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CENTRAL BANK SE ASON H E ATS UP

TREND TRADING

TRADER MAGAZINE

MADE SIMPLE

US

INTEREST RATE HIKE

OPTIONS

ST R AT E GY

COT &

VO LUM E PROFILE

STRATEGY

YEN

MIDYE AR

REVIEW

JULY - SEPTEMEBER 2015

yuan growing global

THE GROWING GLOBAL ROLE OF THE RENMINBI, AND CHINA’S GROWTH PATH TO INTERNATIONALIZATION


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CONTENTs

THE GROWING GLOBAL ROLE OF THE RENMINBI

FX

48

An analysis of the liberalization of the Chinese currency and its impact on the global financial markets

REVOLUTIONIZE THE WAY YOU TRADE

28 07 EDITOR’S NOTE YUAN SPECIAL REPORT 6 0 China’s Growth Path to Internationalization: fundamental analysis and Yuan trading recommendations 42 A Supranational Reserve Currency: The solution to reach global stability and avoid conflicts of interest 58 Interview with Yi Gang, State Administration of Foreign Exchange Director GLOBAL MARKET WATCH 12 What’s in store for investors in the second half of 2015? A look at the major issues which will create volatility on the market MONETARY POLICIES 18 Central Bank Season Heats Up. How to interpret Central Banks’ decisions to find major directions and trends for weeks, months, and even years

Use the COT report and Volume Profile to see the market from a different angle

26 US INTEREST RATE HIKE: A MATTER OF WHEN, NOT IF What the next three months hold for the US dollar

FUNDAMENTAL ANALYSIS 34 Mexico wants to attract more investors: Implications for the USDMXN

ASK THE COACH

CURRENCY WATCH: 24 Japanese Yen: Breather continues

BOOK REVIEW

OPTIONS STRATEGY 64 FX Options, an elephant in the room: How to generate returns from anomalies and biases in the FX option market TECHNICAL ANALYSIS 70 Trend Trading Made Simple: A trading method which uses the basics of technical analysis combined with price projections TRADING PSYCHOLOGY 36 How to eliminate emotions from trading by gauging the emotions surrounding the market and applying some consistent rules 73 Seven trading affirmations to transform your trading success. Discusses the positive, battle-tested trading affirmations based on the habits of successful traders

15 How to identify and control overtrading? 68 FX Option Peformance, by Jessica James, Jonathan Fullwood and Peter Billington TECHNICAL REPORTS: 76 Trends and Targets: Majors US Dollar Rate/Major Cross Rates Selected Asian FX Rates/FX Emerging Markets 76 Featured Markets: USD/JPY, EUR/SEK, EUR/CZK, NZD/USD 80 CONFERENCES & SEMINARS INTERNATIONAL DATA 81 FX Spot Monitor 82 Central Bank Rates 83 Economic Data - FX Poll 84 Markets View 85 ECONOMIC CALENDAR

FX TRADER MAGAZINE July - September 3


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EDITOR’s note

FX

Challenges in sight for the FX market As we enter the second half of the year, market experts expect a period of intense volatility, shaped by the development of the Greece situation and its capacity to remain in the Eurozone, and the anticipated US interest rate hike. In this edition we also focus on the increasingly important role of the Yuan. Whether the Chinese currency will become a strong global reserve currency is still debated on the market, and at this stage, the renminbi internationalization is neither challenging the role of the US dollar nor changing the world monetary system. However the final decision about the inclusion of the renminbi in the SDR currency basket could have a strong impact on the foreign exchange market. Global media coverage often appears to interpret the Yuan internationalisation as a challenge to the Dollar, but this tends to distort the original goal of China’s monetary policy leaders, who view the internationalization of the currency as an objective need for a highly open real economy. Dai Xianglong, former chairman of China’s National Social Security Fund (NSSF) and former president of IFF, backs the idea of the internationalization of the renminbi

and the benefits it could bring explaining that, originally China did not intend to attempt to improve the international monetary system, and explains that the internationalization of the Chinese currency could well promote the improvement of the global system because it could make currencies more stable in more and

the world needs to be prepared for a system where the Dollar, Euro and Renminbi will all be consequential international and reserve currencies. In this edition, Justin Lin, former Chief Economist at the World Bank, proposes the creation of a supranational reserve currency, as a solution to reach global stability and avoid conflicts of interest. And in an interview with Yi Gang, the State Administration of Foreign Exchange director discusses five changes in China’s foreign exchange management as well as the long-term value of the renminbi.

