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CAPITALIZING ON THE CANADIAN DOLLARS BIAS P. 14

Middle East FX: The Israeli shekel p. 22

Gauging the Euro crisis p. 10

A new phase for the Aussie dollar? p. 6

Pattern trading the Euro/pound p. 31

May 2012

Volume 9, No. 5

Strategies, analysis, and news for FX traders

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2/312 May2012CURRENCY TRADER

CONTENTS

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

Global Markets

Cooling Aussie economy

weighs on currency ...................................6

Its a favorite currency of trend followers, but for

now signs point to continued choppiness in the

Australian dollar.

By Currency Trader Staff

On the Money

Is the Eurozone too big to fail? ..............10

The presence of the IMF in the European debt

crisis underscores an uncomfortable reality.By Barbara Rockefeller

Trading Strategies

Trading the Canadian bias ......................14

Differentshort-sidesetupsproducerelatedprot

prolesinthedollar/Canadapair.

By Currency Trader Staff

Advanced Concepts

A currency of biblical proportions .........22IfyouwanttoprotintheIsraelicurrency,keep

your eyes on equities and interest rates.

By Howard L. Simons

Global Economic Calendar ........................26

Important dates for currency traders.

Events .......................................................26

Conferences, seminars, and other events.

Currency Futures Snapshot.................27

Managed Money Review .......................27

Top-rankedmanagedmoneyprograms

International Markets............................ 28

Numbersfromtheglobalforex,stock,and

interest-ratemarkets.

Forex Journal ........................................... 31

Trade signal indicates potential for two-way

tradeintheEUR/GBPpair.

Looking for an

advertiser?

Clickonthecompany

nameforadirectlinktothe

ad in this months issue.

Dallas Traders Expo

eSignal

FXCM

Nadex

The Trading Congress

Questions or comments?Submit editorial queries or comments to

[email protected]
mailto:[email protected]:[email protected]://clk.atdmt.com/FXM/go/368876004/direct/01/

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CONTRIBUTORS

4 May2012CURRENCY TRADER

Editor-in-chief:MarkEtzkorn

[email protected]

Managing editor: Molly Goad

[email protected]

Contributing editor:

Howard Simons

Contributing writers:

BarbaraRockefeller,

MarcChandler,ChrisPeters

Editorial assistant and

webmaster: Kesha Green

[email protected]

President:PhilDorman

[email protected]

Publisher, ad sales:

BobDorman

[email protected]

Classifed ad sales: MarkSeger

[email protected]

Volume 9, Issue 5. Currency Trader is published monthly by TechInfo, Inc.,POBox487,LakeZurich,Illinois60047.Copyright2012TechInfo,Inc.

All rights reserved. Information in this publication may not be stored orreproduced in any form without written permission from the publisher.

TheinformationinCurrencyTradermagazineisintendedforeducationalpurposes only. It is not meant to recommend, promote or in any way implythe effectiveness of any trading system, strategy or approach. Traders areadvised to do their own research and testing to determine the validity of atradingidea.Tradingandinvestingcarryahighlevelofrisk.Pastperfor-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 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), and How to Invest Internationally, pub-

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

is in the works. Rockefeller is on the board of directors of a large

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]

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GLOBALMARKETS

The Australian dollar, long the darling of the carrytrade, has lost some of its zing over the past severalmonths. After sliding to a 13-month low last October, theAustralian dollar/U.S. dollar (AUD/USD) rates late-2011/early-2012 upswing failed to rally the pair to its July 2011peak, and in April the Aussie dollar subsequently droppedto a nearly three-month low (Figure 1).

As of late April, the Australian dollar ranked as the sec-ond worst performing major currency vs. the U.S. dollar in2012, trailing only the Japanese yen. Year-to-date throughApril 24, the Aussie had gained .90 percent against thegreenback, well behind the first-place performer (and closeneighbor) the New Zealand dollar, which was up 4.54 per-cent. During the same period, the Norwegian krone gained4.30 percent vs. the U.S. dollar, the British pound gained3.8 percent, and the Canadian dollar climbed 3.34 percent.

The yen, the only major currency to register a decline vs.the U.S. dollar, fell 5.27 percent.A slowing economy, concerns over

Chinese economic health (Australias pri-mary export market), and a fresh interestrate easing cycle threatens to keep a lid onnew highs for the foreseeable future. TheReserve Bank of Australia (RBA) shockedforex markets May 1 with a larger thanexpected cut in official interest rates.Traders accustomed to lengthy and prof-itable trends in the Aussie may need toplan for more choppy range trading.

Economy:

Down, by no means outMake no mistake, Australia remains inan almost enviable position comparedto other major industrialized nations. Itseconomy suffered only one quarter of neg-ative economic growth during the GreatRecession, and it never experienced thesame type of banking and fiscal dilemmasthat plagued other advanced economies.Nonetheless, some slowdown is occurringin the Australian economy, which could

put the brakes on the decade-long bull trend in the Aussiedollar that has been interrupted, dramatically but briefly,only by the 2008-2009 financial collapse (Figure 2). Since2001, the Australian dollar has climbed from 0.47 vs. theU.S. dollar to its peak at $1.10 in July 2011.

Economic performance was hampered in 2011 by thedevastating floods across the northeastern portion of thecountry. Overall GDP came in at 2 percent last year, andthere appears to be carryover into 2012.

We have revised our 2012 GDP forecast to 3.4 percentfrom 4 percent in 2012 due to weaker conditions in thenon-mining sectors of the economy, says Katrina Ell, asso-ciate economist at Moodys Analytics.

In an April 17 research note, Ell wrote: The value ofnew business loans slumped 8.4 percent m/m in February,falling to its lowest level in over a year, while personal

finance fell nearly 4 percent. Lending data a good proxy

Cooling Aussie economyweighs on currency

Surprise rate cut keeps pressure on Australian dollar.

BY CURRENCY TRADER STAFF

FIGURE 1: LOWER HIGHS FOR THE AUSSIE DOLLAR

After sliding to a 13-month low last October, the Australian dollar/U.S. dollarrates (AUD/USD) subsequent rally failed to match the pairs July 2011 peak.
http://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Conceptshttp://www.currencytradermag.com/index.php/c/Key_Concepts

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7/31CURRENCY TRADERMay2012

for demand add weight to the argu-ment that Australias expansion has lost

some steam, as caution drags on activity.She isnt the only analyst to cite the

split between a relatively healthy miningindustry and the rest of the economy.

Sean Callow, senior currency strate-gist at Westpac Institutional Bank, notes,The Australian economic outlook mainlyfocuses on the sharp divergence betweenthe booming mining sector and the restof the economy, which is mostly sluggish.Australia has famously avoided recessionsince the early 1990s but GDP growthhas been below trend estimated to bearound 3.25 percent four straight years.Westpac looks for 3-percent growth in2012 after 2 percent in 2011, with the keydriver being huge investment in the min-ing sector.

Recent sentiment numbers reflect theoverall economic contraction. In April,Australian consumer confidence fell by1.6 percent month over month, the secondconsecutive decline.

Callow also highlights a twist on thefiscal front that could contribute to a slow-

down.Another key factor to watch for is thegovernments determination to producea tiny budget surplus in the fiscal yearending June 30, 2013, he says. In theMay 8 budget, [Australian treasurer]Wayne Swan will have to outline how hewill move the budget from a deficit of atleast -2.5 percent/GDP in 2011-12 to sur-plus. This is a severe drag on growth thatReserve Bank of Australia easing may notoffset.

