November 2013
Volume 10, No. 11
Strategies, analysis, and news for FX traders
BRITISH POUND: REAL RALLY OR JUST ANOTHER SWING? P. 6
Trading
the EUR/CHF
floor p. 16
Risk reversal
in the minor
currencies p. 20
The Fed
waiting
game and
FX action
p. 12
Aussie dollar
update p. 32
CONTENTS
Contributors ...
4
Global MarketsBritish pound bumps
up against barriers...
6
It’s been a good run, but analysts warn not to expect too much more from the pound vs. the dollar.
By Currency Trader Staff
On the Money
Three times and out ...
12
Navigating the tapering delay and other market minefields.
By Barbara Rockefeller
Trading Strategies
Profiting from the EUR/CHF floor ...
16
It’s a high-risk trade, but the SNB’s Euro/Swiss floor presents a unique opportunity.
By Daniel Fernandez
Advanced Concepts
Going forward with reversals:
The minors...
20
Smaller and less-developed currency option markets appear to have cleaner relationships to their carry returns vs. the USD than do major currencies.
By Howard L. Simons
Global Economic Calendar ...
26
Important dates for currency traders.
Events ...
26
Conferences, seminars, and other events.
Currency Futures Snapshot ...
27
BarclayHedge Rankings ...27
Top-ranked managed money programs
International Markets ...
28
Numbers from the global forex, stock, and interest-rate markets.
Forex Journal ...
32
Waiting for an Aussie rebound to go short.
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Questions or comments?
Submit editorial queries or comments to [email protected]
CONTRIBUTORS
Editor-in-chief: Mark Etzkorn
Managing editor: Molly Goad
Contributing editor:
Howard Simons
Contributing writers:
Barbara Rockefeller, Marc Chandler, Chris Peters
Editorial assistant and webmaster: Kesha Green
President: Phil Dorman
Publisher, ad sales:
Bob Dorman
Classified ad sales: Mark Seger
Volume 10, No. 11. 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 perfor-mance does not guarantee future results.
For all subscriber services:
www.currencytradermag.com
A publication of Active Trader®
CONTRIBUTORS
qHoward Simons is president of
Rose-wood Trading Inc. and a strategist for Bianco Research. He writes and speaks frequently on a wide range of economic and financial market issues.
qDaniel 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, particu-larly 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://me-chanicalforex.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 [email protected].
qBarbara Rockefeller (www.rts-forex.com) is an
interna-tional 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.
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Data provided by forexmagnates.com, includes the impact of any commissions
% Profit
% Loss
Accounts
Total
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Spread
Q3 2013
Percentage of profitable and unprofitable accounts as reported to the NFA
Interactive Brokers
OANDA
FXDD
ILQ
Gain Capital
IBFX/TradeStation
FXCM
MB Trading
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35.1%
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64.9%
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77.7%
69.0%
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72.0%
72.8%
23,759
20,812
5,118
1,138
11,425
8,718
22,055
3,365
NO
YES
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GLOBAL MARKETS
Over the past four months, the British pound has rocketed higher vs. the U.S. dollar, nearly reaching the level of the dollar/pound (GBP/USD) pair’s 2012-2013 highs around 1.6300-1.6400 (Figure 1). A bevy of better-than-expected UK economic data has underpinned the rally, which has pushed the GBP/USD 9.5% higher from early July into late October.
Whether the pound can continue to gain will depend on whether the improvement in the UK economy is an aberra-tion or a trend that is likely to continue. Another element is
the role the Bank of England (BOE) will play in the months ahead. Also, it is important to keep in mind that, as robust as the recent rally has been, the pound is still within the longer-term trading range that has persisted for the better part of four years (Figure 2).
A bright patch in stormy skies
The UK economy has generally limped along since the 2008 financial crisis and subsequent recession, post-ing lackluster gross domestic product numbers, in part
because of the fiscal austerity measures imposed by the government, and also because of Britain’s close trade ties to a strug-gling Eurozone.
The UK boasted a 3.4% GDP growth rate in 2007, but it’s been all downhill since then. In 2008, the rate came in at -0.8%, which was followed by an even deeper 5.2% contraction in 2009. In 2010 the economy posted a modest recovery with a tepid-but-positive 1.7% GDP reading, followed by 1.1% in 2011 and a mar-ginal 0.2% in 2012. Nomura estimates 2013 GDP growth to come in at 1.3%.
However, recent months contained several stronger-than-expected economic data releas-es. “The UK has been firing on all cylinders,” says Vassili Serebriakov, currency strategist at BNP Paribas. “We’ve seen a significant pick-up in growth since the second quarter.”
According to Wells Fargo, Britain’s prelimi-nary Q3 GDP estimate met consensus expec-tations with a 0.8% reading, which translates to 3.2% annualized rate. Observing this was the third consecutive quarter of positive GDP
British pound bumps up
against barriers
It’s been a good run, but analysts warn not to
expect too much more from the pound vs. the dollar.
BY CURRENCY TRADER STAFF
FIGURE 1: THE RECENT RALLY
The pound staged a strong rally vs. the dollar in recent months. Source: TradeStation
CURRENCY TRADER • November 2013 7
growth, Wells Fargo analysts noted the possibility “the United Kingdom may be entering into a self-sustaining recovery.”
Wells Fargo global economist Jay Bryson says the UK consumer has been a key factor in the recent rebound. He explains that, similar to the U.S., consumer spending drives roughly two-thirds of the UK economy.
“Like in the U.S., consumer’s balance sheets in the UK got beat up in the Great Recession,” he says. “Their bal-ance sheets are starting to improve. Consumers are starting to feel better about the housing market, which has helped consumer confidence. We have seen the personal savings rate trend lower over the last year, which gives them the extra wherewithal to spend.”