This issue also includes an interesting approach to FX Options trading, explained by Jessica James, who proposes a strategy based on anomalies and biases in the FX option market. Sam Barry shows you how to use the more countries, which is beneficial for COT report and Volume Profile to the free convertibility of the renminbi. see the market from a different angle and revolutionize the way you trade. At the present time there seems to be no Efthivoulos Grigoriou explains how timetable for this internationalization to eliminate emotions from trading by project, no specific schedule in place gauging the emotions surrounding the to realize the full convertibility of market and applying some consistent the renminbi. The objective of China rules. And Razvan Mihai describes a is to promote and speed up the trend trading method which uses the internationalization of its currency basics of technical analysis combined step by step, according to its economic with price projections. conditions and financial status. Enjoy this edition. For Barry Eichengreen, professor of Emmanuelle Festa Bianchet economics at University of California, FX TRADER MAGAZINE July - September 7


FX

CONTRIBUTORS

Angus Campbell is Senior Analyst at FxPro and has over twelve years’ experience working in the City analysing and commentating on financial markets. He has made regular television appearances on Bloomberg, CNBC Europe, Reuters TV, CNN, BBC and Sky News. Prior to joining FxPro in July 2013 Angus spent five years as Head of Market Analysis at London Capital Group. www.fxpro.co.uk/ Chris Pulver is a 6-year Forex trading veteran and expert analyst for Market Traders Institute’s Analyst on Demand. As a full-time trader focused on consistently conservative trading methods that provide high percentage wins on a regular basis, this Ferris State University graduate dedicates his time to teaching traders the art of harnessing limitless trading opportunities with limited capital. A meticulous trade planner passionate about fundamental and technical analytical alignment, and a PGA certified instructor and coach, Pulver helps traders of all skill levels find their personal action plans for longterm trading success to give them the freedom they need to lead lives they love. www.markettraders.com Efthivoulos Grigoriou is Head of Global Research and Analysis at JFD Brokers. He is a leading Strategist and investment specialist applying global ‘micro – macro’ approach to investing in G10 currencies. Efthivoulos is a highly rated analyst in FX and US Equities; well versed in commodities and alternative assets. Efthivoulos has great expertise in analysis of global economies and markets with a particular focus on the United States and Europe. Prior to joining JFD Brokers, he was a technical analyst at a

8 FX TRADER MAGAZINE July - September 2015

number of well-known securities firms. www.jfdbrokers.com Jarratt Davis is a self-taught trader who has been ranked among the world’s top traders between 2008 and 2013 by the Barclay Currency Trading Index. Today he trades professionally through an FCA regulated investment company in London and he is a regular commentator for international financial press. He also devotes his time to sharing his personal strategies with traders looking to hone their skills. He is also the author of ‘How to Trade a Currency Fund’. www.jarrattdavis.com Jessica James is Co-Head of the FX Quantitative Solutions team at Commerzbank in London. She joined Commerzbank from Citigroup where she held a number of FX roles, latterly as Global Head of the Quantitative Investor Solutions Group. She is a Managing Editor for the Journal of Quantitative Finance and is a Visiting Professor at Cass Business School. She is a Fellow of the Institute of Physics and has been a member of their governing body and of their Industry and Business Board. Jessica is co-author of FX Option Performance: An Analysis of the Value Delivered by FX Options since the start of the Market. Jonathan Fullwood is a director in FX Quantitative Solutions at Commerzbank in London. Since joining Commerzbank in 2002 he has also worked in fixed income research and portfolio strategy roles and was awarded a CFA® charter in 2007. Jonathan is is co-author of FX Option Performance: An Analysis of the Value Delivered by continue on page 10

Publisher & Chief Editor : Emmanuelle Festa Bianchet editor@fxtradermagazine.com Editorial support: Ivan Karlukovski Stefan Pashaliyski Webmaster: Hristo Katzarski webmaster@fxtradermagazine.com Graphic design: Preslav Dobrev For advertising, contact: ad@fxtradermagazine.com

www.fxtradermagazine.com Trading carries a high level of risk, and may not be suitable for all investors. The objective of FX Trader Magazine is to give readers the tools, training and information which will help them be better prepared to trade on the foreign exchange. However, any analysis, news, research, strategy, or other information contained on this magazine is provided as general market information and does not constitute investment advice. FX Trader Magazine, will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.


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FX

CONTRIBUTORS

continue from page 8 FX Options since the start of the Market. Keith Raphael, worked as VicePresident and Chief Technical Market Analyst at Chase Manhattan Bank in New York City until 1993, serving top corporations, fund managers, investment banks, and spot traders of the world. Surveys by Greenwich Associates and Euromoney, consisting of 400 corporations and investment banks worldwide, ranked his Chart Service number one in 1992 and 1993. Keith has been seen on CNBC, in the New York Times and Wall Street Journal. He is the President of Crosscurrents Investment Advisory. www.crosscurrentsinvestments.com Li Cui is a well-rounded economist. A former Senior Economist at the IMF she currently works as Managing Director for China Macro Research at Goldman Sachs Hong Kong. She has focused on greater China economic research since 2005, and led China macro research in various roles since 2008. Her research has been frequently quoted in policy publications, market reports, and media. Li has also built extensive networks in financial markets, policy institutions, and academia, both in China and overseas. Razvan Mihai is both an experienced technical analist and trader. He is certified as CFTe by IFTA. He worked for one of the top five European brokerage houses, and was Head of Research and Content Manager for Investazor.com. He currently works as Analysis Director for a new international brokerage house which will be officially launched in 2015.

