US Dollar Outlook

Kathy Lien and Boris Schlossberg

Directors of Currency Research

DisclaimerGFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading, GFT Global

Markets Asia Pte. Ltd. and GFT Global Markets UK Limited. In the United Kingdom, GFT Global Markets UK Limited is authorized and regulated

by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale

are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can

carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means

Global Futures & Forex, Ltd. ARBN 103 508 461, AFS License 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au.

You should read and consider the PDS before making any decision to deal in GFT products. This [advertisement] is published by GFT Global

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solicitation to deal in any investment product or to enter into any legal relations, nor an advice or a recommendation with respect to such

investment product. © 2009 Global Futures & Forex, Ltd. All rights reserved.

DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for extensive independent research

before making your investment decisions. Global Forex Trading is merely providing this presentation for your general information. This

presentation and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All

investors should obtain advice based on their unique situation before making any investment decision based upon this presentation or any

information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global

Forex Trading, Boris Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and clients as

a result of any information contained in this presentation. Global Forex Trading, Boris Schlossberg, and Kathy Lien do not render investment,

legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent

professional should be sought. CD08BKU.004.021809

BK

Agenda

Big Moves in the FX Market

Headed to ZIRP

Outlook for the US Economy

China: Obama’s New Strategy

Eurozone Stress

UK Mess

No Yen for Japan

Who will bounce back first?

Outlook for EUR/USD, GBP/USD, USD/JPY

BK

The US Dollar

Skyrocketing since July 2008

K

EUR/USD

KSource: Dealbook

GBP/USD

KSource: Dealbook

EUR/JPY

KSource: Dealbook

GBP/JPY

KSource: Dealbook

USD/JPY

KSource: Dealbook

Relative Performance - USD

K

Source: Bloomberg

Relative Performance - JPY

K

Revenge of the Low Yielders

Source: Bloomberg

Volatility Has Surged

K

Source: Bloomberg

PPP - CPI

K

Source: Bloomberg

What happened?

B

ZIRP

The Path Towards Global ZIRP

BSource: GFT

ZIRP

Why?

B

Because price levels are collapsing.

Oil vs. CPI

BSource: GFT

What are the Drivers?

CPI Case-Shiller Used Instead of Owners Equivalent Rent source http://globaleconomicanalysis.blogspot.com/

BSource: GFT

What are the Drivers?

What are the Drivers?

Yield No Longer Matters

B

The only question for FX:who will rebound first?

Recession vs. Depression

Recession: When your neighbor loses his job

Depression: When you lose your job

B

Recession vs. Depression

B

Great Depression of 1929

1. Unemployment at 25% (now 7.5%)

2. GDP at $7.5 trillion (now $13T)

3. Deflation - CPI at -10% (now +0.1%)

4. House prices dropped 25% (now -10%)

5. World trade declined 65%

6. Stocks dropped 40% from Sept to Oct and down 90% by 1932

(down 43% since 2007)

US Economy

Recession vs. Depression

B

Recession

1. Defined as when GDP growth slows, businesses stop expanding, unemployment rises and house prices decline.

2. Managed contraction in GDP.

3. Brought on by tight interest rates, ends when CB eases

4. Lower rates help boost liquidity

Depression

1. Defined as a downturn that lasts several years

2. Unmanaged economic contraction where monetary policy ceases to work as rates hit zero

3. Further rate cuts impossible

4. Prices drop as demand falls

5. Deflationary expectations set in

6. Cannot self-correct since they are structural problems

US Economy

How long do recessions last?

B

Protectionism

Buy American Bill:Allows companies to buy only

US-manufactured steel and iron

Source: berklube.com

US Economy

Can we spend our way out of a recession?

• $900B Stimulus Package - Keynesian Economics

• Focused on energy, education and health care

• How will we pay for it? > Raise taxes and/or print money

• Raise Taxes – Robbing Peter to pay Paul

• Print Money – Rob Paul to Pay Paul back with devalued $

• What we need is INNOVATION

US Economy

US Economy

Can we spend our way out of a recession?

Source: Bianco Research / East Coast Economics

• Consequences of branding China as a currency manipulator

• China has $1.94 Trillion in FX Reserves- $900 B estimated to be in US Treasuries

Agencies Have

Government

Backing

Source: Brad Setser

China

China

Growth

• Q4 growth was 6.8%,

• 2008 growth was 9% (7-year low)

• Can China make its 8% growth target?

