CTM 201305

Price-pattern FX portfolio strategy
P. 16
Strategies, analysis, and news for FX traders
May 2013 Volume 10, No. 5
Aligning trade triggers: Multiple signals, increased momentum p. 20 Forex nightmare: Central banks loom over market p. 10
The dollar, imports, and inflation p. 22
CONTENTS
Contributors..................................................4 Global Markets Emerging Asia strong, but wary of yen depreciation......................6
Theres more diversity than ever among Asian economies, and some currencies are better situated than others to take advantage of the regions booming growth. By Currency Trader Staff
Global Economic Calendar......................... 26

Important dates for currency traders.
Events ........................................................26
Conferences, seminars, and other events.
Currency Futures Snapshot.................. 28 BarclayHedge Rankings......................... 28

Top-ranked managed money programs
On the Money Traders nightmare .................................. 10

Looming central bank actions may appear to be potential triggers for certain currency moves, but you cant count on the FX market following the script. By Barbara Rockefeller
International Markets............................. 29
Numbers from the global forex, stock, and interest-rate markets.
Trading Strategies A price-action portfolio FX strategy ....... 16

A non-optimized price-pattern system shows potential on a three-currency portfolio. By Daniel Fernandez
Two is better than one ............................ 20

Aligning multiple trade triggers helps increase the odds of a momentum move. By Greg Michalowski
Looking for an advertiser?

Click on the company name for a direct link to the ad in this months issue. eSignal FXCM Interactive Brokers The Trading Show Chicago
Advanced Concepts Currencies and relative import inflation.......................................... 22

Despite the Feds quantitative easing, capital exports to the U.S. will keep the trade-weighted dollar stronger than it would be otherwise. By Howard L. Simons
Questions or comments?
Submit editorial queries or comments to webmaster@currencytradermag.com
2 May 2013 CURRENCY TRADER
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CONTRIBUTORS
q Howard Simons is president of Rosewood Trading Inc. and a strategist for Bianco Research. He writes and speaks frequently on a wide range of economic and financial market issues.
A publication of Active Trader
For all subscriber services:

www.currencytradermag.com
Editor-in-chief: Mark Etzkorn metzkorn@currencytradermag.com Managing editor: Molly Goad mgoad@currencytradermag.com Contributing editor: Howard Simons
q Barbara 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 financial institutions, and currently publishes two daily reports on foreign exchange. Rockefeller is the author of Technical Analysis for Dummies, Second Edition (Wiley, 2011), 24/7 Trading Around the Clock, Around the World (John Wiley & Sons, 2000), The Global Trader (John Wiley & Sons, 2001), The Foreign Exchange Matrix (Harriman House, 2013), and How to Invest Internationally, published in Japan in 1999. A book tentatively titled How to Trade FX is in the works. Rockefeller is on the board of directors of a large European hedge fund. q Daniel Fernandez is an active trader with a strong interest in calculus, statistics, and economics who has been focusing on the analysis of forex trading strategies, particularly algorithmic trading and the mathematical evaluation of long-term system profitability. For the past two years he has published his research and opinions on his blog Reviewing Everything Forex, which also includes reviews of commercial and free trading systems and general interest articles on forex trading (http://mechanicalforex.com). Fernandez is a graduate of the National University of Colombia, where he majored in chemistry, concentrating in computational chemistry. He can be reached at dfernandezp@unal.edu.co. q Greg Michalowski is the chief currency analyst at FXDD (www.fxdd.com) and author of the book Attacking Currency Trends (John Wiley & Sons). Retail forex traders can learn from his 28 years of market experience and get real-time market analysis at www.livestream.com/FXDD and www.fxddnow.com daily. An upcoming article will look at how to find the low-risk E=MC2 energy levels, with a twist.
Contributing writers: Barbara Rockefeller, Marc Chandler, Chris Peters Editorial assistant and webmaster: Kesha Green kgreen@currencytradermag.com
President: Phil Dorman pdorman@currencytradermag.com Publisher, ad sales: Bob Dorman bdorman@currencytradermag.com Classified ad sales: Mark Seger seger@currencytradermag.com
Volume 10, Issue 5. Currency Trader is published monthly by TechInfo, Inc., PO Box 487, Lake Zurich, Illinois 60047. Copyright 2013 TechInfo, Inc. All rights reserved. Information in this publication may not be stored or reproduced in any form without written permission from the publisher. The information in Currency Trader magazine is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.
May 2013 CURRENCY TRADER
GLOBAL MARKETS
Emerging Asia strong, but wary of yen depreciation

