the time anddid not close above that level for good until the secondquarter of 2002, four years later. By mid-2010, that samebroker or his spiritual successor might reverse the questionand wonder whether short-term interest rates ever wouldrise above 1 percent again, and if long-term Treasury bondyields went over 6 percent, would grass be growing in thestreets? Lets not even contemplate the question of whethergold will ever fall below $300 an ounce again.

The dollar and bondsIf we go back to the era of high Treasury yields and the

major (and politically engineered) decline in the dollarbetween 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 recom-pense. Indeed, one of the major contributors to the liquid-ity premium, or spread between long- and short-terminterest rates, is currency volatility.

However, facts can be disagreeable things and havebeen known to wreak havoc on perfectly good economictheories, some of which can take the better part of anafternoon to concoct. U.S. Treasuries began a bull marketin September 1981 and, with some spectacular correctionsalong the way, such as 1994, 1999 and 2009, have contin-ued in that bull market all the way into mid-2011, even asthe simple mathematics of fixed-income investing dictate

the party will be over once interest rates approach zeropercent along the yield curve.

Fixed-income indexers split up the yield curve along thematurity spectrum. The categories we will follow here arecalculated by Bank of America-Merrill Lynch, and includethe 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 returnminus the opportunity cost of three-month LIBOR, and dis-play these time series along a common (base-10) logarith-mic scale going back to January 1995. This can be mappedagainst the Bloomberg correlation-weighted U.S. dollarindex (see Weighting for correlation, Currency Trader, July2011), also displayed on a common logarithmic scale.

The dollar and prospectiveTreasury returns

History lesson: Analysis undermines the suppositionthat a weaker dollar hurts the Treasury market.

BY HOWARD L. SIMONS

8/2/2019 Ctm 201110


We would be hard-pressed to lookat Figure 1 and determine whatthe long-term dependence of netTreasury carry returns on the dollaris. Yes, bonds rallied during the dol-lars 2008-2009 financial-crisis rallyand fell once the crisis was over, at

least over for the first time, and thedollar fell again for the remainder of2009, but that would ignore the long-term rallies in Treasuries between2002 and 2008 and again in 2011when the greenback was taking it onthe chin.

Should we stop here and tauntthe Fates by declaring, MissionAccomplished? No. We need to adda linking variable such as the shapeof the money-market yield curve.

Here we will use the same toolso common to many of ouranalyses, the forward rate ratiobetween six and nine months(FRR6,9). This is the rate atwhich we can lock in borrow-ing for three months starting sixmonths from now, divided bythe nine-month rate itself. Themore the FRR6,9 exceeds 1.00,the steeper the yield curve andthe greater the expectations forhigher short-term interest rates

in the near future.The theory (theres that word

again) behind the FRR6,9 as alinking variable is lower pro-spective hedgeable short-terminterest rates allow bond inves-tors to carry their positionsfor at least another six monthswithout fear of increased fund-ing costs; a steeper FRR6,9 usedto be associated with a strongerdollar, but that was until an eraof perma-expectations for

There is no evidence of any long-term dependence of net Treasury carry returns

on the dollar.

FIGURE 1: NET TREASURY CARRY RETURNS AND THE DOLLAR

Observations from Figures 2-7: Three-month dollar gains of more than 10 percent are

followed by gains in the Treasury market, and the longer the maturity, the greater the

number and magnitude of negative returns.

FIGURE 2: THREE-MONTH RETURN AHEAD RETURNS ON 1- TO 3-YEAR CARRY

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28/34

higher interest rates emerged in2009. These expectations wererolled forward continuously ina manner akin to a tavern witha Free Beer Tomorrow win-dow sign (see Investing undera constant expectation, ActiveTrader, November 2010).

Prospecting for returnsNow lets map three month-ahead net carry returns forthe various maturity seg-ments against the dimensionsof the preceding three-monthchange in the dollar and theFRR6,9. In Figures 2-7, col-ored bubbles denote positivereturns, white bubbles denotenegative returns; the diameterof the bubbles corresponds to

the absolute magnitude of thereturn. The most recent datum,from three months ago, is high-lighted in an opposite colorand the current values of thedollars change and the FRR6,9are marked with a greenbombsight. Finally, an arrow isdrawn from the three-month-ago datum to the current value.