The UK’s economic improvement has been fairly broad-based. Melanie Bowler, economist at Moody’s Analytics, says the good news has been spread across a wide range of economic data. “The closely watched purchasing man-agers’ indexes (services, manufacturing, and construction) are at multi-year highs, indicating expansion,” she says. “Current account data shows improving external demand. Meanwhile, domestic demand is also improving, and con-sumer confidence is at a six-year high.”
Bowler notes the boost to household sentiment has been fueled by several factors, including evidence the economy is on an increasingly solid recovery path, a strong pickup in house prices, record low borrowing costs, and the pledge by the Bank of England to hold interest rates steady until 2016.
The housing surge has been a boon to the economy as a whole, but it also has its dark side. “The recent surge in house prices has been identified as a driver of construction and consumer spending,” says Stephen Webster, director of TopEcon. However, rising home prices have some
econ-omists warning about a possible housing bubble.
Unemployment and interest rates
In the meantime, the BOE, now headed up by former Bank of Canada head Mark Carney, has initiated forward guid-ance similar to that used by the U.S. Federal Reserve. In August the BOE announced it plans to maintain its lending rate at 0.5% until unemployment falls to 7%, unless infla-tion expectainfla-tions exceed 2.5%. The BOE doesn’t expect the unemployment rate to drop to the 7% level until 2016 (the most recent number came in at 7.7%).
The UK faces some stubborn issues on the labor front, and few seem to expect a sharp decline in unemployment. “Both long-term and youth unemployment are higher than a year earlier, and wage growth remains particu-larly weak,” Moody’s Bowler says. “The public sector is still shedding jobs, and welfare benefits and pension reforms could push up the unemployment rate as more people move back into the labor force and inactivity rates decline.” She says her firm doesn’t expect the unemploy-ment rate to hit its threshold before the end of 2015.
Webster notes the UK’s 7.7% jobless unemployment rate is still high relative to, say, Germany at 6.9%, although it’s nowhere near the 12% Eurozone number, which includes Greece at 27.6% and Spain at 26.2%.
Some analysts anticipate a rate hike sometime in 2015. Bryson says his firm anticipates a hike in mid-2015, while Charles St-Arnaud, executive director, foreign exchange research and economics at Nomura, has an even more opti-mistic outlook, based on a sooner-than-expected move to 7% unemployment. “We see that in late 2014 or early 2015, which will allow the BOE to start hiking in early 2015,” he says. “In general, most market participants have moved their expectations for the first rate hike from 2016 to 2015.”
FIGURE 2: LONGER-TERM RANGE
The pound/dollar has been in an extended trading range for the past few years. Source: TradeStation
GLOBAL MARKETS
Overall, Kevin Chau, FX strategist at Ideaglobal, says it will be important for currency traders to pay attention to what BOE chief Carney has to say about the economy.
“The BOE is taking a pretty cautious approach vs. what the market is pricing in,” he says.
The deficit
More so than many other nations, the UK attempted to deal with its high levels of debt and deficit through a pro-gram of relative fiscal austerity. Has it been worth it?
“They have not hit their deficit numbers because the economy has been weaker, so you end up with less tax rev-enues and a higher deficit,” Wells Fargo’s Bryson says.
Bowler says data from Eurostat shows that last year
the UK had the sixth-worst budget deficit out of the 28 European Union countries. “Only Spain, along with bailed-out countries Ireland, Greece, Portugal, and Cyprus, had worse,” she says. “The deficit is forecast to come in at 6.8% of GDP this year, and debt will continue to rise.”
Bowler adds fiscal tightening will be the norm in the UK for at least another three years. “With households bear-ing the brunt of austerity, prolonged fiscal tightenbear-ing risks hindering continued strong economic growth,” she says. “Following earlier steps such as a VAT hike to 20% in 2011, the welfare benefit system is being broadly reformed, with a cap on household benefits. Treasury estimates suggest those with incomes in the bottom quintile will be hit hard-est by benefit changes, while those in the top quintile bear the burden of tax hikes.”
Webster says the total public debt was £1.21 trillion in September, or 75.9% GDP. “It is currently seen hitting 79.2% GDP by the end of 2013, but is on course to
under-shoot — closer to 77%,” he says.
Currency action
The pound/dollar pair climbed from a low around 1.4810 in early July to a high around 1.6260 in early and late October. “You went from one extreme, where everyone was very pessimistic and bearish, to more positive views on the currency,” Nomura’s St-Arnaud says.
And he warns all or most of the good news might already be priced into the market, limiting further upside potential. “I think we could probably go to 1.6500 in com-ing months, but it will be harder to go much higher,” St-Arnaud says.
Chau pegs an upside target and resistance zone around 1.6350.
Serebriakov agrees further upside from late-October lev-els could be limited. “Short-term, it could extend the rally vs. the dollar by a few more percentage points, but then there will be a correction,” he says. “The markets have heightened expectations for UK data. More likely than not they will be disappointed. It will probably test 1.6300-1.6400, but by the first quarter it will fall back below 1.600 as the markets begin to expect Fed tapering.”
One risk facing the UK is its close ties to the U.S. Analysts are still trying to gauge how much the October U.S. government shutdown actually cost the economy.
“The UK’s strong trade and financial linkages with the U.S. leave it exposed to problems there,” Bowler explains. “Around 15% of UK goods exports and a fifth of services exports are destined for the U.S., and stronger pound makes UK exports less competitive. Demand for UK exports would take a knock should the partial government
FIGURE 3: EURO/POUND
The pound may be at a disadvantage to the Euro in coming months. Source: TradeStation
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GLOBAL MARKETS
shutdown hit U.S. growth.”
Bowler adds additional strong gains in the pound are unlikely, given U.S. fiscal worries have been pushed into 2014. “The UK economy could also disappoint in the fourth quarter if the U.S. economy has slowed substantial-ly because of the government shutdown,” she says.
The Euro/pound cross (EUR/GBP) has been trending higher since early October, as the Euro strengthened given U.S. dollar weakness in the wake of the Fed’s September decision to delay tapering its monthly asset purchases (Figure 3).