Theres more diversity than ever among Asian economies, and some currencies are better situated than others to take advantage of the regions booming growth.
BY CURRENCY TRADER STAFF
While global GDP continues to limp along in the second quarter, emerging Asian economies offer a bright spot among the economic clouds. The International Monetary Fund (IMF) recently trimmed its 2013 global GDP forecast to 3.3%, with advanced economies averaging a 1.2% rate and emerging and developing economies growing at a 5.3% pace this year. On a relative growth basis, emerging Asia specifically is standing tall among world economies. The IMF forecasts a 5.9% GDP rate in 2013 for the Association of Southeast Asian Nations (ASEAN), which includes Indonesia, Malaysia, Philippines, Thailand, and Vietnam. FIGURE 1: DOLLAR/YEN Asian regional currencies should be able to hold their own in 2013, given that the uncertainties in the global economy are likely to persist, especially in the Eurozone, says Maya Ann Pinto, economist at IDEAglobal Ltd. Most of the region will successfully approach its potential GDP by year-end, according to Glenn Levine, senior economist at Moodys Analytics. It will continue to be the fastest-growing region in the world, with low risks, though its heavy reliance on exports means the sluggish U.S. and European recoveries will drag on growth. However, the sustained easy-money policies of developed nations has led to an interesting brew of market, trade, and currency factors, leaving many unanswered questions for the region. Quantitative easing and global monetary policy are an issue, Levine says. There are questions about how central banks across Asia, particularly in the ASEAN, will handle hot-money inflows stemming from excessively loose monetary policy in the U.S., UK, and Japan. Asset prices have risen strongly across Southeast Asia but central banks have been reluctant to raise interest rates for fear of lifting their currencies and snuffing out exports. The result, Levine warns, could be capital controls. While Figure 1 shows the Japanese yen has weakened dramatically in response to the Bank of Japans (BOJ) monetary policies, some emerging Asian currencies have strengthened. But the weaker yen does have implications for other export-driven Asian nations, which could lead to additional bouts of forex intervention this year. The Thai baht (THB) has been a strong performer, gaining roughly 6% on the year vs. the U.S. dollar through
The Japanese yen has weakened dramatically as a result of the Bank of Japans (BOJ) monetary policies.
Source: TradeStation
FIGURE 2: THAI BAHT China is below what most people expected, he says, pointing to a first-quarter 2013 GDP rate of 7.7%, a slowdown from the fourth-quarter 2012 pace of 7.9%. The three largest economies in the region China, India, and Korea are weak from within, he adds, referring to domestic consumption and investment. Nonetheless, Larios believes Asia is the fastest-growing region in the world and will probably continue to be. The currency implications are straightforward. It is still an environment for these currencies to gain vs. the U.S. dollar, amid continuation of quantitative easing in the U.S., he says. Pinto believes the regions strong internal fundamentals will be a bullish factor for its currencies. Strong fundamentals of the regional economies, strong growth led by domestic demand, current account surpluses in most countries, contained fiscal deficits in most countries, and contained inflation in most countries are likely to continue to attract foreign inflows and guide FX performance in 2013, he says.
The Thai baht (THB) gained roughly 6% on the year vs. the U.S. dollar through mid-April.
Source: ADVFN.com
mid-April and around 11% since July 2012 before bouncing late in the month (Figure 2). The Indian rupee (INR) has the second-strongest Asian currency thus far in 2013, with a 1.9% increase into late April (Figure 3). Perhaps more significant: Most Asian currencies have strengthened dramatically vs. the yen.
The Philippines
Diverging economies
One of the important developments forex traders need to understand are the nuances among the various emerging Asian economies. Sean Callow, senior currency strategist at Westpac Institutional Bank, says the most notable of these has been the extent of divergence within Asia. No longer is the decision simply to buy or sell USD/Asia, he says. Callow illustrates the point by noting that a long Thai baht vs. the Korean won (KRW) trade would have returned almost 12% through April. The baht has been its own story, with Thailands economy recovering strongly from the late 2011 floods, helped by loose monetary and fiscal policy, he says. In contrast, Korean growth has undershot, while North Korean tensions have exceeded the usual bluster. The Indian rupee has been helped by easing inflation pressures but remains historically weak. The Singapore dollar has been undermined by disappointingly soft growth (-0.6% GDP in Q1 2013), Callow says. Callow stresses the importance of understanding the fundamentals of individual nations rather than the region as whole, which he says was the case for much of the postfinancial crisis period. At the moment, the [recovery] process is yielding uneven results in terms of economic strength, says Dr. Francisco Larios, chief emerging-market economist at Decision Economics, Inc. The smaller economies around China, such as the Philippines and Indonesia, are bouncing back more strongly than China. Its all happening tenuously and the recovery is in the very early phases. Larios says recent data out of China suggests its economy is moving sideways, at best. The rate of growth in
Looking at country-specific GDP forecasts for 2013, Nomura estimates the following: China 7.7%; the Philippines 6.4%; Indonesia 6.1%; India 5.2%; Thailand 4.5%; Malaysia 4.3%; Taiwan 3%; South Korea 2.7%; Hong Kong 2.5%; and Singapore 2.4%. The Philippines could be one of the regions star performers for the year. We expect the Philippines will grow 6.7% in 2013, a touch higher than 2012s 6.6%, says Katrina Ell, associate economist at Moodys Analytics. The Philippines defied the global downturn and was one of the few economies to accelerate in 2012. Ell says Philippine President Benigno Aquinos policies, which include curbing budget deficits, actively encouraging foreign investment, and clamping down on corruption, have fueled economic optimism and led to a surge in foreign inflows. Portfolio inflows rose 67% year over year in FIGURE 3: INDIAN RUPEE
The Indian rupee (INR) has been the second-strongest Asian currency on the year.
Source: ADVFN.com
CURRENCY TRADER May 2013
GLOBAL MARKETS
December, pushing full-year investment to a 10-year high, she says. The stock market has risen 6% (as of late April), while the peso is at a five-year high against the dollar (Figure 4). The central bank is now concerned about capital inflows fueling asset price bubbles and is amending existing regulation to deter speculative inflows.
growth drivers. Admitting to significant intervention opens Taiwan up to global criticism, not least from major competitor South Korea, Ell notes.
India
Taiwan
Moodys Analytics forecasts 2013 GDP growth of 3.4% for Taiwan, a nation that is balancing some economic strengths with a few challenges. Its participating in the smartphone and tablet market, but it also has a large presence in the fading personal computer industry, according to Ell. Strong growth in smart phones and tablet computers has been at the expense of PCs. In the March quarter, global PC shipments fell 13.9% year over year, the steepest decline on record. Also, despite evidence to the contrary, Ell says Taiwans central bank denies claims of frequent currency manipulation. During a recent legislative session, Governor Perng Fai-nan professed the Taiwan dollars value is decided by the international market. But Taiwans central bank is considered amongst the biggest currency manipulators in Asia, Ell says. In the past year, well-placed sources note the central bank has been unwavering in its commitment to stem the appreciation of the Taiwan dollar, intervening on most trading days. Ell explains there has been unrelenting upward pressure on emerging-market assets after major central banks, including the U.S. and Japan, engaged in large-scale quantitative easing. A rising Taiwan dollar is undesirable because it hurts the competitiveness and bottom line of the countrys export manufacturers, which are the economys FIGURE 4: PHILIPPINE PESO
Levine forecasts 6% GDP growth for India, driven by solid consumer demand and an improvement in private business investment. The Indian rupee has been flat and fairly stable in 2013, he says. Indias current account deficit remains a concern, though the government has been [taking steps] to ensure it remains financed, including the trip through the U.S. by Finance Minister P Chidambaram. Risks remain weighted to the downside. The recent plunge in commodity prices could be a benefit to India. Commodity importers like India should benefit from a sustained drop in the prices of oil and gold in particular, given these two items account for a large proportion of the countrys current account deficit, Pinto notes. This would have a positive impact on the INR. However, the reverse holds true for commodity exporters like Indonesia.
South Korea
Moodys Analytics forecasts a 2.5% GDP rate for Korea in 2013. Most sectors are weak, Levine says. Residential investment is likely to remain a drag on growth. Export manufacturing will be key and depends heavily on continued strong growth in China. A better recovery in the U.S. would lift growth above this forecast. Looking ahead, Larios explains Chinas key role in South Koreas outlook. If the Chinese economy becomes more dynamic and domestic demand picks up, you will see Korea export more, he says. Within the next 12 to 18 months, the Korean won will benefit more because the Korean economy will probably improve just because Korea is tied tightly to China through trade.
Singapore
Moodys Analytics estimates a 2013 GDP pace of 2.8% pace for Singapore. The key drivers of growth are services, such as tourism and finance, and also residential property, says Moodyseconomist Alaistair Chan. The Singapore dollar has been on an appreciating path vs. the USD, which is partly to do with the governments decision to maintain an appreciating currency to keep inflation pressures down.
Government efforts to curb budget deficits, encourage foreign investment, and clamp down on corruption have fueled economic optimism in the Philippines and led to a surge in foreign inflows.
Source: ADVFN.com
Forex trends
Callow cites the Korean won as his top pick, despite the currencys recent sluggishness (Figure 5). We think the Korean won is ready to rebound, he says. The worst is probably past in terms of growth, with fresh fiscal stimulus by the new government adding to low interest rates
FIGURE 5: KOREAN WON and likely better growth momentum in China in second and third quarter. Noting recent military tensions, Callow adds it looks as if the North Korean threat will prove to be mostly an annoyance for Seoul markets. USD/KRW 1080 seems easily achievable during the second quarter, he says. The main risk to the short USD/KRW trade is from USD/JPY if the latter surges again, it could support USD/KRW, with the JPY/KRW cross rate sensitive to export competitiveness. Looking for Asias Swiss franc? Pinto suggests the Singapore dollar (SGD). If risk aversion spikes anew, the likes of the SGD will do well given the currencys safehaven status, she says. Singapore enjoys a strong current account surplus. [Also,] it is one of a dwindling pool of AAA economies. Can the Thai baht continue its recent run? Prior to the THB becoming the best performer in the Asian regional currency space in 2013, the top performers in 2012 were the KRW and the PHP, Pinto notes. However, both South Korea and the Philippines took steps to temper their currencies appreciation because of competitiveness concerns. In fact, following the THBs outperformance thus far this year, verbal intervention from the Thai authorities has been seen of late, which spurred some profit-taking weakness [the week ending April 26] for fear of actual intervention to stem the pace of THBs gains, Pinto explains. This would be a constraint on the [bahts] upside. Marc Chandler, global head of currency strategy at Brown Brothers Harriman, identifies three main strategies to profit in the forex markets: Go with the trend, go for the carry trade or mean reversion, he says. Specifically, Chandler suggests buying Korea and selling Thailand for a mean-reversion play (Figure 6). Take a currency that has been one of the weakest and pit it against a currency that has been one of the strongest, he says.
Some analysts think the KRW will continue to rebound against the dollar, implying more down movement in the USD/KRW rate.
Source: ADVFN.com
Already in 2013, Woolfolk says Korea and Taiwan have intervened by selling their own currencies and buying dollars. They want to keep their own currencies weak, he says. We expect this to be a growing trend. It is now viewed as acceptable in the international community to keep your currency weak. China has been doing it for the past 10 years and, famously, has built up a $3.5 trillion in reserves. Woolfolk notes that since June 2012, the Japanese currency has dropped 25.8% vs. the Korean won, 24% vs. the Singapore dollar, and 28.6% vs. the Thai baht. It makes it challenging to export at prices that are 30% higher than last summer, Woolfolk explains. The competition in monetary policy and the weakening of the dollar and the yen are forcing their currencies higher and undermining their exports. The [yen] weakness has been severe recently and I expected intervention. y FIGURE 6: KOREA/THAILAND
Central bank intervention and the Japan factor
However, analysts warn forex traders need to be wary of the potential for central bank interventions. Japans actions, for example, have implications for the entire region. Japans recent aggressive monetary easing and concomitant weakness in the JPY have raised concerns in Asia, especially in those economies that most closely compete with Japans exports, such as South Korea and Taiwan, Pinto says. With the Japanese yen seen weakening further, the authorities in these countries could intervene and implement other measures to cap gains in their currencies to avoid losing out. Michael Woolfolk, global markets strategist at Bank of New York Mellon, agreed yen weakness was a major factor affecting the region. Emerging Asian countries are exporters, he says. Their export-led growth model is under threat if their currencies are strengthening vs. the yen.
Long Korea/Short Thailand is a potential mean-reversion play.

Source: ADVFN.com
On the Money ON THE MONEY
Traders nightmare
Looming central bank actions may appear to be potential triggers for certain currency moves, but you cant count on the FX market following the script.
BY BARBARA ROCKEFELLER
Barbara Rockefeller Currency Trader Mag May 2013 Figure 1: Euro, Summer 2006
FIGURE 1: EURO, SUMMER 2006

1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 3 10 17 24 1 8 May April 15 22 29 5 12 19 26 3 10 17 24 31 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25 1 September October November December 20 June July August
The Euro/dollar pair wobbled in a narrow range for months in mid-2006.

Source: Chart Metastock; data Reuters and eSignal
TABLE 1: SPRING-SUMMER 2006 EURO MONTHLY RANGES