Key takeawaysFor all of their apparent com-

plexity, these charts lend them-selves to three major observa-tions. First, gains in the dollar ofmore than 10 percent over thepreceding three months are fol-lowed by gains in the Treasurymarket. The stronger greenbackpulls in portfolio investment.

Second, there is a maturity-dependent response to declinesin the dollar of more than 10percent over the precedingthree months. The longer the

maturity, the greater the num-ber and magnitude of nega-tive returns. Global creditorsto Uncle Sam can live with aweaker dollar for their shorter-term investments, but theystart to get nervous about theirlonger-term investments whenthe dollar weakens.

Finally, there is a maturity-dependent response to theFRR6,9. At shorter maturities,prospective Treasury gains are

ON THE MONEY


ADVANCED CONCEPTS




8/2/2019 Ctm 201110


positive for both very steep andvery flat money-market yieldcurves. At longer maturities,

prospective returns turn nega-tive as holders become nervousabout the FRR6,9 being unsus-tainable at those levels andfuture carry costs rising.

Does any of this confirm ordeny the 1980s-era suppositiona weaker dollar would damagethe Treasury market? Only atthe extreme: If long-term credi-tors see the currency weaken-ing rapidly and the yield curve

steepening beyond reason, theywill unload their long-termholdings. Then they will tiptoeback into the U.S. market, asmost of Uncle Sams creditorsrecognize the need to financetheir major customers deficits.

To mix metaphors from pasteras, what we see here areBond Vigilantes practicing com-passionate conservatism. Theyare as hooked on financing thedebt, at ever-lower yields and

with a currency in long-termdecline, of a customer unwill-ing and increasingly unable topay them back. Considering theexperiences of creditors overthe centuries lending to too-large debtors, you would thinkthey would have learned thelessons of history, but to para-phrase Santayana, all we learnfrom history is people do notlearn from history.yFor information on the author, see p. 4.

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.


FIGURE 7: THREE-MONTH RETURN AHEAD RETURNS ON 15-PLUS-YEAR CARRY

8/2/2019 Ctm 201110


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

October

1

2

3U.S.: September ISM manufacturingreport

4

5UK: Q2 GDP

6

Brazil: September PPIUK: Bank of England interest-rateannouncementECB: Governing council interest-rateannouncement

7

U.S.: September employment reportBrazil: September CPICanada: September employment reportJapan: Bank of Japan interest-rateannouncementMexico:Sept.30CPIandSeptemberPPIUK: September PPILTD: October forex options; OctoberU.S.dollarindexoptions(ICE)

8

9

10

11

12France: September CPIUK: September employment report

13

U.S.: August trade balanceAustralia: September employmentreportGermany: September CPI

14 U.S.: September retail salesIndia: September PPIJapan: September PPI

15

16

17

18

U.S.: September PPIHong Kong: July-Sept. employmentreportUK: September CPI

19U.S.: Fed beige book and SeptemberCPI and housing startsSouth Africa: September CPI

20

21Canada: September CPIHong Kong: September CPIMexico: September employment report

22

23

24Australia:Q3PPIMexico:Oct.15CPI

25Canada: Bank of Canada interest-rateannouncement

26U.S.: September durable goodsAustralia:Q3CPI

27U.S.:Q3GDP(advance)Brazil: September employment reportSouth Africa: September PPI

28

U.S.: Q3employmentcostindexandSeptember personal incomeJapan: September employment report

and CPI

29

30

31

Canada: September PPIFrance: September PPIIndia: September CPISouth Africa: Q3employmentreport

November

1 U.S.: October ISM manufacturing index

2U.S.: FOMC interest-rate announcementGermany: September employmentreport

3 ECB: Governing council interest-rateannouncement

4

U.S.: October employment reportCanada: October employment reportLTD: November forex options; NovembeU.S. dollar index options

The information on this page is sub-

ect to change. Currency Traderis

not responsible for the accuracy of

calendar dates beyond press time.