“Near-term, the overall picture for the British pound looks a little less positive,” Webster says. “At the time of the high, EUR/GBP was down at levels not seen since the middle of January, where it provided a ‘feeding frenzy’ for UK importers who looked upon an opportunity to buy Euro at a rate of 1.20. It has not been anywhere close since. Nevertheless, given the chances of any Fed tapering are now being pushed out into the first quarter 2014 or even later, the U.S. dollar should remain soft and GBP/USD will probably hold in the 1.60-1.63 area until at least second quarter, when the long-anticipated U.S. dollar rally could eventually get under way.”
Webster adds the EUR/GBP is unlikely to return to the near-.8800 highs of earlier this year. “With EUR/USD seemingly set on a run at 1.40, we expect the downside is limited,” he says. “We can expect to see EUR/GBP at least pay a visit to the .8600-.8650 area before the end of the year.”
Some analysts say growth differentials could favor the pound over the Euro heading into 2014. BNP Paribas forecasts a 2.6% GDP pace for the UK in 2014 vs. a 1.1% pace for the Eurozone. BNP’s Serebriakov says the Euro/ pound cross has traded between approximately .8400 to .8700 since February. “It’s a wide range, but it’s been going up and down within that range,” he says. “We still see the Euro/pound falling below .8000 next year. Our sense is the Euro is overvalued. The strength in the Euro will impact ECB rhetoric. There is a distinct possibility of a further rate cut by the ECB. Inflation is below target, and the currency is very strong. So, they should be easing policy to offset that.”
Looking at sterling on other crosses, St-Arnaud says his firm has been recommending a long pound/Swedish krona (GBP/SEK) trade (Figure 4). “We like sterling and we don’t really like the Swedish krona,” he says. “[The Swedish] economy is probably slowing in coming quar-ters.” The GBP/SEK cross was trading around 10.20 in late October and St-Arnaud sees the potential for a move toward 10.60-10.80 over the next quarter or two.
He notes growth in Sweden is slowing because consum-ers can’t increase their borrowing. “Because consumption is such a big part of the economy, that will slow growth,” St-Arnaud says. “It’s a relative play. Generally, we should see Swedish economic growth underperform over the next few quarters and on the flip side, the UK economy is
get-ting better.”
y
FIGURE 4: POUND/KRONA
Some analysts see the potential for the pound to gain ground vs. the Swedish krona.
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Todd Harrison CEO and Founder, Minyanville Media, Inc.The Federal Reserve’s delay in removing accommoda-tion — reducing the amount of its monthly purchases of Treasuries and mortgage-backed securities, aka tapering — is more important than the U.S. government shutdown and coming within a whisker of sovereign default, at least to the FX market.
Students of financial history are appalled. Surely the brush with death of U.S. hegemony is a big deal. The U.S. nearly went into technical default — the inability to pay interest and principal — despite being the richest country on the planet. The full faith and credit of the U.S.
govern-ment, standing behind U.S. bonds as the “risk-free” bench-mark, became something else: “partial” faith and credit.
The French complained during the 1970s about the U.S.’ “exorbitant privilege,” meaning lower interest costs, because all other nations must hold dollars whether they like it or not. As Harvard economic historian Kenneth Rogoff tweeted about potential default, “this is no way of doing business if U.S. wants to remain reserve currency.” It’s not just a matter of reputation; the lower interest rates the US can command because of the dollar’s reserve cur-rency status are worth more than $100 billion annually to
the public and private sectors. However, as the government shut-down played out from Oct. 1 to Oct. 17, including the refusal by a political minority to raise the debt ceiling, the dollar did not fall. In fact, it went up, from the Oct. 3 low of 79.75 to the Oct. 16 high of 80.75 (Figure 1). That’s not much, but it’s enough to get FX ana-lysts musing that the dollar’s resilience must reflect confidence that, of course, a deal would get done and, of course, the U.S. would not default.
To a certain extent, this amounts to other politically dysfunctional countries (think Italy) accepting that political theater is just play-acting and shouldn’t concern grown-up financial professionals. In fact, the greatest dis-pleasure was voiced by China (and it was a Chinese ratings agency that downgraded the U.S.), which allows no political discord at all.
This short-sighted point of view is allowed chiefly because the govern-On the Money
ON THE MONEY
Three times and out
Navigating the tapering delay and other market minefields.
BY BARBARA ROCKEFELLER
FIGURE 1: DOLLAR INDEX AND KEY EVENTS
The U.S. dollar actually gained ground during the government shutdown.
Source: Chart — Metastock; data — Reuters and eSignal
Barbara Rockefeller
Currency Trader Magazine November 2013 Figure 1. Dollar Index and Key Events
24 1
July 8 15 22 29 August5 12 19 26 September2 9 16 23 30October7 14 21 28 Novem4
79.0 79.5 80.0 80.5 81.0 81.5 82.0 82.5 83.0 83.5 84.0 84.5 85.0 Minutes of June FOMC Seem Dovish
September FOMC Announces No Taper
Government Shutdown and Potential Default
Bad Payrolls Affirms No Taper
CURRENCY TRADER • November 2013 13
ment shutdown and potential default were not dollar neg-atives. Equity markets continued to rally, and gold didn’t go up as looming default would imply it should have.
Dollar down
Instead, delaying tapering is dollar negative. The dollar rout that started on July 10 was a result of interpretation of the June 18-19 FOMC minutes as dovish. Fed Chief Ben Bernanke stressed that tapering is not tightening, saying, “Highly accommodative monetary policy for the foresee-able future is what’s needed in the U.S. economy.” And about half the FOMC members wanted to delay tapering until the jobs picture is more secure. Many of us mistaken-ly thought the central point was that actual tightening was not on the table, not that tapering might be delayed.