Period May 2006 June 2006 July 2006 Aug. 2006 Sept. 2006 High-low 1.2972-1.2550 1.2980-1.2479 1.2940-1.2696 1.2875-1.2626 1.2783-1.2484 High-low range (points) 422 501 244 249 299 Average 1.2761 1.2730 1.2818 1.2750 1.2633
Monthly high-low ranges in the EUR/USD pair shrank as price wandered sideways.
10
A crisis is brewing in the FX market, but its not a giant rally or a crash its an absence of trend. As every trader knows, the worst of all possible worlds is when prices move sideways without momentum. You think you see a trend or a correction in a trend, but, really, your eyes deceive you. A certain amount of self-delusion (wishful thinking) is proved by losses piling up. One of the worst periods was the summer of 2006, when the Euro/dollar wobbled around in a narrow range, seemingly without direction (Figure 1 and Table 1). Figure 2 suggests we could be entering another period of low trend in the Euro/dollar pair (EUR/USD). The center line is a linear regression that slopes downward and points roughly toward 1.2850. The red lines mark support and resistance and form a triangle narrowing to an apex around the same level. Underlying interest rate fundamentals suggest we wont be getting a breakout, either. The general picture is the U.S. will be raising rates while the Eurozone will be lowering them. Even if both ideas are correct, divergent rate changes are going to take a very long while, certainly months and possibly years, and even then will run a rocky course. The Federal Reserve is preparing
Barbara Rockefeller Currency Trader Mag May 2013 Figure 2: Euro
FIGURE 2: EURO
1.70 1.65 1.60 1.55 1.50 1.45 1.40 1.35 1.30
the market for a tapering off of quantitative easing that will begin as soon as it sees congenial employment conditions, possibly as soon as late summer this year. Tapering means the Fed will buy less than its current $85 billion per month in U.S. government paper and mortgage-backed securities, or changing the mix of the two types, or possibly changing the maturities of the paper. Nobody knows whether the reduction will be $2 million, $2 billion, or $20 billion, and comments from Fed Vice Chairman Janet Yellen indicate the Fed might change the amount and composition from month to month on perception of evolving conditions $2 billion one month, $20 billion the next month, and zero the third month. But the Fed has announced it is now contemplating a Tapering Process, and once the Tapering Process is completed, a change in the Fed funds rate would be on the table. Tapering is not raising rates per se, but rather allowing the market to raise rates if it chooses to. In fact, the Fed has committed to keeping rates the same until at least 2015. When market commentators speak of the Fed tightening or being hawkish in regard to the tapering process, they are misusing the language and misleading the reader. Meanwhile, Eurozone economic conditions are worsening with every data release. The market is enamored of the idea the European Central Bank (ECB) may cut rates from 0.75% to 0.50% sometime soon, possibly May or June. During April, Bundesbank president and ECB Governing Council member Jens Weidmann said the ECB may entertain a rate cut if conditions are sufficiently recessionary and severe. ECB president Mario Draghi has said cutting rates would probably not boost bank lending by any significant amount (the presumed intended goal of any cut) and, indeed, the ECB has always been loathe to cut rates to boost growth, since its sole mandate is to control inflation. However, Eurozone inflation has been in a downward trend for many months and is now comfortably below the 2% target, so the ECB has permission to cut rates from both the data and the Bundesbank a powerful combination. Even if a cut would goose activity only a little, a valid
1.25 1.20 1.15 1.10 1.05 1.00 2006 2007 2008 2009 2010 2011 2012 2013 2
More recently, the EUR/USD pair has been forming a narrowing triangle pattern with a slight downward bias
reason to cut would be to show the ECB is responsive to conditions and not insensitive to unemployment, and therefore boost confidence in the institution. The ECB cares passionately about confidence, as well as credibility. A rate cut would do no harm and may do some good on the confidence front. One area where a rise in confidence can be detected is ever-lower peripheral bond yields. Spain, for example, which had a 10-year note yield of 7.69% in July 2012 on the banking-sector crisis, is enjoying a 4.26% yield as of April 24, down a full 100 basis points (bp) from 5.25% at the end of January. In April the Spanish Treasury issued more bills and notes than targeted, to higher demand than earlier in the year, and at lower cost. Lower peripheral yields are also the result of expected inflows from Japanese institutional investors (see below). Thus, the current environment is one in which the U.S. is perceived as hawkish (rates going higher) and the ECB is perceived as dovish (rates going lower). In the conventional way of looking at relative interest rates as a key exchange-rate determinant, falling rates in Europe should be Euro-negative and rising rates in the U.S. should be dollar-favorable. But we always need to watch out for the word should. For one thing, a rise in confidence in the ECB may inspire foreign investors to increase equities holdings (possibly at the expense of U.S. allocations), raise M&A activity, and/or increase allocations of Euros to official reserves, something
11
ON THE MONEY
already in progress. More troublesome, perception of hawkishness at the Fed does not always result in rates actually rising. This is the Greenspan conundrum, first expressed by then-chairman Alan Greenspan in Congressional testimony in February 2005. The Fed had raised rates by 150 bp in the previous six months but longer-term rates, specifically the 10-year note, had not risen in sync. Numerous explanations have emerged over the years, including restrained inflation expectations, a savings glut in emerging markets and emerging-market official reserve-building, and an increase in the corporate preference for large cash reserves. The Fed today faces a tremendous challenge in not only beating the Greenspan conundrum but in pushing and prodding rates higher all along the yield curve, and not in some odd or unusual pattern. The Fed will particularly want to avoid an inverted yield curve, wherein the twoyear rate yields more than the 10-year. Despite the joke that an inverted yield curve has predicted 37 of the last three recessions, some market players persist in being overly worried about an inverted yield curve as not natural. Another worry is the bond vigilantes those overly fearful of inflation will become ascendant. Then the yield curve would become too steep. The Fed is well aware that managing the Tapering Process is going to be difficult, tiresome, and sometimes confusing. After all, we never had quantitative easing before in the U.S. and no country has ever had it on the same scale as the U.S., let alone experience in winding it down. The Tapering Process may cause the Fed to lose some of the markets confidence if the outcome is a serious degree of price volatility or hint of instability. Its unclear what measures should be used, by the Fed or other analysts, to measure instability. Equity markets just love a dovish central bank and rate cuts, so if the ECB cuts rates, equity index rallies in Europe will seem justified. But what about U.S. equity indices as the Fed tapers off QE? As noted, tapering is not actually raising rates and it might not succeed in getting the market to raise rates, either. Equity traders are about to become quite confused. Its entirely possible that some point of the Tapering Process will end the cheap money, Fed-fuelled equity rally. The putative ECB rate cut has a big downside, too the
12
idea that central banks can overcome bad economic data by making money cheaper. This is the grimy underside of Keynesianism overreliance on central banks to fix anything and everything, something Weidmann, Draghi, and Fed chief Ben Bernanke, have all warned against. In fact, you have to wonder if rising equity markets are not a flashing light to Mr. Draghi. Confidence is nice, but the central bank should not reward speculators when whats really needed is structural reform, and that is being postponed because of the counterproductive nature of excessive austerity. Spain, Ireland, and Portugal, along with Cyprus and Greece, are being given extra time to repay borrowings from the troika. Bizarrely, Germany continues to get closer to a truly balanced budget. But reliance on central banks does have one good feature: a decline in the need for safe havens. Central bank responsiveness is a good thing, even faintly democratic, in its own right. Rising confidence in the ECB implies the world is safe for the embrace of risk (a dollar-negative). And yet there is a shark in the koi pond Japans upcoming quantitative easing, to the tune of 7 trillion or more each month in Japanese government bonds. The Bank of Japan (BOJ) intends to buy approximately $70 billion, vs. $85 billion for the U.S. But the Japanese economy is about $5.9 trillion and the U.S. economy is about $16 trillion, so the Japanese QE is proportionately far larger. By the time its done the BOJ will have raised its balance sheet from 35% to 60% of GDP by the end of 2014. The expected buying is also more than expected monthly issuance, meaning yields should go even lower, driving regular buyers of Japanese bonds to other markets. Anticipation of this has already contributed to a drop in yields across all the usual suspects, including the U.S., Germany, and even peripheral Europe. Japanese institutional buyers of JGBs, prominently insurance companies, are already publicly discussing plans to diversify into foreign assets. In May Japan got a free pass from the G20, which declined to censure Japan for seeking yen devaluation, and buying into the argument that Prime Minister Shinzo Abes initiatives are a domestic-oriented effort to recover from deflationary recession and not a currency war tactic to drive up exports. The outcome was predictable: The dollar/yen is surging near the benchmark 100 level and
Barbara Rockefeller Currency Trader Mag May 2013 Figure 3: Japanese Yen
FIGURE 3: JAPANESE YEN

1.70
100.0%
125 1.65 1.60 120 1.55 115 1.50 110 1.45
61.8%
105 1.40 1.35 100 1.30
50.0%
38.2%
95 1.25 90 1.20
23.6%
1.15 85 1.10 80 1.05

0.0%
75 1.00 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2
2006 2005
2007 2006
2007 2008
The dollar/yens recent surge has taken the pair to a 50% retracement of its 2007-2011 decline.
the Nikkei 225 stock index is rallying like crazy and nearly catching up to global indices. The FX market is never willing to take prices in a straight line, though. Figure 3 shows the dollar/yen moved from a high of 124.15 on June 22, 2007 to a low of 75.57 on Oct. 31, 2011. It has now retraced about 50% of the move (99.65), and that seems to be a stopping point. Some analysts say we need a fat correction before the dollar/ yen can top 100, while others say it will be an easy level to break. Time will tell. One factor will be how seriously FX players take renewed skepticism that the Abe plan will serve its purpose ending deflation and recession in a sustainable way. The Organisation for Economic Co-operation and Development (OECD) recently released its annual report on Japan expressing strong doubts. It notes Japanese public debt has grown faster than the economy for over 20 years and the vast pile of debt is the paramount policy challenge. It also points out Japan may have deflation, but its a stable deflation in equilibrium. The organization, agreeing with similar warnings from the IMF, would like to see a plan to reduce debt over the medium term that is credible. For example, Japan plans to spend an extra 10.3 trillion on public works but this may be just a temporary boost to growth while the debt remains far longer. Raising the debt ceiling is problematic, since already existing debt will be over 240% of GDP next year, the highest in the world.
OECD says current plans for fiscal consolidation are skimpy and not workable. Japan will be spending 215 for every 100 it collects in taxes this calendar year. The socalled primary deficit (excluding repayments) will be 6.9% this year, and the OECD would prefer to see it around 3.2%. Even with consumption-tax hikes planned for 2014 and 2015, reaching a better primary deficit level would be a stretch. As numerous analysts have pointed out over many years, Japan has structural as well as cyclical problems, chief among them an aging population, the lowest birth rate in the world, and a shrinking labor force to support the social safety net. It also has a bias against immigration. One key engine of growth, research and innovation, is a heavily sponsored top priority, but a shortage of people begets a shortage of entrepreneurs. Japan also has a culture of savings over spending, even if the public believes (and surveys indicate they do) the government will succeed in raising inflation to 2%. Cash cant cure these issues. What cash can do is light a fire under asset bubbles. One ray of light from this deduction is a return to rising real estate prices in Japan, which never really recovered from the 1989 crash. As we know from the American and European experience during the 1990s and 2000s, rising real estate prices inspire animal spirits and helps fuel other market rallies. The Japanese are already showing a renewed interest in gold, for example. Thus, we have tension between the resolve of the Abe
13
ON THE MONEY
Barbara Rockefeller Currency Trader Mag May 2013 Figure 4: Japanese Yen Possible Range
FIGURE 4: JAPANESE YEN POSSIBLE RANGE