As always, commodities loom large in

Australias economic picture. The countryis a major commodity exporter, sendingcoal, iron ore, wool, and other raw materi-als primarily to China and Japan. As of2010 (the latest data available), 25 percentof Australian exports head to China and19 percent to Japan, according to TimQuinlan, economist at Wells Fargo.

Strong commodity prices and robustexports have traditionally supported theAussie dollars rallies.

High prices for Australias key com-modities have kept the Aussie dollar at

FIGURE 2: THE BIG RALLY

The Aussie dollars long-term uptrend over the past decade has been

derailed only once dramatically but briefly due to the 2008-2009

financial collapse.

FIGURE 3: SAGGING COMMODITIES

The Aussie dollars path often tracks commodities, which have been declining

overall since mid-2011.

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GLOBALMARKETS

historically very high levels, placing immensepressure on trade-exposed sectors such as tour-ism, Callow says. Australians are desertinglocal tourist destinations in favor of overseas trips,while inbound tourism has flattened out.

Another correlation traders might want to keep

an eye on is the Thomson Reuters/Jefferies CRBIndex, a benchmark commodity index (Figure 3).That index is currently comprised of a total of 19different commodity markets.

The CRB Index has been winding down andthe Aussie is a large commodity exporter, saysMichael Woolfolk, managing director of BNYMellon.

The CRB Index hit a recent top in April 2011,and it has been trending lower since. More recent-ly, a renewed downtrend phase began in late February thisyear.

China tradeGiven its major trade ties with China, increased specula-tion about an economic slowdown there has impactedAustralias outlook.

Broadly speaking, China is its largest export market,Quinlan says. The slowdown in China is not good news.

Woolfolk notes the Australian dollar is very sensitive toeconomic growth in China and draws attention to Chinasdisappointing Q1 numbers. First-quarter GDP in Chinacame in below market expectations at 8.1 percent, downfrom 8.9 percent in the fourth quarter 2011.

If Chinese demand declines, then Australian exports

decline, Woolfolk says. We all know [the Chinese econo-my is slowing], but the level is the big question.

Moodys Analytics forecasts a soft landing for theChinese economy, but says its forecast of 8.4 percent GDPgrowth for the full year may be reduced by as much as 0.2percentage points, according to an April 13 research note.

A drop in Chinese resource demand would hitAustralias economy hard, prompting businesses to shelveinvestment plans, with spillovers to weaker growth,employment, income, and spending, Ell says. Thatsaid, easing inflation allows Beijing to pursue pro-growthpolicies and engineer a soft landing, boosting resourcedemand.

Monetary policyModerating growth and inflation has opened the door toa new monetary policy easing cycle. In the first quarter,the Australian consumer price index (CPI) increased byonly 0.1 percent vs. pre-report expectations of a 0.6 percentincrease. This dramatically reduced the year-over-year ratefrom 3.1 percent in the fourth quarter 2011 to 1.6 percent.That also opened the door for an RBA rate cut.

On May 1, the RBA slashed its official monetary policyrate by 0.50 percent, bringing it down to 3.75 percent this was a surprise to the markets as most forecasters hadonly expected a 0.25-percent cut. After the Great Recession,

the RBA had hiked rates to the 4.75 percent mark, butlowered them in October and December 2011 by 0.25 basis

points on both occasions.Its obviously more aggressive than expected, VassiliSerebriakov, currency strategy at Wells Fargo, says of theRBAs May 1 move. It appears the RBA sees the economyweaker than expected. This is a clear negative for theAussie dollar to the extent that the door is open to furtherrate cuts.

The rationale for the move was that with inflationlower, there is scope to support domestic demand, andgiven that domestic lending rates have edged higher rela-tive to policy rates in recent months, 50bp was needed tomake sure monetary conditions were more accommodativethan three months ago. That doesnt sound terribly dovish

on the surface but this is a domestically inspired move. Ifdomestic inflation and demand conditions now warranteasier policy, any further loss of regional momentum willincrease the desire to see a softer currency. AUD looks vul-nerable, Societe Generale analysts wrote in a May 1 FXStrategy research note.

Views are mixed on whats ahead in terms of monetarypolicy. Andrew Cox, currency strategist at Citi says thatinterest rate markets are being overly aggressive and arepricing in too much accommodation from the RBA in thecoming months. There is approximately 20 basis points ofeasing priced in for the next meeting on June 6. Absent asignificant deceleration of global economic growth or fur-

ther deterioration in domestic financial conditions, I expectthe RBA will remain on hold, Cox explains.

Weathering challengesIn addition to the threat of future rate cuts, other blackclouds remain on the horizon for the Australian dollar.

The main risks to Australias growth outlook are exter-nal, Ell says. Europes debt woes pose the largest poten-tial threat, though we expect Europe to muddle through.In any event, the effects of subdued global growth onAustralias real economy have been marginal up to now.That said, Australian lenders rely heavily on offshore fund-ing, which could dry up if Europes debt crisis deepens,

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9/31CURRENCY TRADERMay2012 9

weighing on credit availability. In thisscenario, further RBA rate cuts may not bepassed on by banks as they grapple withhigher funding costs.

However, Ell is optimistic that Australiais well positioned to weather potentialstorms.

If these or any other downside risksmaterialize, Australian policymak-ers themselves have scope to bolsterdemand, she says. Unlike Europe or theU.S., Australia has a low debt burden andsound fiscal management, which gives itthe capacity to provide a fiscal stimulus ifrequired.

Thanks to Australias endowment ofnatural resources, Ell notes, its economy is in good shapecompared to other G10 nations.

While there are soft patches in the non-mining sectorsof the economy, looser monetary settings will breathe lifeinto these sectors, she says.

Price actionDespite economists projections the underlying economyremains relatively sound in Australia, currency tradersare taking a slightly different view. People are gradu-ally becoming less positive on the Australian dollar, saysCharles St-Arnaud, FX strategist at Nomura.

The Aussie/dollar sold off sharply in the wake of theMay 1 RBA announcement from a peak at $1.047 on April30 to the $1.03 zone. Short-term, the AUD/USD could bevulnerable. It looks like we could retest the $1.0225 level.We could see the Aussie closer to parity over the next fewmonths if [economic] numbers are weaker and encourageexpectation of further easing, Serebriakov says.

Our case is for the AUD/USD to chop slightly lowerinto mid-year, largely due to offshore factors such as ourbelow-consensus view on U.S. and European growth,plus some softness in commodities such as iron ore priceswhere inventories are very high, and underlying Asiangrowth cooling, Callow says. We see AUD/USD around1.00 by the end of June.

Nonetheless, he adds that risks in the AUD lie in bothdirections which argues for a range-trading environ-ment. Should the Fed conduct QE3, AUD would be oneof the key beneficiaries, opening up a return to 1.08, hesays. Major financial dislocation most likely in Europe could see AUD/USD as weak as 0.95. But our base case

is softness to parity by mid-year, then grinding back up to1.04 by Q4.

This doesnt add up to a lot of excitement for trend-following currency traders.

Since Feb. 29, a downtrend has unfolded and the AUD/USD rate has slipped from $1.08 to $1.02. The pair has

been flirting with the 200-day moving average (MA),watched by many technical traders as a proxy for the long-term trend. As of May 1, the 200-day MA was around $1.03and the pair was just below it.

More attractive trading opportunities may lie on theAUD cross rates. A better trade might be short AUD/JPY(Figure 4), with USD/JPY looking too reliant on specula-tive demand and the Bank of Japan likely to disappointexpectations of aggressive further easing, Callow says.Sub-80 levels seem realistic. Were also interested in shortAUD/CAD, but this is contingent on the U.S. economynot weakening too much, given the lack of diversity inCanadas export destinations.