To be fair, around the same time in July the Euro was benefiting from the perception the peripheral debt problem was a thing of the past. The word “Grexit” disappeared from the press, and in a bit of poetic license, Cyprus declared its version of the Euro was already devalued, and the country had de facto left the Eurozone. As of July 11 the Spanish 10-year yield had fallen to 4.83%, from 7.69% in July the year before (it’s 4.10% now). It looked like the bleeding body of the Eurozone had dragged itself out of the water and was no longer surrounded by hungry sharks.
The dollar index took another hit with the Sept. 18-19 FOMC announcement that tapering would be postponed, and another hit on the bad September payrolls report released on Oct. 22 (only 148,000 new jobs vs. 180,000 fore-cast). The Euro/dollar rate (EUR/USD) rose 119 points in five hours (from 1.3673 at 8 a.m. ET on Oct. 22 to 1.3792 by
just after 1 p.m.) — not a record but an unmistakable mes-sage reinforcing the September incident. It’s three times and out.
OK, we get the message — U.S. economic conditions are not good enough to backstop tapering, and they will likely continue to be subpar for several months, especially if the compromise that reopened the government and raised the debt ceiling is replayed in coming months, as seems all too likely. S&P ratings estimated the 16-day government shut-down cost the economy $24 billion, plus a blow to business and consumer confidence, as well as the reputation of the U.S.
The response to the payrolls report is a message to the world, and the U.S. government: Screw around with expectations and we will pound you into the ground. From May to the Sept. 18-19 FOMC meeting, the market on the whole believed the Fed would announce tapering at its September meeting. Tapering is far more than removing stimulus (of diminishing and questionable value, anyway) — it is removing market interference. Each time tapering appeared further away, the dollar sold off.
It takes some fresh thinking to wrap our heads around default brinkmanship inspiring almost no alarm, but tapering postponement driving the dollar down. Tapering postponement is now expected to last until the Dec. 16-17 FOMC meeting at the earliest, and March is probably a more realistic start date. The Fed needs to see job growth closer to 200,000 and by the December meeting, we will have had three months of fresh payroll numbers. The prob-ability is low payrolls will be good enough to justify taper-ing, especially because October’s data will be dirty because of the shutdown (public sector employees considered
FIGURE 2: REUTERS 10-YEAR YIELD INDEX
Tapering delay has weighed on the U.S. 10-year yield.
1
ary19 25 4March1118 25 1 8April 15 22 29 6May 13 20 28 3 10June 17 24 1 8July 15 22 29 5 12August 19 26 3 9 16September23 30 7October14 21 28 4 11 18November 15.5 16.0 16.5 17.0 17.5 18.0 18.5 19.0 19.5 20.0 20.5 21.0 21.5 22.0 22.5 23.0 23.5 24.0 24.5 25.0 25.5 26.0 26.5 27.0 27.5 28.0 28.5 29.0 29.5 30.0 30.5 31.0 Barbara Rockefeller
Currency Trader Mag November 2013 Figure 2: Reuters 10-Year Yield Index
ON THE MONEY
employed in the business survey but unemployed in the household survey, for example).
An uncertain future
Meanwhile, Congress is supposed to come up with a com-promise budget by Dec. 13 and a new debt ceiling plan by Feb. 7, and the probability of another shutdown and default is not zero. Depending on these outcomes, this Fed could be on hold until June 2014 or later.
To traders, June is awfully far away. With each tapering delay, the 10-year yield slips back a little more. Figure 2 shows the Reuters 10-year yield index bottomed on May 1 at 1.61% and peaked at 2.98% on Sept. 5, ahead of the September FOMC meeting. As of Oct. 23 it had fallen to 2.49% on the postponement story. Notice the bond market believed in tapering even though S&P index and Euro/ dollar traders did not. If the yield corrects approximately 50%, it will fall to 2.31%, only a little above the 200-day moving average value of 2.25%.
The effect on the dollar is more than the dollar slavishly following yields. You can’t be the issuer of the world’s reserve currency and the “risk-free” asset benchmark if you are messing with pricing. And no matter what else you think about quantitative easing, it’s government inter-ference in a market — in this case, the world’s biggest market. By repressing the true market price of government notes and bonds, QE pushes investors into riskier assets, like corporate bonds, foreign bonds, commodities, and stocks.
When QE is combined with the threat of default, the “risk-free” asset against which to compare everything else
is contaminated. Nobody knows how to price anything when the risk-free rate is so messy. Are corporate bonds overpriced or fairly priced? For example, on Oct. 24 the Bloomberg U.S. corporate bond index stood at 3.11%, or 61 basis points over U.S. Treasuries. The European invest-ment-grade bond index was yielding more than 100 points less at 2.08%, with the global investment-grade index in the middle at 2.58%. It’s tempting to imagine those depart-ing the no longer risk-free U.S. Treasury market could go to U.S. corporates (and get a little extra return while they are at it), or European investment-grade corporates, while sacrificing only about 50 basis points.
With the U.S. T-note at 2.50% and the global investment grade at 2.58%, how much lower does the U.S. note have to go before global corporates look like a nice compromise? It’s not hard to imagine a trickle of reallocations away from the Treasury market swelling into a river if the default story is not killed dead in its tracks. Most investment man-agers, especially reserve and sovereign fund manman-agers, are stuck with government issues, but that is not written in stone. Instead of diversifying out of the dollar per se, man-agers could diversify out of it by diverting funds to U.S. corporates. Although that keeps dollar investment flat, the meaning behind such a reallocation is clear — the standing of the U.S. as hegemon in reduced. This is the loss of the metaphorical American empire not with a bang, but with a whimper.
Equities and gold
As for other alternatives to Treasuries, the stock market watched the tapering saga with as much interest as the
FIGURE 3: S&P STOCK INDEX (BLACK) VS. THE EURO (GREEN)
The two markets that handled the “no-taper caper” most bullishly were equities and the Euro.