1.70 103 102 102 1.65 101 101 100 1.60 100 99 1.55 99 98 98 1.50 97 97 96 1.45 96 95 95 1.40 94 94 1.35 93 93 92 1.30 92 91 91 1.25 90 90 1.20 89 89 88 1.15 88 87 87 1.10 86 86 85 1.05 85 84 1.00 84 10 17 December 2006 24 31 7 14 2013 2007 21 28 4 11 18 February 2008 25 4 11 March 2009 18 25 1 8 April 2010 15 22 29 6 2011 May 13 20 27 3 10 2012 June 17 24 1 8 2013 July 15 22 2
The dollar/yen could oscillate in a range from roughly 90 to 100.

government to boost growth and inflation and a strong and reasonable doubt the Abe plan can work, and without fatally negative side effects. A likely outcome could well be the dollar/yen meandering up and down inside a range of roughly 90 to 100, as shown in Figure 4. Even if the dollar/ yen gets to 105 and 110, the big part of the move is probably over and additional dollar gains will be hard fought and easily lost. Like the Euro/dollar, a narrowing high-low range is likely for the dollar/yen. Again, the average FX trader can still make gains in this environment, but will need to change tools and techniques, including a severe reduction in expected holding period and narrowing of the stop-target bands. Timing is everything. The Fed is going to take a very long time months and years to put the Tapering Process in gear. BOJ and ECB action is expected far sooner. The timing differences could provide an escape hatch from ever-narrower trading ranges. The BOJ is expected to start acting the first week of May, and capital outflows could occur immediately. They are probably already priced into the dollar/yen but they are not, so far, reported in Japans weekly Ministry of Finance capital flow report. When the
14
report starts showing real money moves, perhaps the dollar/yen range will get a breakout. Japanese institutional investors tend to move slowly and carefully, however. Its also possible the ECB will refuse to cut in May or June, if it cuts at all. If it refuses to cut rates soon, traders will recalibrate expectations. Here, the prospect of a breakout is far lower, since market players may just push out the rate-cut expectation to later months or to specific data releases, like unemployment. Once the cat is out of the bag, dont expect it to go back in. And as for a bias in favor of one currency or another arising from relative rate differentials, its not clear that cutting rates will be Euro-negative or raising rates will be dollar-favorable. The dollar/yen stands on its own unique circumstances, to which the interest rates is not central since we expect little movement and we know the direction downward. y
Barbara Rockefeller (www.rts-forex.com) is an international economist with a focus on foreign exchange, and the author of the new book The Foreign Exchange Matrix (Harriman House). For more information on the author, see p. 4.
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05-IB13-618
TRADING STRATEGIES
A price-action portfolio FX strategy

A non-optimized price-pattern system shows potential on a three-currency portfolio.
BY DANIEL FERNANDEZ
A parameter-less price-action FX strategy (Currency Trader, April 2013) explored the creation of an algorithmic strategy for the Euro/U.S. dollar (EUR/USD) pair that used a simple price-based technique. The strategy, tested on daily data, produced profitable simulated results from 1987 to 2012. The next step in this process is to increase the robustness and profitability of this trading approach by designing price-action strategies that work across several instruments. Here well analyze a strategy to see if it generates positive results across multiple currency pairs using the same logic.
no other parameters. The strategy is always in the market: As a stop-and-reverse system, long trades are exited on short-entry signals and vice versa. The trading rules (along with simple formulas for clarity) are: Long entry (short exit): 1. Todays close is below its open (Close[0] < Open[0]). 2. Todays open is above the low two days ago (Open[0] > Low[2]). 3. Todays range is greater than the range seven days earlier (Range[0] > Range[7]). 4. Yesterdays close is above the close seven days ago (Close[1] > close[7]). 5. Yesterdays close is above the high four days ago (Close[1] > high[4]). Short entry (long exit): 1. Todays close is above its open (Close[0] > Open[0]). 2. Todays open is below the high two days ago (Open[0] < High[2]). 3. Todays range is greater than the range seven days earlier (Range[0] > Range[7]). 4. Yesterdays close is below the close seven days ago (Close[1] < close[7]). 5. Yesterdays close is below the low four days ago (Close[1] < Low[4]). In the formulas, 0 refers to the most recently completed (closed) daily bar, 1 is the day before that, etc. Trades are entered the next day (tomorrow) at the market (on the open). This pattern enters trades in the direction of the trend established over the past eight bars (rule 4) on a retracement that occurs on the final bar (rule 1) with expanding momentum (rule 3). The rules also ensure the trend is steady by comparing two extreme midpoints of the
May 2010 2013 CURRENCY TRADER October
Strategy generation
The trading system was generated using a data-mining approach on daily historical price from 1988 to 2000 for the Euro/U.S. dollar (EUR/USD), U.S. dollar/Japanese yen (USD/JPY), and the British pound/U.S. dollar (GBP/ USD). Deutsche mark/U.S. dollar (DEM/USD) data was substituted for the EUR/USD prior to January 2000. Trading costs of 2 pips were used for EUR/USD, and 3 pips for both GBP/USD and USD/JPY. Of the more than 1 million candidate systems generated through this process, only those with very high Pearson linear regression coefficients (greater than 0.9) were accepted for further analysis. From this group, the most profitable setup with the lowest standard deviation between the results for the three pairs was selected. Final testing on this system was conducted using daily data from January 1988 to August 2012, which includes a 12-year period (2000-2012) that is not part of the initial system-generation data set.
The trading strategy
The final strategy consists of only five comparisons between daily open, high, low, and close prices there are
16
FIGURE 1: SAMPLE TRADES price movement (rules 2, 4, and 5). This means the pattern is attempting to take advantage of a trend-following opportunity by entering when momentum in the direction of the current trend is showing signs of short-term exhaustion. Figure 1 shows some sample trades in 2012 in the USD/JPY pair (with an enlargement of the January 2012 pattern, with the pattern bars numbered according to the formulas). The strategy clearly behaves as a trendfollowing system. The trade simulations used an initial balance of $100,000 USD. Trade sizes were adjusted for volatility using the average true range (ATR) indicator so a move of two times the 20-day ATR would result in a 0.75% loss. For example, if the 20-day ATR was 0.0150 (150 pips), the trade size would be adjusted so a move of 300 pips would cause a loss of 0.75% of the account balance. The ATR length does not have a great influence on the results of the strategy because the ATR affects only the position size. Shorter or longer ATR periods produce fairly equivalent results, provided the ATR values are not exceedingly small (e.g., less than five days), as a reasonably accurate estimate of typical daily volatility is needed.
The pattern, which spans only eight price bars, identifies advantageous points at which to enter in the direction of the trend.
FIGURE 2: INDIVIDUAL EQUITY CURVES
Test results
The strategy was evaluated both in terms of the individual currency pairs and at the portfolio level. Figure 2 shows the equity curves for each pair
The equity curves for the EUR/USD (blue), GBP/USD (light green) and USD/JPY (dark green) pairs highlight the lack of correlation between their drawdowns.
17
TRADING STRATEGIES
FIGURE 3: PORTFOLIO EQUITY CURVE
The non-synchronized individual equity curves produced a smoother composite portfolio curve.
TABLE 1: PERFORMANCE SUMMARY

EUR/USD USD/JPY GBP/USD Portfolio
No. of trades Absolute profit Avg. annual return Profit factor Winning percentage Reward-to-risk ratio Max. drawdown (%) Max. drawdown (days) Max. loss Avg. loss Ulcer Index No. of years
18
363 298% 5.75% 1.63 49% 1.67 10.70% 6.22% 1.11% 4.15 25
377 198% 4.65% 1.51 49% 1.58 14.29% 6.46% 1.03% 5.66 25
392 178% 4.44% 1.6 49% 1.64 11.78% 7.84% 0.93% 4.55 25
1,132 3,110% 15.50% 1.6 49% 1.65 16.10% 587 days 7.84% 1.02% 5.71 25
1,113 days 1,036 days 1,117 days
while Figure 3 shows the portfolio equity curve. Table 1 summarizes the performance statistics for all test runs. There was a distinct lack of correlation between the currency pairs maximum drawdowns that is, their drawdowns did not generally coincide resulting in a portfolio maximum drawdown of only 16.1%. Adding the individual drawdowns would imply a maximum drawdown of 36.78%. The decline in the maximum drawdown length at the portfolio level is similarly dramatic, with the portfolio value coming in at 587 days vs. an average of 1,088 for the three currency pairs. This means the three pairs profit and loss periods hedged each other quite well (as can be confirmed by comparing the equity lines in Figure 2). However, its worth noting the Ulcer Index didnt decrease significantly at the portfolio level, highlighting the fact that the portfolios distribution of drawdown periods is similar to those of the individual instruments. As expected, Table 1 also shows the portfolio annualized average return is close to the sum of the returns for the three currency pairs, greatly increasing the strategys compounding effect. This explains why the portfolio achieved a final profit of more than 3,000% while none of the individual pairs exceeded 300%. The portfolios annual returns also represent an improvement over the individual results, with only three losing years out of 25, and two of those years losMay 2013 CURRENCY TRADER
FIGURE 4: ANNUAL RETURNS ing less than 1% loss (Figure 4). The portfolio reward-to-risk ratio, profit factor, and winning percentage are comparable to the individual figures, highlighting the strategys consistency across the different currency pairs. Another interesting point is how the strategy behaved during non-trending conditions. Long-term trend-following systems on the daily time frame generally have difficulty dealing with trading ranges, when no clear trend develops and significant retracements can occur. For example, the GBP/USD behaved in this manner from 2009 to 2012 a losing period for many trend strategies but the price-based strateThe portfolio was profitable in 22 of the 25 test years. gy managed to trade profitably during this period. Figure 5 shows how the strategy could be modified to include a stop-loss without signifireacted far more quickly than an average long-term cantly affecting its profitability, but this step was not taken trend-following system, using only information from the here to avoid using any parameters that could be subject to most recent eight-day periods to assess trend direction. optimization. Although there were significant consolidation periods, the systems many successful trend-following trades kept the Price action simple and effective system in winning territory. This study suggests a simple price-action strategy can Finally, its important to consider the strategys risk generate historically profitable results on multiple curmanagement. Although it trades without a stop-loss, the rency pairs across more than 25 years of testing without maximum portfolio loss was just 7.84% and the average any optimization. This always-in-the-market strategy reploss was just above 1% (refer to Table 1). The strategy resents an example of what can be achieved through the use of a simple price-action approach, although several modifications have the FIGURE 5: BRITISH POUND TRADES, 2009 TO 2012 potential to improve historical results, including: using price-based exit criteria, as well as profit-taking and stop-loss targets. Also, although this test illustrates a price-based system designed to work across three currency pairs, there is no reason the same design principles could not be applied to many other pairs, or even other markets, to find patterns that generate a desired historical outcome. y Daniel Fernandez is an active trader focusing on forex strategy analysis, particularly algorithmic trading and the mathematical evaluation of long-term system profitability. The system in this article was generated using the Kantu system generator, available at http:// mechanicalforex.com/kantu-system-generator. For more information on the author, see p. 4.
The system performed reasonably well during non-trending periods. Winning trades are highlighted with green circles, losing trades with red circles.
19
TRADING STRATEGIES
Two is better than one