Given Australias overall economic health and still (his-torically) strong currency, sideways to lower price actionmay be mostly a natural pendulum swing, driven in thenear term by lower interest rates. Despite all the eco-nomic concerns and the mildly bearish currency action,Australia is still a standout example among industrial-ized economies of the world and will continue to expand,Quinlan says.

Despite the absence of forecasts for the AUD to declinesignificantly, theres still the need for a catalyst to drive itout of its current doldrums and propel it to new highs. Fornow, there isnt one on the horizon. Choppy trading mayprevail for a while.y

FIGURE 4: AUSSIE DOLLAR/JAPANESE YEN

The AUD/JPY pair may be a good shorting candidate in light of Aussie dollar

weakness.

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10/31

A catastrophe in one market or country is not necessar-ily a catastrophe for other markets or the forex market asa whole. In fact, it usually takes a shift in world view fora local catastrophe to go global something that hasntoccurred for the European sovereign debt crisis so far.

But its not difficult to argue that it should, and that theEuro should suffer as a result.

It seems to be escaping notice that the expectedInternational Monetary Fund (IMF) participation inEuropean sovereign debt bailouts this year is a crisis thatamounts to a catastrophe. The IMF is summoned whena countrys ability to manage its finances has failed. Andwhen Greek 10-year notes are yielding 21 percent andGreece is unable to tap the capital markets, we say it hasfailed.

But we dont say the Eurozone as an entity has failed,even though only four members (out of 17) continue to

have triple-A bond ratings. Accepting loans from the IMF,alongside those from the two Eurozone bailout funds (oneof which the European Stability Mechanism comesinto existence in July), is not seen as particularly disgrace-ful or a sign of failure except for the specific country takingthe loans. Defenders of the status quo say it is a fallacy ofcomposition to tar the whole Eurozone with the brush of afew wayward members.

However, the very presence of the IMF at every discus-sion of the Eurozones future stinks of failure. The IMF,which claims to have evolved from its founding at BrettonWoods after WW II, publishes a long list of goals, includ-

ing facilitating trade and reducing poverty. But the orga-nization has never relinquished its original nature as alender of last resort to countries with unsustainable tradedeficits and an inability to pay their debts. It is of somehistoric interest that France was the first borrower from the

IMF (in 1947) and Argentina is the only country to fail torepay the IMF. (The IMF itself says it has been almost con-tinuously involved with Argentina since 1991.)

The funds that countries contribute to the IMF are, tech-nically, loans from the existing reserves of member coun-tries, and the IMF pays interest. IMF contributions are not,technically, deposits, but the IMF acts as a bank undermany definitions of the word. Remember, the EuropeanCentral Bank (ECB) is specifically prohibited from act-ing as a lender of last resort to a member sovereign (lastyears purchases of distressed debt notwithstanding), butEuropean leaders are willing to substitute the IMF as a

lender of last resort. Some critics call this hypocritical andalso a con job, and they are not wrong.

IMF chief Christine Lagarde announced in April thatseveral countries, including Japan, the UK, and the Nordiccountries, agreed to contribute larger sums to the IMFfor future bailouts, with Europe in mind if not namedoutright. The IMF originally aimed to raise $500 billionin new reserves, but later reduced that number to $400billion. As of early May, it has raised $430 billion, butBrazil, India, and China postponed raising their contribu-tions. Out of the BRICs (Brazil, Russia, India, and China),only Russia has agreed and for a small sum ($10 bil-

On the Money


ON THE MONEY

Is the Eurozone

too big to fail?

The presence of the IMF

in the European debt crisis

underscores an uncomfortable reality.

BY BARBARA ROCKEFELLER

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lion). Japan offered the biggest amount ($60 billion). TheU.S. has declined to contribute more, and Canada hasproposed stricter IMF standards for the next recipient ofIMF reserves. The IMF has already contributed to bailoutsfor Iceland, Greece, Ireland, Portugal, Hungary, and oth-

ers. Big economies like Spain and Italy may be next, withanother bailout for Greece a possibility.

How much money is available for future European bail-outs? The number is not entirely clear, especially becauseeach entity, including the IMF, reserves some funds butthen leverages the rest. It seems to be on the order of morethan 1 trillion.

Asia 1997

Historically, the IMF has been involved in emerging mar-kets, not developed countries. And prior to a decade ago,the IMFs standard policy prescription consisted of just a

few initiatives: float and devalue the currency, raise inter-est rates, and slash government spending, all in the con-text of free markets and with the explicit goal of restoringinvestor confidence and foreign capital inflows.

But, the 1997 Asian crisis that spread to Latin Americaand Russia brought forth tens of billions in IMF lend-ing, although its virtually impossible to find the exactamounts. (Its astonishing that barely 15 years after thisfirst global exercise in moral hazard, the cost cant readilybe found.) The $57 billion for South Korea was the biggestat the time and possibly more than half of a total estimateof $100 billion. Contrast that with the cost of the European

bailouts to date (about 400 billion), and the 1 trillionEuropean war chest. The European bailouts already farexceed the 1997-98 Asian crisis costs, and theyre not doneyet.

The Asian financial crisis started when Thailand was

forced to float the baht in July 1997 because the reservescoffer was bare; Thailand could no longer support a fixedexchange rate. Moreover, foreign debt was already morethan 100 percent of GDP and investors fled for the exits,making it clear more would not be forthcoming. As thecrisis spread, we heard about contributing causes, includ-ing government overspending, crony capitalism, export-dependence, and real estate bubbles.

Thailand was not alone in taking an IMF bailout oth-ers included South Korea, Indonesia, the Philippines, andMalaysia, whose leader famously blamed speculatorsfor the attack on the ringgit and imposed capital controls

for a year. There was blood in the streets: Stock marketscrashed, businesses failed in droves, economies contracted,and unemployment was high.

Figure 1 depicts the devaluation of the Thai baht inone fell swoop, from 24.70 vs. the USD in June 1997 to53.50 by January 1998. Note the baht stabilized by 2001and Thailand repaid the IMF by 2003, four years ahead ofschedule. In a nutshell, devaluation plus other reforms,including fiscal austerity, were effective in fixing the crisis.But devaluation comes first.

In recent years, the IMF has retreated from the austerityapproach and is now willing to entertain capital controls,

FIGURE 1: THAI BAHT

The Thai baht devalued from 24.70 vs. the USD in June 1997 to 53.50 by

January 1998. The currency stabilized by 2001 and by 2003 Thailand had repaidits IMF bailout.

Source: Chart Metastock; data Reuters and eSignal

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ON THE MONEY

such as when it approved of Brazil imposing controls oninflows that were making the Brazilian real overly strong.

Europe 2012

European indebtedness is not as high as Thailands.Eurostat reported in late April the collective 2011 Eurozonedebt was 87.2 percent of GDP, up from 85.3 percent theyear before. The Stability Pact called for debt not to exceed

60 percent of GDP, but only five Eurozone membersqualify on that basis Estonia, Luxembourg, Slovenia,Slovakia, and Finland. Greece has the worst profile, at165.3 percent of GDP, followed by Italy with 120.1 percentof GDP. Even powerhouse Germany has a debt-to-GDPratio of 81.2 percent, although its situation had improvedfrom the year before (83 percent). Ironically, Spain wastechnically in better shape than Germany, with debt-to-GDP at 61.2 percent in 2010 and 68.5 percent in 2011, butthat excludes the indebtedness of the 17 regions.