Barbara Rockefeller
Currency Trader Mag November 2013 Figure 3: S&P Stock Index vs. the Euro (Gteen)
5 4 11 March 18 25 1 8 April 15 22 29 6 May 13 20 27 3 10 June 17 24 1 July 8 15 22 29 5 12 August 19 26 2 9 16 September 23 30 7 14 October 21 28 4 11 18 November 1.270 1.275 1.280 1.285 1.290 1.295 1.300 1.305 1.310 1.315 1.320 1.325 1.330 1.335 1.340 1.345 1.350 1.355 1.360 1.365 1.370 1.375 1.380 1.385 1480 1490 1500 1510 1520 1530 1540 1550 1560 1570 1580 1590 1600 1610 1620 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780
CURRENCY TRADER • November 2013 15
bond and FX markets. And equity traders had an extra factor — they could keep buying even as tapering seemed likely because, after all, the Fed wouldn’t taper unless eco-nomic recovery was pretty good, and thus earnings would be pretty good, too.
Buying equities during this period was a no-brainer. Now that the economy looks more flimsy than we thought, equity traders can still justify higher prices on the grounds that tapering is going to come someday, come hell or high water. Tapering will drive re-allocators into stocks. Bottom line, the U.S. stock market has grown by more than $4 tril-lion so far this year, according to Bloomberg, with the S&P up about 23% and probably dueling with 2003 (up 26.4%) as the best year ever (Figure 3). The two parties that man-aged to navigate the no-taper caper correctly were equity and Euro/dollar traders.
Gold is a great mystery. You’d think the near-default of the U.S. would provide a big boost to gold, supposedly the safe port in a sovereign storm. But fear over default never got big enough to overcome a string of factors that included another diatribe by Warren Buffett against gold, George Soros announcing his cutting of positions, and the monstrous losses by John Paulson’s PFR Gold Fund, which dropped more than 60%. The gold gang is awash in whis-pers of market manipulation by governments that literally do not want gold prices rising because that would be proof that confidence in government is shaky.
In Figure 4 the big drop in price (and volume) came on April 15, as the Cypriot central bank was widely expected to sell gold reserves. This rumor started a rout in gold that
took the market down 9.35%, the biggest one-day drop in 30 years. Panic gold selling bled into other securities, including oil and equities, although they recovered while gold did not. In fact, gold fell during the two weeks of the U.S. government shutdown in October, exactly the opposite of what you would expect. To be fair, inflation is not a worry in the U.S. or Europe, which may account for gold being at the same price it was in late 2010. As Warren Buffet likes to say, he would rather own a stock that has a dividend.
Longer run, however, unless the U.S. cleans up its act politically and eschews default in a convincing way, gold must be the beneficiary of fear-buying — on top of accu-mulation by reserve holders who now see the dollar in a dimmer light. Having said that, gold is not for personal savings because it has no intrinsic return, and it is not a good investment. According to the National Bureau of Economic Research, from 1836 to 2011, gold earned only an average 1.1% per year. Treasury bonds yielded 2.9% and equities earned 7.4%.
But never mind. Whether gold bottoms here or at a lower level, at some point we can count on gold to behave as conventional analysis says it should — as a safe haven in a world where government debt is above the 90% level
in the reserve currency issuer.
y
Barbara Rockefeller (www.rts-forex.com) is an international econo-mist 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.
FIGURE 4: GOLD FUTURES
The near-default of the U.S. presumably would have boosted gold, but the metal declined before and during the October government shutdown.
Barbara Rockefeller
Currency Trader Mag November 2013 Figure 4: Gold Futures
uly August September NovemberDecember2013 FebruaryMarch April May June July August September Novem
5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000 75000 x10 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000 75000 x10 1150 1200 1250 1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850 1150 1200 1250 1300 1350 1400 1450 1500 1550 1600 1650 1700 1750 1800 1850
In 2011, as economic pressure on Swiss exports increased with the rapid valuation of the Swiss franc vs. the Euro, the Swiss National Bank (SNB) decided to create a floor for the Euro/Swiss franc exchange rate (EUR/CHF) at 1.20, pledging to use all tools at its disposal to prevent any moves below this level.
The market tested the SNB’s commitment through most of 2012, with the EUR/CHF pair trading in a tight range just above this level (Figure 1). After this test the pair start-ed to trade gradually higher and many speculators
real-ized the SNB had created a very good opportunity to profit from moves in the EUR/CHF above the 1.20 floor.
Let’s look at how we can potentially take advantage of this market phenomenon, but also examine some of the risks involved.
Infinite support: Trusting the SNB
Because the SNB is capable of providing extremely large amounts of liquidity — it has the power to issue as many francs as necessary — the 1.20 floor is effectively unbreak-able as long as there is the political will to sustain it.
This creates an arbitrage opportu-nity: Because we know the EUR/CHF rate can’t go below 1.20, any long posi-tions we take in the pair will be safe as long as we place a stop order below the 1.20 level. Essentially, we can treat the SNB floor as “infinite support” the market cannot break. As long as this reality remains in place, we can profit if we buy the EUR/CHF pair close to the floor and sell it when it rallies off of it.
The trading scenario
A key component of taking advantage of this situation is, the closer we trade to the 1.20 support level, the more leveraged our positions can be. For example, if the EUR/CHF rate is at 1.2300, we could take a trade risking a margin call on a move to 1.1950 (using a 50-pip safety margin below the floor), in which case we would need
TRADING STRATEGIES
TRADING STRATEGIES
Profiting from the
EUR/CHF floor
It’s a high-risk trade, but the SNB’s Euro/Swiss floor presents a unique opportunity.
BY DANIEL FERNANDEZ
FIGURE 1: WEEKLY EURO/SWISS
The SNB established 1.20 floor during the period contained by the blue rectangle. The floor was tested in 2012 (red rectangle), and has since presented a trading opportunity (green rectangle).
CURRENCY TRADER • November 2013 17
to account for a 450-pip loss. However, with an entry price of 1.2200 the stop-loss amount would be only 350 pips, which means we could use a larger position size and could potentially reap larger profits if the EUR/ CHF rallies.