Event: FIA Futures Cares Charity DriveDate: Oct. 10-12Location: Hilton ChicagoFor more information: Go towww.futuresindustry.org/futurecares2011.asp

Event: The World MoneyShow LondonDate: Nov. 11-12Location: Queen Elizabeth II Conference CentreFor more information: Go to www.moneyshow.com/tradeshow/london/world_moneyShow/?scode=013104

Event: International Traders ExpoDate:Nov.16-19

Location: Ballys Resort, Las VegasFor more information: Go to www.tradersexpo.com

Event: 7th Annual FIA Asia Derivatives ConferenceDate:Nov.29-Dec.1

Location: St. Regis SingaporeFor more information: Go towww.futuresindustry.org/asia-2011.asp

EVENTS
http://www.futuresindustry.org/futurecares2011.asphttp://www.moneyshow.com/tradeshow/london/world_moneyShow/?scode=013104http://www.moneyshow.com/tradeshow/london/world_moneyShow/?scode=013104http://www.tradersexpo.com/http://www.futuresindustry.org/asia-2011.asphttp://www.futuresindustry.org/asia-2011.asphttp://www.tradersexpo.com/http://www.moneyshow.com/tradeshow/london/world_moneyShow/?scode=013104http://www.moneyshow.com/tradeshow/london/world_moneyShow/?scode=013104http://www.futuresindustry.org/futurecares2011.asp

8/2/2019 Ctm 201110


CURRENCY FUTURES SNAPSHOT as of Sept. 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 August 31 ranked by August 2011 return)

Trading advisorAugustreturn

2011 YTDreturn

$ Undermgmt.

(millions)

1. MIGFXInc(Retail) 12.30% 41.16% 45.0

2. FriedbergComm. Mgmt. (Curr.) 4.40% -27.64% 108.8

3. Gedamo(FXAlpha) 4.28% 14.21% 14.2

4. FirstQuadrant(ManagedCurrency) 2.91% -7.18% 377.0

5. Gedamo(FXOne) 1.81% 6.22% 35.8

6. Hathersage(LongTermCurrency) 1.74% -1.52% 525.0

7. CapricornCurrencyMgmt.(fxSTMAP) 1.37% -0.96% 104.0

8. CapricornCurrencyMgmt.(FXG10CHF) 1.23% 7.50% 15.8

9. A-Venture Capital 1.19% 12.58% 56.9

10. PremiumCurrency(Currencies) 1.16% -7.82% 592.7

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

1. Adantia(FXAggressive) 8.89% 20.73% 1.5

2. Iron Fortress FX Mgmt. 7.76% 25.48% 2.9

3. Valhalla CapitalGroup(Int'lAB) 3.10% 23.91% 2.4

4. Wealth BuilderFXGroup(LowRisk) 2.30% 24.19% 3.0

5. GTAGroup(FXTrading) 1.53% 0.44% 2.4

6. CapricornCurrencyMgmt.(FXG10USD) 1.20% 7.19% 3.8

7. GreenwaveCapitalMgmt.(GDSBeta) 0.67% 7.13% 4.0

8. MatadorFX(MFX1) 0.37% 2.19% 1.8

9. BEAM(FXProp) 0.34% 1.69% 2.0

10. FourCapital(FX) 0.05% -2.04% 1.8

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 330.6 186.7 -2.40%/45% -5.71%/86% -4.98%/90% .38/22%