In addition, Europe is not like Thailand its reservesare hardly exhausted. In fact, the Eurozone countries with

the highest reserve levels are actually quite rich, with nineof the 17 Eurozone countries holding almost $800 billion(Table 1).

The question of reserves is a thorny one. Reserves are a

nations collective savings. In theory, they can be pledged,either implicitly or explicitly, as collateral for a loan. Thisis never actually done and would presumably cause apolitical uproar, but Eurozone member nations technicallyhave another $800 billion before they absolutely need togo to the IMF with hat in hand. Thailand, in contrast, hadno choice reserves had dwindled to almost nothing asthe central bank intervened to prop up the baht in the face

of massive withdrawals from the banking system (andequities). Europe has some leeway, but demonstrates anunwillingness to spend its savings.

On another front, the government of Indonesia fell as aresult of the Asian financial crisis. So far in Europe, gov-ernments have fallen and been replaced in Greece, Ireland,Portugal, Spain, and the Netherlands, with France possiblynext after the May 6 election and Greece also in play againwith elections on the same date. Government changeshave been mostly orderly and under established laws andnorms, even if Italy had to do some tap-dancing to installcurrent prime minister Mario Monti.

The Eurozone is unwilling to take the recommenda-tions of economists and economic historians everywhere:devalue the Euro. How, exactly, do you do that when thecurrency is floating? You cut interest rates below everyoneelses, which today means zero. But the ECB is unwillingto cut rates because Eurozone inflation today at about2.3-2.4 percent, though falling is above the desiredrange, which is capped at 2 percent. Germany opposes aEurobond, another confidence-building idea.

One reason not to devalue the Euro is hardly spoken of:European banks have to deleverage and sell assets to thetune of about 2.8 trillion in the coming few years to meet

new capital requirements. Who will buy an asset denomi-nated in a falling currency or invest in banks whose chiefasset is iffy sovereign bonds, especially those financed bythe ECB for only three years? And thats without consider-ing contracting economies that should raise non-perform-ing loans by a large amount in some countries, especiallyGreece and Spain.

Eurozone leaders, including some central bank gov-ernors like Austrias Ewald Nowotny, tell us Spain willnot need a bailout and that interest rates are already lowenough which is the same thing as denying there is acrisis, let alone a catastrophe. To a certain extent, we all

TABLE 1: FX AND GOLD RESERVES OFSELECT EUROZONE COUNTRIES

Country U.S. millions

Germany 249,260

Italy 187,298

France 185,040

Spain 49,178

Netherlands 56,080

Portugal 24,019

Austria 27,624

Finland 10,941

Greece 7,146

Nine of the 17 Eurozone countries hold almost $800billion in reserves.

Source: IMF

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suffer from crisis fatigue; it takes too much energy to befearful of so many potential negative developments. Somepeople say Spain is not Greece, and we could extend this

logic to say the Eurozone is not Thailand. In fact, letsjust consider the Eurozone too big to fail.

TBTF

Many international financial analysts are becomingincreasingly unwilling to buy into too big to fail. Thereis also a note of exasperation creeping into the discussion.The Europeans know what to do devalue and theywont do it. The Europeans wont spend their savings,and they would rather borrow from others than make anypolitically dangerous sacrifices.

And the size of the problem is not trivial. The combined

Eurozone and IMF bailout funds of about 1 trillion aremore than 10 times what the Asian crisis cost. Theres noreason to suppose the economic contraction will be anysmaller than the one that occurred in enterprising andenergetic Thailand, which took five years to recover to pre-crisis levels. And just as the Asian crisis jumped the Pacificto Latin America and then the Atlantic to Russia, we dontknow what regions European contagion might reach thistime. China, perhaps.

Why would the market not force a devaluation on theEuro if thats what it takes to restore balance? This mayseem like a nifty idea but traders are profit-maximizers,

not economic optimizers. The nearly horizontal line inFigure 2 is the linear regression from June 2006 to present(or seven years) at 1.3750. The red lines are hand drawn

support and resistance that form a nearly perfect sym-metrical triangle. A big-picture breakout to the downsidewould be required to suggest the market is obeying somenatural instinct to devalue the Euro, and that doesnt hap-pen until about 1.2930 and would not be confirmed untilthe previous lowest low (from May 2010) at 1.2143. Thisis what should happen, not what will happen, for thegreater good of the European and global economy.

The European crisis has generated only a few instancesof outright panic and mass selling of one asset or another,including equities. The world is, bizarrely, sanguine aboutthe future of the Eurozone, without having real justifica-

tion for it. Denying there is a problem and then belatedlycoming up with a half-baked solution that kicks the candown the road has so far sufficed to keep the Euro afloatnear its long-term (seven-year) linear regression trendline.

But refusing to call a spade a spade doesnt make it anyless a spade. The Eurozone is failing. The presence of theIMF proves it. Refusing to name it a failure doesnt makeit any less an authentic one. Presumably well see the Eurowhipsaw in ever narrower ranges as the apex of the tri-angle draws near but not until June 2014.y

For information on the author, see p. 4.

FIGURE 2: EUR/USD, WEEKLY

The nearly horizontal line is the linear regression line from June 2006 to April

2012. A downside breakout of the triangle would be required to suggest the

market is devaluing the Euro.

Source: Chart Metastock; data Reuters and eSignal

5 2006 2007 2008 2009 2010 2011 2012 2013 2014

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

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14/3114 October2010CURRENCY TRADER14 May2012CURRENCY TRADER

A monthly chart of the U.S. dollar/Canadian dollar pair(USD/CAD) shows that, with the notable exception of the2008 financial crisis, the U.S. buck has been losing groundto its Canadian counterpart since the first month of 2002(Figure 1). Although a trend can end at any time manyanalysts have no doubt called the bottom in the dollar/Canada rate several times over the past several years itis plain that shorting the pair has been the path of leastresistance over the past decade.

Also, although steepness of the dollar/Canada down-trend has eased over the past two years, there is no reason

to trade against that bias. As a result, a shorter-term trad-ing approach would logically seek to identify relative highpoints that offer the opportunity to enter the market on theshort side in the expectation of a downside reversal andresumption of the long-term bias. As is always the case,though, finding regularly repeating patterns that offer anedge and that fit within relatively constrained risk lim-its can be a challenge.

Figure 2 shows a daily chart of USD/CAD betweenDecember 2011 and late April 2012, when the pair initiallytraded lower, then sideways; the red arrows mark a half-

dozen bars identified by related pat-terns based on the activity during asingle bar and up to five bars. Lets seewhat type of price action these patternsrepresent, and whether they offer anykind of consistent advantage in capital-izing on the USD/CADs short-sidebias. All the analysis was conducted ondaily data from April 13, 1998 throughApril 23, 2012 (3,646 trading days).

Fading spike highs

The departure point for the patternsin Figure 2 was noticing a somewhatcommon-looking and intuitive pattern:a day with a conspicuously higherhigh with a weak close, a pattern thatis often (in one form or another) refer-enced in various key reversal setups.

Several examples suggested thesetup was often followed by at least afew days of selling. But because con-spicuous and weak are in the eyeof the beholder (subjective observa-

TRADING STRATEGIESTRADING STRATEGIES

Trading the Canadian biasDifferent short-side setups produce related profit profiles in the dollar/Canada pair.

BY CURRENCY TRADER STAFF

FIGURE 1: THE BIG SHORT

The U.S. dollar has lost ground to the Canadian dollar for the majority of the

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

7/31/2019 Ctm 201205


tions), its necessary to create someobjective definitions for these terms toavoid confusing our preconceptionsand market biases with objective pat-tern identification. For example, wemight consider a higher daily high thatinterrupts a string of lower highs con-spicuous, while overlooking a more

significant high-to-high move becauseit occurs within a larger run of higherhighs.