As the EUR/CHF moves higher, new longs become less attractive because the potential amount of time you might spend in a drawdown (the space between the entry price and the 1.20 floor) increases and your potential gain decreases (because you need to trade a smaller-sized posi-tion). The advantage of this scenario is maximized when we use the highest possible leverage at times when price reaches natural support levels.
Many speculators, large and small, have learned about this trad-ing opportunity, which has created an artificially strong support level that has effectively prevented price from dropping to the 1.20 floor. As a result, the SNB has not had to intervene directly in the market since 2012.
Figure 2 shows the Oanda order book, which is a fair representation of
average speculator positioning. It allows us to see price levels at which large numbers of buy limit orders are supporting the EUR/CHF pair.
On Oct. 23, 2013, the order book showed a strong accumulation of buy limits at 1.22, meaning we could set buy limit orders above this level (e.g., between 1.2250 and 1.2300) and expect the additional limit orders to support us — that is, because price is unlikely to breach this strong support, we can enter positions above it instead of waiting for a poten-tial drop to a lower level that, while representing a better opportunity, may not readily materialize. Other support points, such as the test of the most recent day’s low, can offer good entry
points for long trades.
Interestingly, the order book reveals many traders are following the same strategy, as evi-denced by the large number of sell stop orders below 1.20 — a sign of long strategies assum-ing “infinite support” by the SNB at 1.20.
Because we’re only entering one trade at a time, deciding when to exit is important as it directly affects the number of price swings we can take advantage of. Trades can be exited at weekly resistance lines (Figure 3) or, alternate-ly, a position can be taken out by a retrace-ment by setting a trailing stop when price moves 100 to 200 pips in your favor. The first scenario will allow you to cash in and take a new position at a new test of support. The second option will allow you to take advan-tage of large swings that sometimes occur, such as the ones in January and May 2013. Another option is to distribute risk across
FIGURE 2: EUR/SWISS ORDER BOOK
Oanda’s EUR/CHF order book from Oct. 23, 2013 shows a large accumulation of buy limit orders around 1.22.
Source: oanda.com
FIGURE 3: EURO/SWISS WEEKLY SUPPORT AND RESISTANCE
Weekly support (red) and resistance (green) levels can be used to enter and exit trades.
multiple positions. Figure 4 shows an example of a strat-egy that separates risk into a maximum of four trades, all of which use a profit target of 15 pips above the highest entry price.
To start, a trade is opened that risks 25% (a stop-loss order at 1.1950) and has a profit target of 15 pips; if price moves down a quarter of the distance to 1.2000, a second trade is entered (also risking 25%) with the same profit target as the first. If price declines further, two additional positions are opened in the same manner, resulting in four open positions with risk of a margin call at 1.1950. If price reaches the profit target, a new long position is entered and the process begins again.
This strategy would have generated a profit of 110% in 2013 through Oct. 23. However, discretionary strategies based on support and resistance, as mentioned previously, could have produced better results.
Extended drawdowns
A strategy traded in this manner might suffer from extend-ed drawdowns, which can become longer the further away you are from the floor when opening your positions. As a result you may incur significant interest fees if your broker charges you a negative overnight interest rate for holding a EUR/CHF long position.
Accordingly, it is advisable to only use this strategy if your broker gives you a positive interest rate on EUR/ CHF longs; otherwise your capital could become signifi-cantly eroded if the EUR/CHF becomes trapped in a tight range below your entry for a significant period of time.
This means it’s also wise to avoid entering positions when the EUR/CHF is above 1.24, because in this case your potential for extended drawdown periods below your entry price becomes larger.
The big risk: “Infinite” isn’t really forever
This trade has an important caveat: Buying the EUR/CHF pair close to the SNB floor and risking a margin call below 1.1950 is a high-risk setup — it obviously carries the risk of losing all or most of your capital if the SNB doesn’t enforce its policy or changes it. Although the SNB will probably hold the floor while interest rates remain low, it is worth mentioning that inflation in Switzerland (particularly in real estate) as well as a potential unsustainable accumula-tion of foreign exchange reserves stemming from defend-ing the floor might pressure the SNB to change its strategy. (“Swiss National Bank dilemma – too much of a good thing,” by Michael D. McDonnell offers further analysis on this topic.)
Even if the SNB simply lowered the floor from 1.20 to, say, 1.18 it would result in heavy losses for traders using this type of strategy. The approach should be traded in an account where risk of total loss is acceptable. Meanwhile, the strategy is highly rewarding because it is supported by
the current market conditions.
y
Daniel Fernandez is an active trader focusing on forex strategy analysis, particularly algorithmic trading and the mathematical
evaluation of long-term system profitability.For more information
on the author, see p. 4.
TRADING STRATEGIES
FIGURE 4: STAGGERED TRADING APPROACH
This trading approach enters four separate long trades and exits 15 pips above the highest entry price.
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TRADING STRATEGIES
ADVANCED CONCEPTS
Last month’s examination of risk reversals and their rela-tionship to major currencies (“Going forward with rever-sals: The Majors,” Currency Trader, October 2013) showed the relative demand for price insurance between currency options’ call and put wings provided early warnings of turning points for those currencies. Now let’s repeat the exercise for a set of minor currencies that includes the Brazilian real (BRL), Indian rupee (INR), South African rand (ZAR), Turkish lira (TRY), Thai baht (THB), Mexican peso (MXN), and Taiwan dollar (TWD).
As a refresher, the relative willingness of call and put option buyers to buy their respective contracts can be measured in a “risk reversal,” defined as the difference in
implied volatility between call and put options of the same
delta.
Delta is the expected movement in the option’s price relative to the underlying asset’s price; call option delta ranges from 0 to 1 and put option delta from -1 to 0. When the bounds of 1 and -1 are reached, the options are so deep
in the money and have so little time premium remaining they behave like long and short futures or cash-market positions, respectively.
Two risk reversals will be used in the following discus-sion, the 25-delta and 35-delta risk reversals. Because the
25-delta options are further out of the money and are more
levered, they tend to convey more information about rela-tive anxiety and therefore are more useful for analysis.