AUD/USD AD CME 126.0 97.9 -6.68%/85% -9.68%/100% -8.98%/97% .86/72%

GBP/USD BP CME 104.7 114.5 -1.45%/15% -4.06%/66% -2.42%/82% .48/40%

CAD/USD CD CME 97.2 86.2 -5.45%/100% -5.87%/100% -7.02%/100% 1.03/80%

JPY/USD JY CME 95.8 120.1 0.01%/8% -0.08%/9% 5.55%/88% .09/5%

MXN/USD MP CME 36.2 87.0 -6.08%/68% -10.40%/98% -15.07%/98% .41/43%

U.S. dollar index DX ICE 29.8 53.4 3.06%/70% 5.43%/83% 4.45%/93% .62/63%

CHF/USD SF CME 27.9 35.2 -3.10%/40% -10.36%/52% -6.42%/82% .21/20%

NZD/USD NE CME 6.7 24.7 -7.40%/100% -10.50%/100% -7.42%/100% .91/95%

E-Mini EUR/USD ZE CME 4.8 5.0 -2.40%/45% -5.71%/86% -4.98%/90% .38/22%

Note:Averagevolumeandopeninterestdataincludesbothpitandside-by-sideelectroniccontracts(whereapplicable).Priceactivityisbased on pit-traded contracts.

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INTERNATIONAL MARKETS


CURRENCIES (vs. U.S. DOLLAR)

Rank CurrencySept. 29price vs.

U.S. dollar

1-monthgain/loss

3-monthgain/loss

6-monthgain/loss

52-weekhigh

52-weeklow

Previous

1 Japanese yen 0.013065 0.19% 5.66% 6.70% 0.0131 0.0117 2

2 Chinese yuan 0.1568 0.04% 1.47% 2.90% 0.1568 0.1492 43 Hong Kong dollar 0.128285 0.01% -0.11% 0.04% 0.129 0.1281 8

4 Thai baht 0.032275 -3.31% -0.11% -2.24% 0.0338 0.0316 10

5 Canadian dollar 0.97643 -4.18% -3.78% -4.39% 1.059 0.9691 16

6 Great Britain pound 1.56312 -4.50% -2.18% -2.31% 1.6702 1.5407 3

7 Taiwan dollar 0.03289 -4.93% -4.85% -3.17% 0.03510 0.0318 9

8 Euro 1.359515 -6.23% -5.01% -3.34% 1.4842 1.2901 5

9 New Zealand dollar 0.78518 -6.51% -2.63% 4.47% 0.8797 0.7207 15

10 Singapore dollar 0.776905 -6.54% -3.96% -1.93% 0.832 0.7572 6

11 Australian dollar 0.988045 -6.55% -5.72% -3.76% 1.1028 0.9611 13

12 Swedish krona 0.148045 -6.80% -4.60% -5.39% 0.1662 0.1422 713 Indian rupee 0.02017 -6.94% -8.15% -8.34% 0.0227 0.0198 11

14 South African rand 0.12719 -9.06% -12.72% -12.60% 0.1518 0.12 17

15 Russian ruble 0.031505 -9.31% -11.43% -10.66% 0.0366 0.0309 14

16 Swiss franc 1.114465 -10.12% -7.12% 2.48% 1.3779 0.996 1

17 Brazilian real 0.554565 -10.96% -12.55% -7.96% 0.65 0.5305 12

GLOBAL STOCK INDICES

Country Index Sept. 291-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow Previo