In this case, well define our con-spicuous high as a day with:

1. A high that is at least 0.35 percentabove the previous days high.

2. A high above the highs of the pre-vious five days.

3. A close in the bottom third of thedays range.

As formulas, these rules are:

1.(High[0]-High[1])/High[1]>=0.0035

2.(High[0]>Max(High[5]:High[1])

3.(Close[0]-Low[0])/(High[0]-

Low[0])

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16/31

Figure 3 sheds some light on the issue. It shows themedian close-to-close percentage moves from the final dayof the pattern to the closes of the next 10 days, as well as15 and 20 days later (red line). For comparison, the medianclose-to-close changes for all 1 to 10-, 15-, and 20-day peri-ods in the analysis window are included as a benchmark(blue line). There were 76 instances of this pattern during

the analysis period. The USD/CADs downward bias isevident in the blue lines gradual decline. Dollar/Canadasmedian one-day benchmark move was -0.02 percent, itsfive-day benchmark move was -0.06 percent, its 10-daymove was -0.13 percent, and its 20-day move was -0.27percent.

The post-pattern price action was much more volatile.There was an initial down move (with the exception ofday 2) in the first four days, followed by an upswing thatpeaked at day 7 (at which point the post-pattern declinewas smaller than the benchmark decline), followed byanother decline that dropped the median post-pattern

move to -0.34 percent or more by days 8 to 10, -0.87 per-cent by day 15, and -1.11 percent by day 20. Overall, youcould say the pattern offered downside potential aboveand beyond the markets natural downtrend, but you hadto wait a while to enjoy the lions share of it.

Experimenting a bit with the pattern criteria may helpreveal whether these basic results have any significance,

and if they can point us toward more promising patternsor pattern variations.

Making adjustments

Figure 4 shows the performance after two variations of thepattern that required the high day to be above the highs ofonly the previous two days or three days (green and redlines, respectively).

There is little difference between the two lines, each ofwhich represent around 120 pattern examples, and bothfollow the same general trajectory as pattern 1 from Figure3: an initial decline to day 4, followed by a rebound to day

7, followed by another downturn. In fact,the day 4 down move is about the samesize as it was for pattern 1, and the day 7rebound is less extreme.

Figure 5 shows the performance after avariation that loosens some of the patterncriteria but tightens the conspicuoushigh portion that is, how much higherthe high of the final bar must be above thepreceding high. In this variation, the highmust be above the previous four highs,

the close must be in the lower 44.9 percentof the days range, and the high mustbe at least 0.05 percent above the previ-ous days high (approximately twice themedian positive high-to-high move dur-ing the analysis period).

This reduced the number of examples to67, but resulted in more consistently nega-tive post-pattern performance. The initialpost-pattern down move extended to day6 and the (still present) peak at day 7 wasbelow the benchmark decline at that inter-


TRADING STRATEGIES

FIGURE 4: PATTERNS 2 AND 3

Reducing the higher high component from five days to three or two days

increased the number of signals by approximately 50 percent, but didnt

significantly alter the profit profile.

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TRADING STRATEGIES

FIGURE 6: PATTERN 5 RELAXING THE PATTERN

Liberalizing all the pattern parameters increased the number of signals to 220,

but the results still suggest a certain amount of downside outperformance.

val; the remaining downturn took thepair 1.07 percent lower by day 20.

Figure 6 shows the results of relax-ing (to different degrees) all the pat-terns parameters to see if the basicprofit profile remains intact. In thiscase, the high was above the previousfour highs, the close was in the bot-tom 44.99 percent of the days range,and the high was required to be only0.015 percent or more above the pre-ceding high (an amount smaller thanthe median positive high-to-highchange during the analysis period).

Using these settings dramaticallyincreased the number of signals, to220 (including the Jan. 9 and April 23signals in Figure 2), but overall the

results resemble the previous pat-tern variations, in diluted form: Therelative peak at day 7 remains intact,as does the longer-term downsideacceleration to day 20; the magnitudeof the decline throughout is smaller,though.

As a whole, the different variationssuggest the patterns basic profit pro-file is not a fluke, and that it offereda measure of downside outperfor-mance. Increasing the magnitude

of the high-to-high move i.e., thesize of the spike high appearedto generate the biggest advantageamong the variations, but tighten-ing this parameter will also result infewer trade signals. (One variationnot depicted in the preceding charts isrequiring the close to be more towardthe bottom of the days range. Doingthis produced no clear performancebenefits and also limited the numberof signals.)

FIGURE 5: PATTERN 4 LARGER HIGH-TO-HIGH MOVE

Increasing the minimum size of the final high-to-high move to 0.05 percentresulted in a more consistent post-pattern down move.

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TRADING STRATEGIES

During the financial crisis

Although the basic pattern appeared to outperform theUSD/CADs downside bias, its fair to ask what perfor-mance was like during a notably bullish period.

Figure 7 shows the price action after the 28 instancesof pattern 4 (see Figure 5) that occurred during the big

run-up in USD/CAD pair between November 2007 andMarch 2009. Although the red pattern line doesnt implymuch of a down move (it turns marginally positive by day

20), it stands in stark contrast to the blue benchmark line,which is positive at every interval and has a median gainof a little more than 1 percent at day 20. At the very least,the results suggest the patterns downside edge doesntcompletely disappear during a bullish phase, which wouldhelp minimize drawdowns during these periods.

One-bar pattern

Finally, Figure 8 shows the performance after 57 instancesof a related, but even simpler pattern: aday with a higher high that both opensand closes in the bottom 25 percent ofthe days range (see the Jan. 30 signalin Figure 2).

The very volatile results are none-theless more negative than thebenchmark and bear more than apassing resemblance to the previousperformance charts. (The day 7 peakin all patterns was mostly the result ofa small number of big up moves thatoccurred during the financial crisisrally.) Here, however, the results aremore consistently negative in the firstsix days.

One interesting characteristic notshown in Figure 8 is the differencesthat resulted from the positioning ofthe open and close prices. The patterns

were almost evenly divided betweenthose with a close above the open andthose with a close below the open; theformer were followed by more signifi-cant and more immediate downsideprice action than the latter.

Taken in whole, these two basic pat-terns suggest building pattern-basedsignals around relative highs couldprovide an edge for trading the down-side in the USD/CAD. Of course, to acertain extent this outlook is predicated

on the pair continuing its long-termbearish bias, but Figure 7 indicatessuch an approach has the potentialto weather bull phases, and possiblyprofit during them. Furthermore, thesepatterns are only two of many ways tomodel the types of shorting opportu-nities highlighted in Figure 2; relatedpatterns could be combined to create amore active trading strategy.y

FIGURE 8: PATTERN 6 ONE-BAR PATTERN

The performance after days with a higher high that closed in the bottom 25

percent of the days range was volatile but ultimately more negative than the

benchmark.

FIGURE 7: PERFORMANCE DURING BULLISH PERIOD

During the USD/CADs rally between late 2007 and early 2009, pattern 4s

downside bias is still evident, although noticeably weakened.

7/31/2019 Ctm 201205

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TRADING STRATEGIESADVANCEDCONCEPTS

Most of us have heard at some point in our lives the

bumblebee should be incapable of flying. As few of us are

versed in aerodynamics, we sort of shrug, note the bum-

blebee does in fact fly, and give the matter little further

thought.