Going forward with reversals:
The minors
Smaller and less-developed currency option markets appear to have cleaner
relationships to their carry returns vs. the USD than do major currencies.
BY HOWARD L. SIMONS
FIGURE 2: THE MEXICAN PESO AND THREE-MONTH RISK-REVERSALS -2.5% 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 1.88 1.90 1.92 1.94 1.96 1.98 2.00 2.02 2.04 2.06 2.08
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into MXN, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
FIGURE 1: THE BRAZILIAN REAL AND THREE-MONTH RISK-REVERSALS 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 2.00 2.04 2.08 2.12 2.16 2.20 2.24 2.28 2.32 2.36
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into BRL, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
CURRENCY TRADER • November 2013 21
Risk reversals and the minors
The data in Figures 1-7 are based on cash markets for the set of minor currencies. The returns on the currencies
are presented as the common logarithm of the total carry
return from the U.S. dollar into those currencies reindexed to January 2006; this both approximates the return path of a continuous currency futures contract and allows for the more intuitively appealing rising line depicting a stronger currency. The three-month 25- and 35-delta risk reversals are presented as well. All these reversals are depicted on an inverse scale because a call option on a larger num-ber of “units per USD” conveys a weaker, not a stronger, underlying asset.
If risk reversals are to have any value in trading and market analysis, they should lead the return series and they do so with a two-month average lead time. Accordingly, the carry return series are shifted by two months in the following charts.
The outstanding feature for the Brazilian real (Figure 1) is the steady-state nature of the risk reversals — with two exceptions, the 2008 financial crisis and the 2011 conflu-ence of the U.S. debt ceiling and European sovereign-debt situations, when they correctly expanded prior to the cur-rency’s rebound. Regardless of the long periods of BRL appreciation prior to 2011 or its downturn since then, the risk reversals tend to be weakly bullish.
In Figure 2, the Mexican peso’s risk reversals look some-what similar to the BRL’s: a general steady state punctu-ated by two bullish expansions, one during the 2008 finan-cial crisis and one during the 2011 U.S. and European debt situations.
The Indian rupee’s chart (Figure 3) has a similar asym-metry, with a similar steady-state bias toward weak appre-ciation for the carry return into the INR as seen for the BRL. Because the INR, like the BRL, had a long period of appreciation between the 2008 financial crisis and mid-2011 followed by a downward-pointing trading range, the stickiness of the option market is puzzling. As in the case of the BRL, the two major upturns in the risk reversals cor-rectly called impending bottoms in the currency.
FIGURE 5: THE TURKISH LIRA AND THREE-MONTH RISK-REVERSALS 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 1.90 1.92 1.94 1.96 1.98 2.00 2.02 2.04 2.06 2.08 2.10 2.12 2.14 2.16 2.18 2.20 2.22
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into TR
Y, Jan. 4, 2006 = 2.00 Led T wo Months Carry 3-Mo 25 3-Mo 35
FIGURE 3: THE INDIAN RUPEE AND THREE-MONTH RISK-REVERSALS -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 1.98 2.00 2.02 2.04 2.06 2.08 2.10 2.12 2.14
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into INR, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
FIGURE 4: THE SOUTH AFRICAN RAND AND THREE-MONTH RISK-REVERSALS 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 1.770 1.795 1.820 1.845 1.870 1.895 1.920 1.945 1.970 1.995 2.020 2.045 2.070 2.095 2.120
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into ZAR, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
ON THE MONEY
ADVANCED CONCEPTS
Lest you think the BRL and INR define a pattern for the minor currencies, consider the South African rand (Figure 4). Here the risk reversals swing about frequently and in both directions. The 25-delta risk reversal was a late to the rebound from the 2008-2009 low, but it anticipated the other shifts in the ZAR reasonably well.
The Turkish lira’s risk reversals, especially the 35-delta risk reversal, have anticipated moves in the TRY both higher and lower since mid-2007 (Figure 5). This relatively tight correlation is surprising given the dominance of the interest rate spread as opposed to the spot rate change in the TRY’s carry return (see “Turkish Lira and eternal cross-roads,” July 2012).
The Thai baht’s risk reversals expanded once, during the 2008 financial crisis, and have hovered at low positive lev-els otherwise (Figure 6). This has been an accurate assess-ment of the carry returns into the THB; the currency’s carry return has oscillated within a small trading range since late 2010.
The Taiwan dollar’s risk reversals shifted into an increasingly bullish phase throughout 2011 before the carry into the TWD turned lower and then remained bull-ish through the currency’s subsequent rebound (Figure 7). This picture may seem boring, but what should be so bor-ing about an indicator bebor-ing correct most of the time?
Prospective returns
Now let’s see whether three-month-ahead returns appear to be a function of these risk reversals and of the forward
rate ratio between six and nine months (FRR6,9) for the
minor currencies (see “Minor currencies less affected by
The Great LIBOR Kerfuffle,” July 2013). The FRR6,9 is the
rate at which borrowing can be locked in for three months starting six months from now, divided by the nine-month rate itself. The steeper the yield curve, the more this ratio
exceeds 1.00; an inverted yield curve has an FRR6,9 less
than 1.00.
FIGURE 8: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO BRAZILIAN REAL FIGURE 7: THE TAIWAN DOLLAR AND
THREE-MONTH RISK-REVERSALS -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 1.93 1.94 1.95 1.96 1.97 1.98 1.99 2.00 2.01 2.02 2.03
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into TWD, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
FIGURE 6: THE THAI BAHT AND THREE-MONTH RISK-REVERSALS -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 2.01 2.03 2.05 2.07 2.09 2.11 2.13 2.15 2.17
Jan-06 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 May-10 Nov-10 Apr-1
1
Oct-1
1
Apr-12 Oct-12 Apr-13 Sep-13
Three-Month Risk Reversals, Inverse Scale
Log
10
USD Carry Return Into THB, Jan. 4, 2006 = 2.00
Led T
wo Months
Carry 3-Mo 25 3-Mo 35
CURRENCY TRADER • November 2013 23
In Figures 8-14, positive prospective returns are depicted with green bubbles, negative with red bubbles; the diam-eter of a bubble corresponds to the absolute magnitude of the return. The last datum used, the end of April 2013, is highlighted and the end-July 2013 environment is marked with a crosshair.