1 Switzerland Swiss Market 5,608.60 2.98% -8.08% -11.75% 6,739.10 4,695.30 7

2 India BSE30 16,698.07 1.72% -10.68% -12.67% 21,108.60 15,765.50 12

3 Germany Xetra Dax 5,639.58 -0.54% -22.68% -18.67% 7,600.41 4,965.80 15

4 Italy FTSE MIB 15,046.02 -0.63% -24.26% -30.92% 23,273.80 13,115.00 14

5 UK FTSE 100 5,196.80 -1.36% -11.26% -12.40% 6,105.80 4,791.00 11

6 Japan Nikkei225 8,701.23 -1.70% -11.19% -8.01% 10,891.60 8,227.63 8

7 Brazil Bovespa 53,385.00 -2.69% -14.36% -20.82% 73,103.00 47,793.00 6

8 South Africa FTSE/JSE All Share 29,488.26 -2.89% -7.46% -8.63% 33,094.06 28,391.18 3

9 Singapore Straits Times 2,708.13 -3.00% -12.07% -11.41% 3,313.61 2,627.24 9

0 Mexico IPC 33,686.16 -3.80% -7.91% -8.45% 38,876.80 31,659.30 1

1 France CAC 40 3,027.65 -4.01% -22.85% -24.08% 4,169.87 2,693.21 13

2 U.S. S&P500 1,160.40 -4.11% -11.24% -12.05% 1,370.58 1,101.54 10

3 Australia All ordinaries 4,067.90 -6.13% -11.18% -16.15% 5,069.50 3,829.40 2

4 Canada S&P/TSX composite 11,686.32 -6.55% -11.39% -16.11% 14,329.50 11,293.60 4

5 Hong Kong Hang Seng 18,011.06 -9.33% -18.36% -21.90% 24,988.60 16,999.50 5

8/2/2019 Ctm 201110


NON-U.S. DOLLAR FOREX CROSS RATES

ank Currency pair Symbol Sept. 291-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow

Previou

1 Yen / Real JPY/BRL 0.02356 12.57% 20.82% 15.94% 0.0246 0.0186 2

2 Canada $ / Real CAD/BRL 1.760705 7.61% 10.02% 3.88% 1.8282 1.589 13

3 Pound / Franc GBP/CHF 1.40257 6.26% 5.32% -4.68% 1.5936 1.1778 16

4 Euro / Real EUR/BRL 2.45149 5.30% 8.62% 5.02% 2.5367 2.1692 7

5 Aussie $ / Real AUD/BRL 1.781655 4.95% 7.81% 4.57% 1.8452 1.5882 11

6 Euro / Franc EUR/CHF 1.21988 4.34% 2.27% -5.68% 1.3766 1.0376 17

7 Aussie $ / Franc AUD/CHF 0.886565 3.97% 1.51% -6.09% 0.9818 0.7477 21

8 Pound / Aussie $ GBP/AUD 1.582035 2.20% 3.75% 1.50% 1.6461 1.4806 5

9 Euro / Aussie $ EUR/AUD 1.37598 0.34% 0.75% 0.44% 1.4294 1.2947 6

10 Aussie $ / New Zeal $ AUD/NZD 1.258335 -0.06% -3.17% -7.88% 1.3746 1.2354 10

11 Pound / Canada $ GBP/CAD 1.600855 -0.33% 1.67% 2.17% 1.634 1.5302 3

12 Euro / Pound EUR/GBP 0.869755 -1.81% -2.89% -1.05% 0.9038 0.8297 12

13 Euro / Canada $ EUR/CAD 1.392335 -2.14% -1.27% 1.10% 1.4316 1.2811 4

14 Aussie $ / Canada $ AUD/CAD 1.011895 -2.47% -2.01% 0.66% 1.0513 0.9708 9

15 Canada $ / Yen CAD/JPY 74.735 -4.39% -8.94% -10.40% 88.95 74.06 20

16 Pound / Yen GBP/JPY 119.635 -4.70% -7.43% -8.45% 139.19 117.7 14

17 Franc / Canada $ CHF/CAD 1.14137 -6.20% -3.47% 7.19% 1.3569 1.0113 1

18 Euro / Yen EUR/JPY 104.05 -6.42% -10.11% -9.42% 122.63 102.88 15

19 Aussie $ / Yen AUD/JPY 75.62 -6.71% -10.77% -9.81% 89.46 74.55 18

20 New Zeal $ / Yen NZD/JPY 60.095 -6.71% -7.85% -2.10% 67.97 56.86 19

21 Franc / Yen CHF/JPY 85.295 -10.32% -12.10% -3.96% 105.79 81.55 8

GLOBAL CENTRAL BANK LENDING RATES

Country Interest rate Rate Last change March 2011 Sept. 2010

United States Fed funds rate 0-0.25 -0.5(Dec.08) 0-0.25 0-0.25

Japan Overnight call rate 0-0.1 -0.1(Oct.10) 0.1 0.1

Eurozone Refi rate 1.5 0.25(July11) 1 1

England Repo rate 0.5 -0.5(March09) 0.5 0.5Canada Overnight rate 1 -0.25(Sept.10) 1 1