The Israeli economy is a bumblebee of sorts. The coun-

try has been forced to maintain an outsized military, is

saddled with a large and growing self-imposed obligation

to support ultra-orthodox religious scholars, has an open-

door policy to absorb Jewish immigrants, is one of the last

vestiges of a mid-20th centurylabor socialism that never works

well, and, as the old joke goes,

was settled by people who wan-

dered for 40 years in the desert

only to come to the only spot in

the Middle East without oil. This

last part is not as true as it once

was: As soon as large natural gas

deposits were found offshore in

the Mediterranean, the country

promptly decided to tear up its1952 energy policy and impose

stiff new taxes. Deflation has not

been a problem in Israel over its

history.

Offsetting these handicaps is

one of the worlds most vibrant

technology centers, a booming

tourism industry, a large and per-

sistent current account surplus,

and large external transfer pay-

ments.

A currency of biblicalproportions

If you want to profit in the Israeli currency, keep your eyes on equities and interest rates.

BY HOWARD L. SIMONS

After the ILS entered a long-term bull market in early 2003, excess volatility fell and

has since been negative more often than not.

FIGURE 1

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The shekel

As befitting a country doubling as an open-air archaeologi-

cal site, the Israeli shekel (ILS) has a very long history; the

name itself derives from a Hebrew word meaning, He

weighed. Monetary terms around the world often origi-

nate from neighboring empires; the shekel appears to be of

Babylonian origin. How captivating.

Just as many of the Asian currencies we have examinedhave an important cross-rate to the Japanese yen, the ILS

has an important cross-rate to the Euro; we will examine

this rate along with the spot rate vs. the USD. First, lets

look at the ILS against the USD, overlaid with its excess

volatility, which is the ratio of the implied volatility for

three-month non-deliverable forwards to high-low-close

(HLC) volatility, minus 1.00, as a measure of the markets

demand for insurance. HLC volatility is defined as:

[[.5*(ln(max(H,Ct1)

min(L,Ct1)

))2 .39*(ln( C

Ct1

))2]*260

N ]1/2

i=1

N

Where Nis the number of days between

4 and 29 that minimizes the function:

1

N*

N

Vol2

i=1

N

* | (P MA) |* |MA |

The ILS has had one major downturnsince the introduction of the EUR in

January 1999, and that was during the

dot-com bust of 2000-2002 (Figure 1).

Israel was the third-largest country of

domicile for stocks listed on the Nasdaq

during that period. Excess volatil-

ity surged as traders bought insurance

against further downturns. Once the ILS

entered what proved to be a long-term

bull market in early 2003, excess volatility

fell and has been negative more often than

not. This is one of the more prominent investor skews in

currency option volatility we have seen.

The picture is different for the cross-rate against the EUR

(Figure 2). Here the ILS bear market persisted well into

the origins of the global financial crisis in 2007, and option

traders were perfectly fine with that. Once an option mar-

ket on the ILS for EUR holders arose in 2003, negative

excess volatility has been associated not with a strong ILSbut rather a weak one. Indeed, the spikes higher in excess

volatility have occurred during times of a strong shekel.

Interest rate expectations

Normally, we should expect a currency to strengthen when

its anticipated interest rate advantage increases. However,

the move toward money-printing in the U.S. in 2008 led

to an environment of perma-expectations that ultra-low

short-term interest rates were not sustainable and had to

rise quickly. This pushed the forward rate ratio between

six and nine months (FRR6,9) for USD and other curren-cies deposits to historic levels of steepness. The FRR6,9 is

Since 2003 negative excess volatility has been associated with a weak shekel.

Excess volatility spike highs have occurred during times of a strong shekel.

FIGURE 2

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24/31

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U.S. had paralleled the spot currency

rates between 2000 and 2007, which sug-

gested part of the currencys movement

was attributable to capital flows into and

out of the Israeli stock market (Figure 5).

The two markets diverged once the global

financial crisis took hold. It began to

reconverge by the end of 2010. We shouldexpect a strong linkage between the stock

markets relative performance and the ILS

if for no other reason than the countrys

small size makes even minor capital flows

count.

The same phenomenon is visible with

the relative performance of Israel to

the MSCI index for Eastern Europe, the

Middle East and Africa (Figure 6). Capital

flows into and out of the Israeli market

had a great effect on the exchange rateagainst the EUR, the base currency around

which this region fluctuates.

The strong linkage of the stock market

and the inverted linkage seen for interest

rate expectations suggest the best way to

approach trading the shekel is to track the

Israeli stock market. In the common par-

lance, both might be a good way to make

a few shekels.y

For information on the author, see p. 4.

Israels performance relative to the U.S. had paralleled the spot currency

rates between 2000 and 2007, but the two markets diverged once the globalfinancial crisis took hold. It began to reconverge by the end of 2010.

FIGURE 5

Capital flows into and out of the Israeli market had a great effect on the

exchange rate vs. the Euro, the base currency around which Eastern Europe,

the Middle East, and Africa fluctuate.

FIGURE 6

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CPI:Consumerpriceindex

ECB:EuropeanCentralBank

FDD(rstdeliveryday):Therstday on which delivery of a com-

modityinfulllmentofafuturescontractcantakeplace.

FND(rstnoticeday):Alsoknownasrstintentday,thisis

therstdayonwhichaclear-nghouse can give notice to a

buyer of a futures contract that it

ntends to deliver a commodity in

fulllmentofafuturescontract.The clearinghouse also informs

the seller.

FOMC:FederalOpenMarketCommittee

GDP:Grossdomesticproduct

ISM:Instituteforsupplymanagement

LTD(lasttradingday):Thenaldaytradingcantakeplaceina

futures or options contract.

PMI:Purchasingmanagersindex

PPI:Producerpriceindex

Economic Release

release (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.

GLOBALECONOMICCALENDAR

May

1 U.S.:April ISM manufacturing report

2 Germany: March employment report

3ECB: Governing council interest rateannouncement

4U.S.:April employment reportLTD: May forex options; May U.S.

dollar index (ICE)5

6

7

8 Brazil: AprilPPI

9Brazil: AprilCPIMexico: April30CPIandAprilPPI

10

U.S.: March trade balanceAustralia:April employment reportUK: BankofEnglandinterestrateannouncement

11

U.S.: AprilPPICanada:April employment reportGermany: AprilCPIHong Kong: Q1GDPUK: AprilPPI

12

13

14India: AprilPPIJapan: AprilPPI

15U.S.: AprilCPIandretailsalesFrance: AprilCPIGermany: Q1GDP

16U.S.:April housing startsUK:April employment report

17

U.S.:April leading indicatorsHong Kong: February-Aprilemployment report

Japan: Q1GDP

18Canada:AprilCPIGermany: AprilPPI

19

20

21

22Hong Kong: AprilCPIUK: AprilCPI

23Japan: BankofJapaninterestrateannouncement

South Africa: AprilCPI

24

U.S.: April durable goods

Brazil:April employment reportMexico: Q1GDPandMay15CPI

25Japan: AprilCPIMexico:April employment report

26

27

28

29Japan:April employment reportSouth Africa: Q1GDP

30 Canada:AprilPPI

31

U.S.: Q1GDP

France: AprilPPIGermany:April employment reportIndia: Q1GDPandAprilCPISouth Africa: Q1 employment reporandAprilPPI

June

1

U.S.:April personal income, Mayemployment report, and ISM

manufacturing report

Brazil: Q1GDPCanada: Q1GDP

23

4

5Canada: BankofCanadainterestrate announcement

6

U.S.: FedbeigebookAustralia: Q1GDPBrazil: MayCPIandPPIEBC: Governing council interest rateannouncement

The information on this page is sub-

ect to change. Currency Traderis

not responsible for the accuracy of

calendar dates beyond press time.