Aligning multiple trade triggers helps increase the odds of a momentum move.
BY GREG MICHALOWSKI
In one of a series of TV commercials for a cell phone company, an adult moderator asks a group of children questions, including Whats better, doing two things at once or just one? The children around the table all yell Two! in unison, and one of the boys in the group starts to shake his head and hands at the same time to illustrate the point. The exchange gets the companys point across about the benefit of multi-tasking on their phones, and its a reminder of the advantages of entering the market when two or more technical reasons point to a trade at the same price level. This approach improves the chances of success because it enters when theres an increase in the energy in the market. Traders need only follow the directional momentum up or down. However, following this approach doesnt guarantee success on any individual trade a news headline can
derail a trade in an instant, for example but it is a way to find lower-risk trades and generate solid gains.
In high school physics your teacher likely did his or her best to explain Einsteins equation E=MC2. Without getting too complicated, the equation states that energy (E) is equal to an objects mass (M) times the speed of light (C) squared. The speed of light is a constant, so energy increases as mass increases. Theres a certain analogy in trading. Lets alter the equation by changing M to Multiple Reasons to Trade. More reasons to trade at a certain price level will tend to increase the energy of the market, either up or down. It may not be comparable to the speed of light, but you should anticipate a momentum move that is faster than normal when a certain price level is associated with multiple trade triggers. Profit potential FIGURE 1: ONE PRICE LEVEL, MULTIPLE TRADE SIGNALS increases for traders who anticipate this energy and follow the price action accordingly.
Energy = MC2
Low-risk trade setups
There were three reasons to go long around 1.2923: the 100-hour SMA, a move to the top of a pennant/wedge pattern, and the horizontal supportresistance level.
20
When looking for a low-risk trade setup with multiple entry reasons, its best to use technical tools that tend to be followed by many people, are easily visualized, and which provide a definitive buy or sell bias. The more traders that are likely to act on a breakout, the better the odds of an energized momentum move. In forex trading, the following tools satisfy these three requirements: 100- and 200-bar simple moving averages (SMA), trendlines, and Fibonacci retracements. Figure 1 shows an hourly (60-minute) chart of the Euro/U.S. dollar pair (EUR/USD) with a 100-hour SMA (blue line) and a 200-hour SMA (green line); both moving averages attract
FIGURE 2: TRADE TARGETS
Mapping out target levels helps confirm the bias and increase confidence in the trades progress.
technical buying or selling. For example, on March 20 price traded above the 100-hour SMA but none of the 60-minute bars closed above it, suggesting traders were happy to sell at that level. In fact, price peaked right at the 200-hour SMA and sold off. On March 21, the pair once again found willing sellers near the 100-hour SMA and, on March 22, the 100-hour SMA again functioned as a resistance level. Clearly the 100-hour MA was creating its own energy, with sellers leaning against it as a way to define and limit risk. Notice at the final bar on the chart, the 100-hour SMA was around 1.2923. Figure 1 also includes several trendlines. The first line to focus on is the horizontal one that starts at the blue 1 on March 13 at 1.2923. Price bottomed at this level on that day and bounced. Moving from left to right, the blue numbers highlight hourly bars that topped or bottomed at 1.2923. Also, in several other instances, price topped or bottomed within six or so pips of the line. These horizontal lines can be thought of as Remembered Lines, because market participants tend to remember such levels and traders use them to define and limit risk. Like the 100-hour SMA, energy is created around this line, which in this case is at 1.2923 the same level as the final 100-hour SMA reading. The next trendlines in the chart are those defining the narrowing pennant or wedge formation, the highs and lows of which are marked with the red numbers. The EUR/USD pair tested the upward-sloping trendline at the bottom of the pattern five times, while it tested the downward-sloping line at the top the pattern four times. On March 22, price tested the bottom trendline for the fourth and fifth times and held. From those lows, price moved higher and by the end of the chart was testing the
patterns upper trendline at the now-familiar 1.2923 level. These three simple, visual technical tools were all converging around 1.2923, giving multiple reasons to trade at that level. When this happens, its time to anticipate an energy move either an upside breakout, or another swing to the downside if resistance holds once again. Like the preschoolers in the ad, we can surmise two or even three reasons to trade are better than one. In our example the EUR/USD pair did, in fact, break above the 1.2923 level, as shown in Figure 2. Because there are multiple reasons to trade, a buy entry should be executed near the level in anticipation of an upside momentum move. The next task is managing the trade.
Trade management
The first step in managing the trade is to set exit targets at progressively higher technical levels derived from the same tools used to enter the trade trendlines, moving averages, and Fibonacci retracements. The targets in Figure 2 include: 1. A 38.2% retracement of the March 15-19 down move (refer to Figure 1 for the derivation of the Fibonacci retracement levels). That level is at 1.2943 and would result in a 20-pip gain. 2. The 200-hour SMA (green line) at 1.2951. This would increase the gain to 28 pips. 3. A 50% retracement of the March 15-19 down move, which would occur at 1.2975 and would result in a 42-pip gain. 4. A 61.8% retracement of the March 15-19 down move (1.3005). Reaching this target would lead to an 83-pip profit.
continued on p. 25
21
TRADING STRATEGIES ADVANCED CONCEPTS
Currencies and relative import inflation

Despite the Feds quantitative easing, capital exports to the U.S. will keep the trade-weighted dollar stronger than it would be otherwise.
BYHOWARD L. SIMONS
Writer H.L. Mencken once observed, For every complex problem, there is a solution that is simple, neat, and wrong. This describes much of modern economics and probably a great majority of prehistoric economics as well: An apparently simple relationship soon is surrounded by footnotes, exceptions, and codicils so vast they give off the impression economists are a bunch of devious louts incapable of agreeing with reality, much less with each other. The linkages between currencies and trade weights fall into this category. The classic response is a stronger currency makes a countrys exports more expensive and therefore lowers both its current account surplus and its share in its customers current balances (see Currencies and Federal Reserve trade weights and Minor currencies and Federal Reserve trade weights, Currency Trader, July and August 2007). If only this assertion was substantiated in the four decades of data available since the collapse of the Bretton Woods fixed-exchange rate regime and the adoption of flexible exchange rates.
Import Inflation Trends Diverge Widely FIGURE 1: IMPORT INFLATION TRENDS DIVERGE WIDELY
147.5% 142.5% Import Inflation Relative To GDP Deflator December 2003 = 100% 137.5% 132.5% 127.5% 122.5% 117.5% 112.5% 107.5% 102.5% 97.5% 92.5% 87.5% Mar-94 Mar-99 Sep-01 Sep-96 Mar-04 Sep-06 Dec-92 Dec-97 Dec-02 Dec-07 Mar-09 Sep-11 Jun-95 Jun-00 Jun-05 Jun-10 Dec-12 82.5%
Canada R.I.P. EU R.I.P. Mexico R.I.P. China R.I.P Japan R.I.P.
Key U.S. suppliers
The five currencies relative import price indices (RIP), which are the BLS numbers relative to the GDP deflator, have varied widely over time. The Eurozones RIP has been the least volatile of the group.
For a stronger currency to have these effects on current account balances it must raise the price of imports denominated in that currency relative to the importers base level of inflation. This is a readily testable proposition; our good friends at the Bureau of Labor Statistics (BLS) keep track of these import price indices. We can normalize them to the GDP deflator distributed down from quarterly to monthly data using cubic spline interpolation and match them against a set of five currencies re-indexed to the December 2003 starting point for the Chinese and Mexican import indices. The currencies selected are the Canadian dollar (CAD), Mexican peso (MXN), Chinese yuan (CNY), Euro (EUR), and Japanese yen (JPY). Together they account
22
FIGURE 2: CURRENCY TRENDSCurrency Trends