Switzerland 3-monthSwissLibor 0 -0.25(Aug.11) 0.25 0.25

Australia Cash rate 4.75 -0.25(Nov.10) 4.75 4.5

New Zealand Cash rate 2.5 -0.5(March11) 2.5 3

Brazil Selic rate 12 -0.5(Aug.11) 11.75 10.75

Korea Korea base rate 3.25 0.25(June11) 3 2.25

Taiwan Discount rate 1.875 0.125(June11) 1.75 1.5

India Repo rate 8.25 -0.25(Sept.11) 6.75 6

South Africa Repurchase rate 5.5 -0.5(Nov.10) 5.5 6.5

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34/34

INTERNATIONAL MARKETS

GDP Period Release date Change 1-year change Next release

AMERICAS

Argentina Q2 9/16 26.1% 20.1% 12/16

Brazil Q2 9/6 8.7% 9.0% 12/6

Canada Q2 8/31 0.4% 5.6% 11/30

EUROPE

France Q2 9/28 0.4% 3.2% 12/23

Germany Q2 8/16 0.6% 3.7% 11/15

UK Q1 6/28 1.7% 4.6% 10/5

AFRICA S. Africa Q2 8/30 -6.4% -3.6% 11/29

ASIA and S.PACIFIC

Australia Q2 9/7 2.7% 6.3% 12/7

Hong Kong Q2 8/12 -1.1% 9.9% 11/11

India Q2 8/31 16.7% 7.7% 11/30

Japan Q2 8/15 -0.3% -1.3% 11/14

Singapore Q2 8/19 -3.3% 4.2% 11/25

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

AMERICAS

Argentina Q2 8/22 7.3% -0.1% -0.6% 11/21

Brazil Aug. 9/22 6.0% 0.0% -0.7% 10/27

Canada Aug. 9/9 7.3% 0.1% -0.8% 10/7

EUROPE

France Q2 9/1 9.1% -0.1% -0.2% 12/1

Germany Aug. 9/29 6.0% 0.0% -0.9% 11/2

UK May-July 9/15 7.9% 0.3% 0.1% 10/12

ASIA andS. PACIFIC

Australia Aug. 9/8 5.3% 0.1% 0.2% 10/13

Hong Kong June-Aug. 9/20 3.2% -0.2% -1.1% 10/18

Japan Aug. 9/30 4.3% -0.4% -0.7% 10/28

Singapore Q2 7/29 2.1% 0.2% -0.1% 10/31

CPI Period Release date Change 1-year change Next release

AMERICAS

Argentina Aug. 9/14 0.8% 9.8% 10/14

Brazil Aug. 9/6 0.4% 4.4% 10/7

Canada Aug. 9/21 0.2% 3.1% 10/21

EUROPEFrance Aug. 9/13 0.5% 2.2% 10/12

Germany Aug. 9/9 0.0% -0.9% 10/13

UK Aug. 9/14 0.6% 4.5% 10/18

AFRICA S. Africa Aug. 9/21 0.2% 5.3% 10/19

ASIA andS. PACIFIC

Australia Q2 7/26 90.0% 3.6% 10/26

Hong Kong Aug. 9/22 -2.9% 5.7% 10/21

India Aug. 9/30 0.6% 9.8% 10/31

Japan Aug. 9/30 0.1% 0.2% 10/28

Singapore Aug. 9/23 0.7% 5.7% 10/24

PPI Period Release date Change 1-year change Next release

AMERICASArgentina Aug. 9/14 0.9% 12.5% 10/14

Canada Aug. 9/29 0.5% 5.2% 10/31

EUROPE

France Aug. 9/30 0.0% 6.3% 10/31

Germany Aug. 9/20 -0.3% 5.5% 10/20

UK Aug. 9/12 0.1% 6.1% 10/7

AFRICA S. Africa Aug. 9/29 1.0% 9.6% 10/27

ASIA andS. PACIFIC

Australia Q2 7/26 0.8% 3.4% 10/24

Hong Kong Q2 9/15 2.8% 8.9% 12/13

India Aug. 9/14 0.6% 9.8% 10/14

Japan Aug 9/12 0 2% 2 6% 10/14

Documents

Ctm 201110