Event: The Traders Expo DallasDate: June6-9Location: Hyatt Regency Dallas at ReunionFor more information: Go to www.dallastradersexpo.com

Event: The Trading ShowDate: June25-27Location:NavyPier,ChicagoFor more information: Go to www.terrapinn.com

Event: Quant Invest ChicagoDate:June25-27Location:NavyPier,ChicagoFor more information: Go to www.terrapinn.com

Event: The 21st Forbes Cruise for InvestorsDate: June27-July8Location: CrystalSerenity,StockholmtoCopenhagenFor more information: Go to www.moneyshow.com

EVENTS

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27/31

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28/31

INTERNATIONALMARKETS


CURRENCIES (vs. U.S. DOLLAR)

Rank CurrencyApril 26 pricevs. U.S. dollar

1-monthgain/loss

3-monthgain/loss

6-monthgain/loss

52-weekhigh

52-weeklow

Previous

1 GreatBritainpound 1.613585 1.68% 3.42% 0.88% 1.6702 1.5308 3

2 Singapore dollar 0.803 1.26% 1.78% 1.43% 0.832 0.7606 7

3 Canadian dollar 1.014185 1.20% 1.47% 2.07% 1.059 0.9467 1

4 Japaneseyen 0.01229 1.19% -4.21% -6.50% 0.0132 0.0119 12

5 Taiwan dollar 0.033920 0.15% 1.56% 2.17% 0.03510 0.032 4

6 Hong Kong dollar 0.128875 0.12% 0.02% 0.21% 0.129 0.1281 5

7 Chinese yuan 0.15836 0.03% -0.23% 0.86% 0.1589 0.1532 6

8 Swedishkrona 0.14849 -0.03% 0.42% -2.74% 0.1662 0.1427 15

9 Swiss franc 1.0988 -0.22% 2.05% -3.29% 1.3779 1.0459 9

10 Russian ruble 0.03405 -0.39% 4.66% 3.92% 0.0366 0.0303 2

11 Euro 1.32045 -0.49% 1.45% -5.11% 1.4842 1.2657 10

12 NewZealanddollar 0.812915 -0.64% 0.42% 1.37% 0.8797 0.7397 14

13 Thai baht 0.03235 -0.71% 2.02% -0.29% 0.0336 0.031 11

14 South African rand 0.12865 -1.17% 2.42% 1.56% 0.1518 0.1166 8

15 Australian dollar 1.03297 -1.31% -1.68% -1.25% 1.1028 0.9478 13

16 Indian rupee 0.01876 -2.22% -4.82% -6.08% 0.0226 0.0181 16

17 Brazilianreal 0.53104 -3.60% -6.61% -6.80% 0.65 0.5288 17

Country Index April 261-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow Previo

Australia All ordinaries 4,445.00 2.06% 2.22% 3.35% 5,012.30 3,829.40 9

2 South Africa FTSE/JSEAllShare 34,251.43 1.74% 0.55% 7.92% 34,426.74 28,391.18 11

3 Mexico IPC 39,212.16 0.90% 5.29% 9.47% 39,963.60 31,659.30 4

4 Hong Kong Hang Seng 20,809.71 0.68% 1.81% 9.14% 24,132.10 16,170.30 13

5 India BSE30 17,130.67 0.46% -0.60% -0.91% 19,619.70 15,135.90 14

6 Singapore Straits Times 2,981.47 0.23% 3.01% 7.64% 3,227.28 2,521.95 5

7 U.S. S&P500 1,399.98 -1.17% 6.19% 12.72% 1,422.38 1,074.77 3

8 Switzerland SwissMarket 6,122.40 -2.56% 0.36% 7.40% 6,604.50 4,695.30 6

9 UK FTSE 100 5,748.70 -2.61% -0.80% 3.52% 6,103.70 4,791.00 12

0 Canada S&P/TSX composite 12,145.85 -3.41% -2.56% -0.33% 14,089.10 10,848.20 15

1 Japan Nikkei225 9,561.83 -4.56% 8.05% 9.30% 10,255.20 8,135.79 1

2 Germany Xetra Dax 6,739.90 -4.79% 3.06% 12.03% 7,600.41 4,965.80 2

3 Brazil Bovespa 62,198.00 -6.73% -1.20% 8.84% 68,970.00 47,793.00 7

4 France CAC 40 3,229.32 -7.79% -3.98% 4.07% 4,137.97 2,693.21 10

5 Italy FTSEMIB 14,509.96 -12.69% -9.94% -9.72% 22,575.30 13,115.00 8

7/31/2019 Ctm 201205


Rank Currency pair Symbol April 261-monthgain/loss

3-monthgain/loss

6-monthgain loss

52-weekhigh

52-weeklow Previou

1 Yen/Real JPY/BRL 0.02315 5.04% 2.59% 0.41% 0.0246 0.0191 3

2 Canada$/Real CAD/BRL 1.90981 4.98% 9.75% 9.61% 1.90981 1.5997 1

3 Euro/Real EUR/BRL 2.486545 3.22% 8.63% 1.90% 2.5367 2.204 2

4 Pound/Aussie$ GBP/AUD 1.562085 3.03% 5.19% 2.16% 1.626 1.4637 6

5 Aussie$/Real AUD/BRL 1.945195 2.37% 5.28% 6.04% 1.9461 1.6402 4

6 Pound/Franc GBP/CHF 1.468495 1.90% 1.34% 4.32% 1.4753 1.1778 8

7 Euro/Aussie$ EUR/AUD 1.278305 0.83% 3.18% -3.91% 1.4011 1.2188 9

8 P ound/ Canada$ GBP/CAD 1.59102 0.47% 0.91% -1.16% 1.6354 1.5302 16

9 Pound/Yen GBP/JPY 131.265 0.43% 7.96% 7.88% 136.21 117.58 710 Canada$/Yen CAD/JPY 82.505 -0.03% 6.99% 9.16% 86.09 72.63 5

11 Euro/Franc EUR/CHF 1.20172 -0.27% -0.58% -1.88% 1.2933 1.0376 13

12 Aussie$ /NewZeal$ AUD/NZD 1.270655 -0.67% -2.10% -2.59% 1.3637 1.2354 12

13 Aussie$/Franc AUD/CHF 0.94009 -1.09% -3.65% 2.11% 0.99 0.7477 17

14 Franc/Canada$ CHF/CAD 1.083435 -1.40% -0.43% -5.25% 1.3569 1.0676 19

15 Franc/Yen CHF/JPY 89.39 -1.42% 6.53% 3.42% 105.79 80.46 11

16 Euro/Canada$ EUR/CAD 1.301985 -1.67% -1.01% -7.03% 1.4316 1.2917 20

17 Euro/Yen EUR/JPY 107.42 -1.69% 5.91% 1.47% 121.13 97.22 10

18 NewZeal$/Yen NZD/JPY 66.135 -1.85% 4.83% 8.41% 68.81 57.23 15

19 Euro/Pound EUR/GBP 0.81833 -2.13% -1.90% -5.94% 0.9038 0.8163 18

20 Aussie$ /Canada$ AUD/CAD 1.018525 -2.39% -4.07% -3.25% 1.0755 1.001 2121 Aussie$/Yen AUD/JPY 84.03 -2.51% 2.64% 5.59% 89.09 72.72 14

Country Interest Rate Rate Last change October 2011 April 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 (Oct 10) 0-0.1 0-0.1