145% 140% CAD, EUR, CNY And JPY, Dec. 2003 = 100% 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% 85% 80% 75% 70% Mar-99 Mar-04 Sep-96 Sep-01 Sep-06 Mar-09 Dec-92 Mar-94 Dec-97 Dec-02 Dec-07 Sep-11 Jun-00 Jun-05 Jun-95 Jun-10 Dec-12 65%
Canada C.I. EU C.I. China C.I. Mexico C.I. Japan C.I.
365% 345% 325% 305% 285% 265% 245% 225% 205% 185% 165% 145% 125% 105% 85% 65% Mexican Peso, Dec. 2003 = 100%
Despite complaints of China only grudgingly allowing revaluation of the yuan, the CNY has appreciated more against the USD than the currencies of the other major exporters to the U.S.
for 76% of the weight in the Federal Reserves tradeweighted import balances. Their relative import price indices (RIP, no pun intended), which are the BLS numbers relative to the GDP deflator, have varied widely over time (Figure 1). They also have something of a Rorschach test quality to them. For example, Japans RIP has been flat throughout the post-March 2009 quantitative easing era, while Chinas RIP has moved up and down in a manner similar to Canadas even though the two countries export mixes to the U.S. are very different. The Canadian and Mexican RIPs have increased over time, but both have demonstrated a strong capacity to move lower quickly when events such as the 2008-2009 financial crisis dictate. Finally, the Eurozones RIP has been the least volatile of the quintet even though both the dollar and the Euro are defined against each other so heavily. Now lets look at the currency index (CI) for each of the five currencies. In Figure 2 the MXN is displayed on a separate scale to account for its strong depreciation against the USD during the 1990s. Interestingly enough, and for all of the complaining about the grudging revaluation of the CNY, it has appreciated more against the USD than the currencies of the other major exporters to the U.S.
Lead-lag relationships
We should not expect a contemporaneous response to currency changes in the RIPs; it takes time for currencies to change supplier relationships and for orders to be affected. What is surprising is how quickly these lead-times operate. It might be reasonable to expect something along the order of three to six months, but in the cases of the CAD and the EUR, the lead-times are three and two months, respectiveCURRENCY TRADER May 2013
ly (Figure 3). What this tells us is exporters are very willing to sacrifice operating margins to maintain market share. None of the other three currencies examined have a demonstrable leading relationship to their associated RIP. This is quite understandable in the Chinese case, where the countrys on-again/off-again revaluation policy has distorted statistical relationships. More importantly, Chinas cost advantages have precluded erosion of its competitive position via a stronger CNY. The Japanese case has been simpler: Deflationary pressures there led to years of a stronger JPY and continual deterioration of its competitiveness in export markets. It is important to note China has long feared a reprise of the Japanese experience with a rising JPY during the 1980s; they see it as having led to Japans consecutive Lost Decades. No country can remain the cheapest labor source and world pollution haven forever. China has been losing some export markets to cheaper labor sources such as Vietnam, and its pollution crisis is reaching the point where it could threaten social order. Adjustments to Chinas production cost structures are inevitable and will take years to unfold. A second process will be underway among Chinas customers (particularly the U.S.): the reestablishment of domestic supply chains in response to higher import costs. Higher international transit costs and cheaper domestic natural gas have created incentives for manufacturing to return to the U.S. This process will take years to unfold, as much of the manufacturing culture of the U.S. has lapsed into disuse since the early 1970s. The one risk to this scenario will be an aggressive move by China to impede the CNYs revaluation. The short-term benefits to China will involve current account surpluses;
23
ON THE MONEY ADVANCED CONCEPTS
the U.S. will enjoy complementary benefits of cheaper imports. But this will be one more exercise in kicking the can down the road, as if policymakers anywhere would stoop to such tactics. Finally, Mexico has had a hybrid situation involving the large dominance of intrasubsidiary transfers, free-trade agreement preferences, and a large crude oil export sector priced in USD. Fluctuations in the MXN over time have affected the Mexican RIP, but not in a statistically significant manner.
FIGURE 3: THE EURO The LEADS RELATIVE PRICE Euro Leads Relative IMPORT Import Price Index INDEX
112.50% 111.25% EUR Import Index Relative To GDP Deflator Led 3 Months, Dec. 2003 = 100% 110.00% 108.75% 107.50% 106.25% 105.00% 103.75% 102.50% 101.25% 100.00% 98.75% 97.50% 96.25% Mar-94 Mar-99 Mar-04 Mar-09 Sep-96 Sep-01 Sep-06 Dec-92 Dec-97 Dec-02 Dec-07 Sep-11 Jun-05 Jun-95 Jun-00 Jun-10 Dec-12 95.00% r2=.689
EU R.I.P. EU C.I.
130% 125% 120% 115% 110% EUR, Dec. 2003 = 100%
105% 100% 95% 90% 85% 80% 75% 70% 65%
Competitive devaluation
The global urge to improve economic fortunes by trashing the THE CAD LEADS The RELATIVE IMPORT INDEX Canadian Dollar LeadsPRICE Relative Import Price Index purchasing power of fiat money could work to the advantage 147.5% 140% of U.S. consumers and import135% 142.5% ers over time. The effects of the Canada R.I.P. Canada C.I. 130% downside breakout in the JPY 137.5% starting in November 2012 have 125% 132.5% not been felt yet, but they will be 120% if Japan succeeds in recapturing 127.5% 115% the share of U.S. imports it has 122.5% lost over the past quarter-century. r2=.784 110% 117.5% Japans weight in the U.S. 105% import picture has declined from 112.5% 100% 25.87% in 1986 to 7.85% in 2012. 107.5% If the yen-weakening campaign 95% is executed through large-scale 102.5% 90% purchases of U.S. assets, those 97.5% 85% capital exports must be matched 80% 92.5% by increased exports of goods and services to the U.S., and the effect of incremental supply always involves lower prices and The RIPs response to currency changes is surprisingly quick lead times of two hence downward pressure on reland three months for the EUR (top) and the CAD (bottom), respectively. ative import prices. (Incidentally, Canadas share of U.S. exports cies involve vendor financing of the U.S. as a customer, has declined very significantly over the same period as along with the export of cheaper goods and services to the well, from 20.34% in 1986 to 13.95% in 2012.) U.S. to offset those capital exports. The U.S. consumer will Capital exports to the U.S. involve purchases of USDget the benefit of those cheaper goods and services even as denominated assets, both financial and real, which will domestic industries more insulated from global competikeep the trade-weighted dollar stronger than it would tion, such as medical care and education, continue to soar be otherwise despite the Federal Reserves best efforts at money-printing. The trade-weighted dollar has declined in price. y at an average annual rate of only 3.91% since the March 2009 inception of quantitative easing. Howard Simons is president of Rosewood Trading Inc. and a Imports will remain a relatively stable portion of the U.S. strategist for Bianco Research. For more information on the inflation picture for as long as this vendor financing mechauthor, see p. 4. anism persists. Efforts made elsewhere to devalue currenCAD Import Index Relative To GDP Deflator Led 2 Months, Dec. 2003 = 100% CAD, Dec. 2003 = 100% Jun-94 Jun-97 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-92 Dec-95 Dec-98
24
Dec-10
Jun-12
TRADING STRATEGIES continued from p. 21
FIGURE 3: STOP-LOSS
The EUR/USD pair made a high-momentum move after the breakout above 1.2923 level and paused after hitting the fourth target level.
Defining risk and riding the momentum
Because the entry level has three supporting technical reasons, there should be an energy momentum move that pushes price higher. Although traders should anticipate this momentum and have confidence in the position, the positions risk still needs to be defined and limited. Figure 3 shows the risk on the initial trade limited by a stop-loss at 1.2910, where lows and highs occurred on various days dating back to March 14. Because an energy move is expected, traders should feel confident price should not go below this level. Setting this stop limits the trades initial risk to 13 to 16 pips. As the example shows, the momentum did, in fact, push price higher. The EUR/USD pair breached the successive target levels, and on the way found willing buyers looking to take advantage of the renewed upward energy from the breakout. When price moves above the 200-hour SMA, the stop-loss was raised to the entry level (which was where the 100-bar SMA was on March 22). This is a prudent step in case the market reverses. When price gets to the third target (the 50% retracement level) at 1.2975 (the green 3), the stop-loss can logically be raised just below the 200-hour SMA (the green 2), guaranCURRENCY TRADER May 2013
teeing an approximately 28-pip profit. When the final leg surged higher to the 61.8% retracement level (the fourth target) at 1.3006, the retracement level was joined by the lows from a week earlier (green shaded horizontal line). Just like having multiple trade signals, if there are multiple reasons to get out of a trade, its likely a good time to either lighten up and take partial profits, or exit the full position and look for the next low-risk trading opportunity.
Strength in numbers
Even a group of precocious preschoolers understand that two or three (or even more) is better than one. If you want to improve your entry levels so you are trading at points where there is likely to be energy, line up simple, visual technical signals. y
Greg Michalowski is the chief currency analyst at FXDD (www.fxdd.com) and author of the book Attacking Currency Trends (John Wiley & Sons). He will be giving a free presentation at the FXDD MastersLive conference (www.fxddmasterslive.com) in Orlando on May 11. For more information on the author, see p. 4.
25
GLOBAL ECONOMIC CALENDAR