• Minimum that China needs to create enough jobs

Source: National Bureau of Statistics of China

Ramifications for the US Dollar

• In past recessions, $ tends to fall in first six months, rises in next six months

• No pattern beyond 12 months

• 1980s recession

Source: Bloomberg

Euro Stress

Is Trichet too slow?

Source: DealBook

Euro Stress

Part of dollar’s strength is due to the fact that Euro is losing viability.

Can a currency without a country survive a steep economic

downturn?

UK Mess

The hedge fund economy blows up…

Source: Bloomberg

UK Mess

…but maybe it’s hit bottom.

Source: Bloomberg

UK Mess

Has EUR/GBP topped?

Source: Dealbook

No Yen For Japan

No Yen For Japan

Industrial Production Falls at Fastest Pace Since Great Depression

Source: Bloomberg

No Yen For Japan

Toxic combination of strong Yen and collapsing global demand.

Will BOJ Intervene?Will it Work?

No Yen For Japan

Source: Dealbook

Carry Trades

Is Mrs. Watanabe turning short?

Source: Tokyo Financial Exchange

Key question: Who will bounce back first?

Recovery

Outlook for the Majors

EUR/USD Up-Down?

UP DOWN

EZ economy stabilizes as North/South nations create a coordinated plan of action and faith in the currency is restored.

US economy responds to stimulus, first to rebound from

global recession.

US Treasury Auction fails as investors refuse to absorb any more US Sovereign debt capital flight ensues.

EZ union nears collapse as economic stress creates

political backlash, member sovereign credits come under

assault.

Global capita markets rally, risk assumption returns as doomsday fears dissipate.

Dollar remains repository of safe haven funds as global

economy remains mired in a protracted recession.

GBP/USD Up-Down?

UP DOWN

UK economy stabilizes – PMI’s a clue? Quick monetary and fiscal response, lower pound yield positive results.

UK economy remains stuck at very low production rates as demand is curbed due to persistently high jobless rate and growing debt burdens.

Global capital markets stage a rally. London resumes its role as the financial intermediary to the world.

Global capital markets remain bearish – BOTH equities and fixed income continue to fall.

Capital leaves the dollar on US financial concerns.

High leverage of UK consumers and massive

issuance of sovereign debt trigger capital flight.

USD/JPY Up-Down?

UP DOWN

US economy bounces, Dow rises, US 2-year rates increase to 3.5% reviving demand for carry and yield.

Risk Aversion reigns supreme, Dow dives to 6000

or lower.

Japanese economy recovers slightly prompting return of risk appetite.

US economic fortunes do not improve, credit contraction

creates massive deflation of US assets.

BOJ intervenes as strong yen hurts exporters.

Repatriation of Japanese funds continues unabated as

world sits at ZIRP.

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DisclaimerGFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading, GFT Global

Markets Asia Pte. Ltd. and GFT Global Markets UK Limited. In the United Kingdom, GFT Global Markets UK Limited is authorized and regulated

by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale

are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can

carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means

Global Futures & Forex, Ltd. ARBN 103 508 461, AFS License 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au.

You should read and consider the PDS before making any decision to deal in GFT products. This [advertisement] is published by GFT Global

Markets Asia Pte. Ltd. (Company Registration Number 200717665N) in Singapore for informational purposes only and is not an offer or a

solicitation to deal in any investment product or to enter into any legal relations, nor an advice or a recommendation with respect to such

investment product. © 2009 Global Futures & Forex, Ltd. All rights reserved.

DISCLAIMER: This presentation and the information provided here should not be relied upon as a substitute for extensive independent research

before making your investment decisions. Global Forex Trading is merely providing this presentation for your general information. This

presentation and its information does not take into account any particular individual’s investment objectives, financial situation, or needs. All

investors should obtain advice based on their unique situation before making any investment decision based upon this presentation or any

information contained within. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global

Forex Trading, Boris Schlossberg, and Kathy Lien will not be responsible for any losses incurred on investments made by readers and clients as

a result of any information contained in this presentation. Global Forex Trading, Boris Schlossberg, and Kathy Lien do not render investment,

legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent

professional should be sought. CD08BKU.004.021809

BK