Eurozone Refi rate 1 0.25 (Dec 11) 1.5 1.25

England Repo rate 0.5 0.5 (March 09) 0.5 0.5

Canada Overnight rate 1 0.25 (Sept 10) 1 1

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

Australia Cash rate 4.25 0.25 (Dec 11) 4.75 4.75

NewZealand Cash rate 2.5 0.5 (March 11) 2.5 2.5

Brazil Selic rate 9 0.75(Apr12) 11.5 12

Korea Korea base rate 3.25 0.25(June11) 3.25 3

Taiwan Discount rate 1.875 0.125(June11) 1.875 1.75

India Repo rate 8 0.5 (Apr 11) 8.5 6.75

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

Rank Account balance 2011 Ratio 2010 20121 Singapore 56.989 21.932 55.509 58.892

2 Norway 70.645 14.607 51.878 74.25

3 Switzerland 89.103 14.009 82.419 75.236

4 TaiwanProvinceofChina 41.27 8.84 39.873 38.473

5 Netherlands 62.929 7.488 51.283 65.75

6 Sweden 36.294 6.743 29.007 16.566

7 Germany 205.449 5.744 199.92 180.325

8 Hong Kong SAR 10.08 4.143 12.385 8.206

9 Korea 26.505 2.375 29.394 22.203

10 Japan 120.241 2.049 195.856 130.03711 Ireland 0.177 0.081 1.01 1.994

12 Belgium -0.632 -0.123 6.864 -1.372

13 United Kingdom -46.469 -1.922 -75.089 -42.324

14 Australia -33.001 -2.217 -35.422 -73.183

15 Canada -48.815 -2.811 -49.375 -48.345

16 CzechRepublic -6.348 -2.949 -5.993 -4.402

17 United States -473.439 -3.137 -470.898 -509.911

18 Italy -70.089 -3.188 -72.59 -45.878

19 Spain -55.349 -3.706 -64.226 -29.956

Source: International Monetary Fund, World Economic Outlook Database, April 2012

7/31/2019 Ctm 201205


INTERNATIONALMARKETS

GDP Period Release date Change 1-year change Next release

AMERICAS

Argentina Q4 3/26 5.0% 15.6%

Brazil Q4 3/6 4.2% 6.5% 6/1

Canada Q4 3/2 1.5% 5.4% 6/1

EUROPE

France Q4 3/28 0.2% 1.7% 6/29

Germany Q4 2/15 0.0% 2.6% 5/15

UK Q4 3/27 0.6% 2.9% 6/28

AFRICA S. Africa Q4 3/29 3.3% 10.3% 6/21

ASIA and S.PACIFIC

Australia Q4 3/7 0.4% 2.8% 6/6

Hong Kong Q4 2/1 3.0% 6.5% 5/11

India Q4 2/29 12.0% 14.2% 5/31

Japan Q4 2/13 -0.6% -2.3% 5/17

Singapore Q4 2/24 3.8% 3.8% 5/25

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

AMERICAS

Argentina Q4 2/22 6.7% -0.5% -0.6%

Brazil March 4/26 6.2% 0.5% -0.3% 5/24

Canada March 4/5 7.2% -0.2% -0.4% 5/11

EUROPE

France Q4 3/1 9.4% 0.1% 0.1% 6/7

Germany Feb. 3/29 7.2% -0.2% -0.4% 5/2UK Dec.-Feb. 4/18 8.3% -0.1% 0.5% 5/16

ASIA andS. PACIFIC

Australia March 4/12 5.2% 0.0% 0.2% 5/16

Hong Kong Jan.-March 4/19 3.4% 0.0% -0.1% 5/17

Japan March 4/27 4.5% 0.0% -0.2% 5/29

Singapore Q1 4/30 2.1% 0.1% 0.2% 7/31

CPI Period Release date Change 1-year change Next release

AMERICAS

Argentina March 4/13 0.9% 9.8%

Brazil March 4/5 0.2% 5.2% 5/9

Canada March 4/20 0.4% 1.9% 5/18

EUROPEFrance March 4/12 0.8% 2.3% 5/15

Germany March 4/13 0.3% 2.1% 5/11

UK March 4/17 0.3% 3.5% 5/22

AFRICA S. Africa March 4/18 1.1% 6.0% 5/23

ASIA andS. PACIFIC

Australia Q1 4/24 0.1% 1.6% 7/25

Hong Kong March 4/23 0.5% 4.9% 5/22

India March 4/30 0.1% 8.6% 5/31

Japan March 4/27 0.5% 0.5% 5/25

Singapore March 4/23 0.8% 5.2% 5/23

PPI Period Release date Change 1-year change Next release

AMERICAS Argentina March 4/13 1.0% 12.7%Canada March 4/30 0.2% 0.9% 5/30

EUROPE

France March 4/27 0.5% 3.7% 5/31

Germany March 4/20 0.6% 3.3% 5/18

UK March 4/13 0.6% 3.6% 5/11

AFRICA S. Africa March 4/26 -0.1% 7.2% 5/31

ASIA andS. PACIFIC

Australia Q1 4/23 -0.3% 1.4% 7/23

Hong Kong Q4 3/13 0.2% 6.5% 6/14

India March 4/16 0.3% 6.9% 5/14

Japan March 4/12 0.6% 0.6% 5/25

Singapore March 4/27 1.7% 4.1% 5/29As of April 30LEGEND: Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.

7/31/2019 Ctm 201205

31/31

TRADE

Date: Thursday, April 26, 2012.

Entry: Short the Euro/British pound pair (EUR/GBP) at

.8174.

Reason for trade/setup: The spike high on April 25 (the

first spike in the daily chart inset) was a little less than 0.04

percent above the highs of the days immediately preceding

and succeeding it. Analysis of more than two dozen previ-

ous spike highs with similar characteristics showed theseevents were followed by declining prices in the EUR/

GBP pair a few days after the final day of the pattern: The

median decline four days after the close of the day follow-

ing the spike-high day (which in this case was April 26)

was -0.46 percent.

Also, in early April the pair broke out of the downside of

the consolidation that began at the beginning of the year,

clearing a path to test the 2010 low at .8066, and poten-

tially the support zone defined by the 2008 consolidation

(around .7950).

Initial stop: .8219.

Initial target: .8070, a little above the 2010 low of .8066.

RESULT

Exit: Trade still open.

Profit/loss: +.0024, marked to market at

11:07 a.m. on May 1.

Outcome: The trade got off to a promising start, trading

down to around .8120 early on April 30 before jumping

higher again on May 1 (the second

spike high in daily chart inset). After

trading nearly to .8200, the pair

tumbled to an intraday low by noon,

however, setting up the possibility(depending on the price action on May

2) that another daily spike-high pat-

tern would form.

As of May 1, the position was still

open; a move below .8100 will trigger

a lowering of the stop to the break-

even level.y

Note: Initial trade targets are typically based on

things such as the historical performance of a price

pattern or a trading system signal. However, because

individual trades are dictated by immediate circum-stances, price targets are exible and are often used

as points at which to liquidate a portion of a trade

to reduce exposure. As a result, initial (pre-trade)

reward-risk ratios are conjectural by nature.

Tradesignalindicatespotentialfortwo-waytradeintheEUR/GBPpair.

TRADE SUMMARY

DateCurrency

pairEntryprice

Initialstop

Initialtarget IRR MTM Date

P/LLOP LOL

Tradelengthpoint %

4/26/12 EUR/GBP 8174 8219 8070 2 08 8150 5/1/12 0024 0 29% 0052 - 0023 3 days

FOREXTRADEJOURNAL

Source:TradeStation

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