CPI: Consumer price index ECB:European Central Bank FDD (first delivery day): The first day on which delivery of a commodity in fulfillment of a futures contract can take place. FND (first notice day): Also known as first intent day, this is the first day on which a clearinghouse can give notice to a buyer of a futures contract that it intends to deliver a commodity in fulfillment of a futures contract. The clearinghouse also informs the seller. FOMC:Federal Open Market Committee GDP: Gross domestic product ISM: I nstitute for supply management LTD (last trading day): The final day trading can take place in a futures or options contract. PMI: P urchasing managers index PPI: P roducer price index Economic release (U.S.) GDP CPI ECI PPI ISM Unemployment Personal income Durable goods Retail sales Trade balance Leading indicators Release time (ET) 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 10:00 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 8:30 a.m. 10:00 a.m.
1 2 3 4 5 6 7 8 9 10
U.S.: April ISM manufacturing report and FOMC interest-rate announcement U.S.: March trade balance ECB: Governing council interest-rate announcement U.S.: April employment report Australia: Q1 PPI LTD: May forex options; May U.S. dollar index options (ICE) Australia: Q1 GDP South Africa: Q1 employment report Brazil: Q1 CPI and PPI Australia: April employment rate Mexico: April 30 CPI and April PPI UK: Bank of England interest-rate announcement Canada: April employment rate Hong Kong: Q1 GDP
May
21 Hong Kong: April CPI 22 23 24
Germany: April PPI
25 26 27 28 South Africa: Q1 GDP 29 30
UK: April CPI and PPI Japan: Bank of Japan interest-rate announcement South Africa: April CPI Brazil: March employment report Mexico: Q1 GDP and May 15 CPI U.S.: April durable goods Mexico: April employment report
11 12 13 U.S.: April retail sales 14 India: April PPI 15 16 17 18 19

Germany: April CPI
31
Brazil: Q1 GDP Canada: Bank of Canada interestrate announcement Germany: April employment report U.S.: Q1 GDP Canada: April PPI South Africa: April PPI U.S.: April personal income Canada: Q1 GDP India: Q1 GDP and April CPI Japan: April employment report and CPI
The information on this page is subject to change. Currency Trader is not responsible for the accuracy of calendar dates beyond press time.
Japan: April PPI U.S.: April PPI Germany: Q1 GDP UK: April employment report U.S.: April CPI and housing starts Japan: Q1 GDP U.S.: April leading indicators Canada: April CPI
1 2 3 4 5 6
June
U.S.: May ISM manufacturing report
20 employment report
Hong Kong: February-April
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26
U.S.: Fed beige book Brazil: May PPI ECB: Governing council interest-rate announcement U.S.: May employment report Brazil: May CPI Canada: May employment report Mexico: May 31 CPI and May PPI LTD: June forex options; June U.S. dollar index options (ICE)
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CURRENCY FUTURES SNAPSHOT as of April 30

Market EUR/USD JPY/USD GBP/USD AUD/USD CAD/USD MXN/USD CHF/USD U.S. dollar index NZD/USD E-Mini EUR/USD Sym EC JY BP AD CD MP SF DX NE ZE Exch CME CME CME CME CME CME CME ICE CME CME Vol 270.2 190.6 102.9 99.3 64.0 37.5 31.8 27.2 12.0 4.1 OI 213.5 212.8 205.0 178.0 159.1 172.5 49.6 81.2 40.2 5.3 10-day move / rank -0.23% / 14% -0.09% / 0% 1.06% / 76% -0.08% / 0% 1.40% / 100% 0.21% / 7% -0.88% / 43% -0.02% / 0% 0.95% / 21% -0.23% / 14% 20-day move / rank 2.68% / 85% -4.28% / 68% 2.81% / 95% -0.60% / 24% 0.77% / 31% 1.52% / 36% 2.10% / 93% -1.55% / 100% 1.98% / 72% 2.68% / 85% 60-day move / rank -3.65% / 98% -4.89% / 17% -1.19% / 23% -0.50% / 17% -1.06% / 36% 3.96% / 83% -2.34% / 66% 2.81% / 51% 1.33% / 37% -3.65% / 98% Volatility ratio / rank .23 / 17% .13 / 45% .27 / 65% .36 / 13% .44 / 73% .27 / 48% .47 / 45% .28 / 50% .68 / 77% .23 / 17%
Note: Average volume and open interest data includes both pit and side-by-side electronic contracts (where applicable). Price activity is based on pit-traded contracts.
The information does NOT constitute trade signals. It is intended only to provide a brief synopsis of each 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-byside electronic contracts (where applicable). LEGEND: Volume: 30-day average daily volume, in thousands. OI: 30-day open interest, in thousands. 10-day move: The percentage price move from the close 10 days ago to 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 past sixty 20-day moves; for the 60-day move, it shows how the most recent 60-day move compares to the past one-hundred-twenty 60-day moves. A reading of 100% means the current reading is larger than all the past readings, while a reading of 0% means the current reading is smaller than the previous readings. Volatility ratio/% rank: The ratio is the shortterm volatility (10-day standard deviation of prices) divided by the long-term volatility (100-day standard deviation of prices). The % rank is the percentile rank of the volatility ratio over the past 60 days.
BarclayHedge Rankings: Top 10 currency traders managing more than $10 million
(as of March 31 ranked by March 2013 return) March return 20.80% 8.60% 6.50% 3.77% 3.71% 3.61% 2.78% 2.68% 2.55% 2.47% 6.21% 3.74% 3.14% 1.70% 1.54% 1.43% 1.11% 1.09% 1.03% 0.85% 2013 YTD return 11.32% 7.08% 16.16% 7.17% 6.00% 8.45% 3.91% 9.35% 5.36% 3.88% 18.46% 4.35% 7.34% 5.36% 5.97% 3.92% 7.25% 1.87% 4.60% 3.73% $ Under mgmt. (millions) 64 482 19 26.1 230 22.6 10.2 18.4 180 901 1.1 2.8 1.3 2.3 1.4 1.3 1.5 1.8 10.0 3.3
Trading advisor 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 24FX Management Ltd Alder Cap'l (Alder Global 20) Gables Capital Mgmt (Global FX) Gedamo (FX Alpha) FX Concepts (Multi-Strategy) Regium Asset Mgmt (Ultra Curr) TMS (Arktos GCS II) Vortex (FX) Quaesta Capital AG (v-Pro) Harmonic Capital (Gl. Currency) Swiss Seagull (Crossfire) Delman SA (Algopedia FX Harmony) Exclusive Returns (Viktory) FxProTech MFG (Bulpred USD) Lillian Nicola (LDF Client) MDC Trading Valhalla Capital Group (Int'l AB) ROW Asset Mgmt (Currency) Capricorn Currency Mgmt (FXG10 EUR)
Top 10 currency traders managing less than $10M & more than $1M
Based on estimates of the composite of all accounts or the fully funded subset method. Does not reflect the performance of any single account. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
28
INTERNATIONAL MARKETS
CURRENCIES (vs. U.S. DOLLAR)

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Currency Great Britain pound Euro South African rand New Zealand dollar Taiwan dollar Swiss franc Chinese yuan Brazilian real Singapore dollar Indian rupee Thai baht Hong Kong dollar Canadian dollar Russian ruble Swedish krona Australian Dollar Japanese yen April 29 price vs. U.S. dollar 1.54757 1.30305 0.109875 0.84798 0.03382 1.060685 0.160815 0.50044 0.808795 0.01844 0.03416 0.12881 0.98366 0.03198 0.15217 1.02761 0.01020 1-month gain/loss 2.13% 1.81% 1.52% 1.33% 0.99% 0.98% 0.97% 0.80% 0.44% 0.27% 0.03% 0.00% -0.03% -0.71% -0.79% -1.43% -3.95% 3-month gain/loss -1.65% -3.14% -1.05% 1.80% -0.35% -1.62% 1.21% 1.13% 0.08% -0.59% 2.32% -0.09% -0.84% -3.73% -1.91% -1.27% -7.27% 6-month gain/loss -3.90% 0.72% -5.03% 3.06% -1.14% -0.85% 1.07% 1.43% -1.27% -0.86% 4.90% -0.17% -1.93% 0.39% 1.91% -0.93% -18.76% 52-week high 1.6286 1.3639 0.1292 0.8619 0.0345 1.1027 0.160815 0.5296 0.8213 0.0194 0.0348 0.12903 1.0334 0.0341 0.159 1.0578 0.0129 52-week low 1.4892 1.2099 0.1073 0.7504 0.0326 1.0074 0.1566 0.4674 0.7732 0.0174 0.0311 0.1287 0.9601 0.0291 0.1374 0.9681 0.01 Previous 3 15 17 8 9 13 4 16 10 7 1 5 6 14 11 2 12
GLOBAL STOCK INDICES

Country 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Japan Italy France India Australia Singapore U.S. Hong Kong Switzerland Germany UK South Africa Brazil Canada Mexico Index Nikkei 225 FTSE MIB CAC 40 BSE 30 All ordinaries Straits Times S&P 500 Hang Seng Swiss Market Xetra Dax FTSE 100 FTSE/JSE All Share Bovespa S&P/TSX composite IPC April 29 13,860.86 16,565.20 3,868.68 19,387.50 5,108.30 3,361.92 1,593.61 22,580.77 7,901.70 7,873.50 6,458.00 39,025.64 54,887.00 12,312.70 41,910.53 1-month gain/loss 11.80% 8.00% 3.68% 2.93% 2.58% 1.63% 1.56% 1.26% 1.13% 1.00% 0.72% -2.10% -2.60% -3.43% -4.92% 3-month gain/loss 27.55% -7.42% 2.19% -3.02% 4.02% 3.13% 5.69% -4.54% 5.95% 0.32% 1.87% -4.00% -9.14% -4.04% -8.71% 6-month gain loss 55.23% 7.92% 13.49% 4.03% 13.53% 10.97% 12.85% 4.97% 19.70% 9.31% 11.44% 5.49% -4.01% 0.00% 0.22% 52-week high 13,983.90 17,897.40 3,871.58 20,203.70 5,174.40 3,362.63 1,597.35 23,944.70 7,946.90 8,074.47 6,534.00 40,984.22 63,473.00 12,904.70 46,075.00 52-week low 8,238.96 12,362.50 2,922.26 15,749.00 4,033.40 2,712.31 1,266.74 18,056.40 5,712.10 5,914.43 5,229.80 32,887.45 52,213.00 11,209.50 36,756.10 Previous 1 15 9 14 2 6 3 12 5 8 4 10 11 7 13
29
NON-U.S. DOLLAR FOREX CROSS RATES