The most striking feature about the BRL chart is its cluster of negative prospective returns in the upper-right corner of the map where risk reversals are low and the
FRR6,9 is increasingly positive (Figure 8). This is equivalent
to saying the market expects a more expansive Brazilian monetary policy to result in a weaker BRL, and it adjusts its insurance trade accordingly.
The picture for the Mexican peso looks very different (Figure 9). Here the dominant feature is a cluster of posi-tive prospecposi-tive returns with the 25-delta risk reversal between 2% and 12%; all other observations with the risk reversal either higher or lower are negative. This is an extraordinarily reliable, albeit “data-mined” pattern.
The pattern for the Indian rupee has been too mixed to be useful (Figure 10). Here, there are alternating bands of positive and negative prospective returns across the observed range of risk reversals.
The South African rand has a much neater and therefore much more useful division (Figure 11). Here nearly all of the observations involving a 25-delta risk reversal greater than 5% and a flat-to-inverted yield curve have positive prospective returns, and vice versa. To echo the comment made for the BRL in reverse, the market associates an inverted yield curve with gains in the ZAR and it prices relative insurance costs accordingly.
The Turkish lira has a different pattern (Figure 12). Here the major cluster of negative prospective returns is con-centrated in the lower-right corner of the map where the
25-delta risk reversal is less than 5% and where the FRR6,9
is less than 1.08; positive prospective returns are clustered in the upper-left corner.
FIGURE 9: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO MEXICAN PESO
FIGURE 10: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO INDIAN RUPEE
FIGURE 11: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO S. AFRICAN RAND
ON THE MONEY
ADVANCED CONCEPTS
The prospective return map for the Thai baht shows a
greater dependence on the FRR6,9 than on the risk reversal,
but the two measures combine to form a region dominated by positive prospective returns over the superimposed line and negative prospective returns below the line (Figure 13).
The Taiwan dollar has an even more extreme division
along the FRR6,9-risk reversal combination, but here the
superimposed line runs from the upper-left to the lower-right quadrant (Figure 14). Here the negative prospective returns are associated with higher risk reversal levels com-bined with flatter yield curves.
The overall conclusion for the minor currencies is sur-prising to the extent the smaller and less-developed option markets on them seem to have cleaner relationships to their carry returns against the USD than was the case for the major currencies. A likely explanation here is the majors have been affected more by various programs of
quantitative easing and sovereign debt constraints than have the minors and therefore are reacting to anecdotal impulses as opposed to basic market factors.
In addition, the conclusion stated for the majors last month applies here: “What we can conclude from the data above is the principle of relative anxiety expressed in the relative volatility measure of a risk reversal does provide some early warning of impending trend changes. This is not infallible, but as is the case with so many market indicators, it must be interpreted rather than applied in a
simple trading rule.”
y
Howard Simons is president of Rosewood Trading Inc. and a
strategist for Bianco Research. For more information on the author,
see p. 4.
FIGURE 12: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO TURKISH LIRA
FIGURE 13: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO THAI BAHT
FIGURE 14: THREE-MONTH-AHEAD RETURNS ON DOLLAR CARRY INTO TAIWAN DOLLAR
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the interconnection &data center companyCPI: Consumer price index ECB: European Central Bank FDD (first delivery day): The first day on which delivery of a com-modity 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 clear-inghouse 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: Institute for supply management
LTD (last trading day): The final day trading can take place in a futures or options contract. PMI: Purchasing managers index PPI: Producer price index Economic Release release (U.S.) time (ET) GDP 8:30 a.m. CPI 8:30 a.m. ECI 8:30 a.m. PPI 8:30 a.m. ISM 10:00 a.m. Unemployment 8:30 a.m. Personal income 8:30 a.m. Durable goods 8:30 a.m. Retail sales 8:30 a.m. Trade balance 8:30 a.m. Leading indicators 10:00 a.m.
GLOBAL ECONOMIC CALENDAR
November
1
U.S.: October ISM manufacturing index Australia: Q3 PPI2
3
4
5
6
Brazil: October PPI7
Australia: October employment report
Brazil: October CPI
Mexico: Oct. 31 CPI and October PPI
UK: Bank of England interest-rate announcement
ECB: Governing council interest-rate announcement
8
U.S.: October employment report Canada: October employment report LTD: November forex options; November U.S. dollar index options (ICE)
9
10
11
12
Germany: October CPIUK: October CPI and PPI13
Japan: October PPIUK: October employment report14
U.S.: September trade balance and October PPI
France: October CPI Germany: Q3 GDP India: October PPI Japan: Q3 GDP
15
U.S.: October CPI16
17
18
Hong Kong: August-October employment report19
U.S.: Q3 ECI20
U.S.: October retail salesGermany: October PPI South Africa: October CPI21
U.S.: October leading indicators Brazil: October employment report Hong Kong: October CPI
Japan: Bank of Japan interest-rate announcement
Mexico: Q3 GDP
22
Canada: October CPIMexico: Nov. 15 CPI23
24
25
Mexico: October employment report26
U.S.: Q3 GDP and October housing startsSouth Africa: Q3 GDP
27
U.S.: October personal income and durable goods28
Canada: October PPI
Germany: October employment report
South Africa: October PPI
29
Canada: Q3 GDP France: October PPI
India: Q3 GDP and October CPI Japan: October employment report and CPI
30
31
December
1
2
U.S.: October ISM manufacturing index3
Brazil: Q3 GDPThe information on this page is sub-ject to change. Currency Trader is not responsible for the accuracy of calendar dates beyond press time.
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