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Currency pair Pound / Yen Euro / Yen New Zeal $ / Yen Franc / Yen Canada $ / Yen Pound / Aussie $ Euro / Aussie $ Aussie $ / Yen Pound / Canada $ Euro / Canada $ Pound / Franc Euro / Real Franc / Canada $ Euro / Franc Euro / Pound Canada $ / Real Aussie $ / Canada $ Aussie $ / Real Aussie $ / Franc Aussie $ / New Zeal $ Yen / Real Symbol GBP/JPY EUR/JPY NZD/JPY CHF/JPY CAD/JPY GBP/AUD EUR/AUD AUD/JPY GBP/CAD EUR/CAD GBP/CHF EUR/BRL CHF/CAD EUR/CHF EUR/GBP CAD/BRL AUD/CAD AUD/BRL AUD/CHF AUD/NZD JPY/BRL April 29 151.7 127.745 83.14 103.99 96.445 1.50599 1.26805 100.73 1.573275 1.32468 1.45897 2.6038 1.0783 1.22821 0.84189 1.96561 1.04468 2.053435 0.968825 1.21156 0.02038 1-month gain/loss 6.31% 5.98% 5.49% 5.12% 4.08% 3.62% 3.29% 2.59% 2.16% 1.84% 1.14% 1.01% 1.00% 0.80% -0.33% -0.82% -1.41% -2.21% -2.38% -2.75% -4.70% 3-month gain/loss 6.09% 4.49% 9.84% 6.14% 6.99% -0.38% -1.89% 6.49% -0.82% -2.32% -0.04% -4.22% -0.79% -1.57% -1.52% -1.94% -0.44% -2.37% 0.35% -3.04% -8.36% 6-month gain loss 18.28% 23.97% 26.86% 22.05% 20.73% -3.00% 1.67% 21.93% -2.01% 2.69% -3.07% -0.70% 1.09% 1.55% 4.77% -3.31% 1.01% -2.33% -0.08% -3.90% -19.91% 52-week high 153.02 130.39 85.86 106.96 98.39 1.6123 1.3107 105.05 1.6162 1.3607 1.5434 2.7714 1.1063 1.2479 0.8747 2.1463 1.0685 2.2253 1.0328 1.3061 0.0262 52-week low 119.75 94.65 58.78 78.81 74.85 1.4439 1.1614 75.6 1.5286 1.2164 1.4062 2.4526 1.0128 1.2004 0.7779 1.8879 0.9951 1.93 0.9238 1.2092 0.0198 Previous 6 16 10 14 9 17 21 3 12 19 5 13 18 15 20 4 8 1 2 7 11
GLOBAL CENTRAL BANK LENDING RATES

Country United States Japan Eurozone England Canada Switzerland Australia New Zealand Brazil Korea Taiwan India South Africa
30
Interest rate Fed funds rate Overnight call rate Refi rate Repo rate Overnight rate 3-month Swiss Libor Cash rate Cash rate Selic rate Korea base rate Discount rate Repo rate Repurchase rate
Rate 0-0.25 0-0.1 0.75 0.5 1 0-0.25 3 2.5 7.5 2.75 1.875 7.5 5
Last change 0.5 (Dec 08) 0-0.1 (Oct 10) 0.25 (Jul 12) 0.5 (Mar 09) 0.25 (Sep 10) 0.25 (Aug 11) 0.25 (Dec 12) 0.5 (Mar 11) 0.25 (Apr 12) 0.25 (Oct 12) 0.125 (Jun 11) 0.25 (Mar 13) 0.5 (Jul 12)
Oct. 2012 0-0.25 0-0.1 0.75 0.5 1 0-0.25 3.25 2.5 7.25 2.75 1.875 8 5
April 2012 0-0.25 0-0.1 1 0.5 1 0-0.25 4.25 2.5 9 3.25 1.875 8 5.5
INTERNATIONAL MARKETS
GDP AMERICAS
Argentina Brazil Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore Argentina Brazil Canada France Germany UK Australia Hong Kong Japan Singapore
Period
Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4
Release date
3/22 3/1 3/1 3/27 2/14 3/27 3/12 3/6 2/27 2/28 2/14 2/22
Change
3.4% 6.5% 0.8% -0.3% -0.3% -0.3% 2.9% 0.6% 6.2% 12.4% -0.1% 0.7%
1-year change
2.7% 7.2% 2.5% 0.0% 1.6% 0.2% 7.9% 2.9% 7.2% 12.0% -0.4% 1.5%
Next release
6/24 5/29 5/31 6/26 5/15 6/27 5/28 5/5 5/10 5/31 5/16 5/24
EUROPE AFRICA ASIA and S. PACIFIC
Unemployment AMERICAS
Period
Q4 March March Q4 March Oct.-Dec. March Jan.-March March Q1
Release date
2/19 4/25 4/5 3/7 4/30 2/20 4/11 4/30 4/30 4/30
Rate
6.9% 5.7% 7.2% 10.2% 5.6% 7.8% 5.5% 3.4% 4.1% 1.9%
Change
-0.2% 0.1% 0.2% 0.3% -0.4% 0.0% 0.0% 0.2% -0.2% 0.1%
1-year change
0.2% -0.5% 0.0% 0.8% 0.1% 0.2% 0.3% 0.1% -0.4% -0.1%
Next release
5/20 5/23 5/10 6/6 5/29 5/20 5/9 5/20 5/31 5/30
EUROPE
ASIA and S. PACIFIC CPI
Period
Argentina March March March March March March March Q1 March March March March Brazil Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore
Release date
4/12 4/10 4/19 4/11 4/11 4/16 4/17 4/24 4/22 4/30 4/26 4/30
Change
0.7% 0.5% 0.2% 0.6% 0.5% 0.3% 1.2% 0.4% 0.3% 0.4% 0.2% -0.5%
1-year change
10.6% 6.6% 1.0% 7.1% 1.4% 2.8% 5.9% 2.5% 3.6% 11.4% -0.9% 3.5%
Next release
5/15 5/8 5/17 5/15 5/14 5/21 5/22 7/24 5/21 5/31 5/31 5/23
AMERICAS
EUROPE AFRICA ASIA and S. PACIFIC
PPI AMERICAS EUROPE AFRICA ASIA and S. PACIFIC

Argentina Canada France Germany UK S. Africa Australia Hong Kong India Japan Singapore
Period
March March March March March March Q4 Q4 March March Feb.
Release date
4/12 4/30 4/30 4/19 4/16 4/25 2/1 3/14 4/15 4/11 3/28
Change
0.3% 0.1% 0.8% -0.2% 0.3% 0.9% 0.2% 0.2% 0.2% -0.4% 1.5%
1-year change
13.0% 0.9% 1.0% 0.4% 2.0% 5.7% 1.0% -1.1% 6.0% -0.5% -5.0%
Next release
5/15 5/30 5/31 5/21 5/21 5/30 5/3 6/14 5/14 5/14 5/20
As of April 30 LEGEND: Change: Change from previous report release. NLT: No later than. Rate: Unemployment rate.
CURRENCY TRADER September May 2013 2010
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Price-pattern FX portfolio strategy

Strategies, analysis, and news for FX traders

May 2013 Volume 10, No. 5

The dollar, imports, and inflation p. 22

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

Currency Futures Snapshot.................. 28 BarclayHedge Rankings......................... 28

On the Money Traders nightmare .................................. 10

Trading Strategies A price-action portfolio FX strategy ....... 16

Two is better than one ............................ 20

Looking for an advertiser?

Advanced Concepts Currencies and relative import inflation.......................................... 22

How Do You Turn Trading Possibilities into Profit?

eSignal Futures Trader allows

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A publication of Active Trader

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May 2013 CURRENCY TRADER

Emerging Asia strong, but wary of yen depreciation

May 2013 CURRENCY TRADER

CURRENCY TRADER May 2013

Central bank intervention and the Japan factor

Long Korea/Short Thailand is a potential mean-reversion play.

On the Money ON THE MONEY

FIGURE 1: EURO, SUMMER 2006

The Euro/dollar pair wobbled in a narrow range for months in mid-2006.

TABLE 1: SPRING-SUMMER 2006 EURO MONTHLY RANGES

Barbara Rockefeller Currency Trader Mag May 2013 Figure 2: Euro

FIGURE 3: JAPANESE YEN

125 1.65 1.60 120 1.55 115 1.50 110 1.45

105 1.40 1.35 100 1.30

1.15 85 1.10 80 1.05

FIGURE 4: JAPANESE YEN POSSIBLE RANGE

The dollar/yen could oscillate in a range from roughly 90 to 100.

A price-action portfolio FX strategy

The trading strategy

FIGURE 2: INDIVIDUAL EQUITY CURVES

FIGURE 3: PORTFOLIO EQUITY CURVE

TABLE 1: PERFORMANCE SUMMARY

1,113 days 1,036 days 1,117 days

CURRENCY TRADER May 2013

Two is better than one

Low-risk trade setups

FIGURE 2: TRADE TARGETS

TRADING STRATEGIES ADVANCED CONCEPTS

Currencies and relative import inflation

Key U.S. suppliers

FIGURE 2: CURRENCY TRENDSCurrency Trends

ON THE MONEY ADVANCED CONCEPTS

130% 125% 120% 115% 110% EUR, Dec. 2003 = 100%

105% 100% 95% 90% 85% 80% 75% 70% 65%

May 2013 CURRENCY TRADER

TRADING STRATEGIES continued from p. 21

Defining risk and riding the momentum

GLOBAL ECONOMIC CALENDAR

21 Hong Kong: April CPI 22 23 24

Germany: April PPI

25 26 27 28 South Africa: Q1 GDP 29 30

11 12 13 U.S.: April retail sales 14 India: April PPI 15 16 17 18 19

U.S.: May ISM manufacturing report

Hong Kong: February-April

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