10 FX TRADER MAGAZINE July - September 2015

ZURICH PRIME Rob Colville has trained thousands of private investors around the globe. He founded “The Lazy Trader� to teach his simple and honest approach to trading and investing. Rob is member of the Society of Technical Analysts (STA) and regularly writes for FX Street, Forex Peace Army and FX Trader Magazine. Rob also works as a Business Mentor for The Princes Trust in London where he coaches budding entrepreneurs from disadvantaged backgrounds on how they can build and develop their own business. www.thelazytrader.com Sam Barry is the CEO of Littlefish FX, who are seeking to democratise the foreign exchange market by providing educational materials, analytical tools, trading systems and alternative investments based on order flow concepts and strategies (traditionally the preserve of large financial institutions). Learn more about this, and sign up for their Forex course including marketleading indicators, at LittlefishFX.com. Samuel Tay is the founder of Grentone Capital Management Ltd. He has more than a decade of experience trading and managing global financial market investments. He worked a proprietary trader, investment banker, investment manager, market maker, dealer, and speaker for several global institutions. Samuel made appearances in Chinese financial media, and spoke for several global financial institutions. He adopts a top-down approach investment strategy, with the use of fundamental analysis to discover intrinsic values. He also uses Elliott Wave Theory, Intermarket Analysis, Sentiment Indicators, continue on page 11

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continue from page 10 Seasonality, and Market Flows for making opportunistic investing assessments. www.grentone.com Steve Jarvis has provided technical analysis to FX professionals since 1988. Steve is chief analyst for InterpreTA, Tradermade’s technical analysis service. Steve has a strong experience in providing professional traders with daily & intra-day technical analysis commentaries with live annotated charts, covering a wide range of major US Dollar and Cross-rates, including Eastern European and Asian rates, plus key Commodities. www.tradermade.com

FX

www.fxtradermagazine.com For iPad & iPhone editions click here For Android editions click here For Kindle editions click here For PDF downloads click here

Steve Ward is the owner of High Performance Global and provides coaching and training programs for top tier trading institutions, as well as retail traders. He was consultant performance coach to BBC2’s Million Dollar Traders and co-managed a team of 40 professional proprietary traders in London. He is an approved trainer at the London Stock Exchange. He is the author of “7 Professional Coaching Lessons” and “High Performance Trading” as well as “Trader Mind”. www.highperformanceglobal.com Yann Quelenn is a Market Analyst at Swissquote Bank with strong technical and financial background. Previously, he worked as FX Trader at Banque Privée Edmond de Rothschild and as Portfolio Manager at Polaris Investment in Luxembourg. Yann has a Master in Quantitative Finance and Risk Management from Università Bocconi, Italy. www.swissquote.ch/

FX TRADER MAGAZINE July - September 11


FX

GLOBAL MARKET WATCH by Angus Campbell

What’s in Store for Investors in the Second Half of 2015?

As we head towards the end of the first half of 2015 investors seem to be approaching the second half with a distinct degree of caution and trepidation. When stock markets have recorded the sort of mixed and in some cases meagre to negative returns for a six month period, one has to ask the question as to whether there is any meaningful investor appetite left to lift equities higher. At the same time FX markets have had a very turbulent first half, which looks set to continue in the months ahead when looking at what

12 FX TRADER MAGAZINE July - September 2015

the economic and political calendar has in store. When looking back briefly at the first half we can rest assured that it was not in the slightest bit short of impactful events. The year started with a bang as equity market volatility remained high after spiking towards the end of 2014, leading to large oscillations in global indices and FX market volatility sky rocketed after the Black Swan event that was the Swiss National Bank’s removal of its currency ceiling against the euro.

Since then, apart from a pullback in February, FX volatility has remained at heightened levels due to not only considerable geopolitical uncertainty, but economic uncertainty as well, whereas equity market volatility has fallen from the highs of earlier in the year. In respect to returns, as mentioned these are very mixed so far for 2015. UK and US national benchmarks are as good as flat, European benchmarks positive due to the impetus from the European


GLOBAL MARKET WATCH

FX

Central Bank’s quantitative easing Reserve’s approach to raising interest voted in on an anti-austerity ticket, so program and more recently renewed rates from their all-time historical this is just one of the high hurdles needed to optimism of a deal for Greece, although low. Both have been hotly debated be overcome. Ultimately though a deal their impressive gains have dwindled throughout the year intensifying as we would be a short-term fix that only buys somewhat in the second quarter, Indian reach breaking point. Greece a few more months’ time before stocks are largely negative and the only we will see the problem resurface. real standout is the Shanghai Composite Let’s look at the Greece issue first as by Without some sort of debt restructuring seeing over a 40% gain so far. In the the time this article is published the a bailout resolution will mean prolonging FX world the of what is widely dollar has added being accepted to the impressive as inevitable and returns it made in the eyes of in the latter part many investors of 2014, with when Greece does the dollar index finally leave the up over 5% year euro, such a breakto date and the up further down majority of those the line should be gains coming at more manageable. the expense of the A default and yen and euro. It’s resultant Grexit not just the dollar will cause much that has benefitted short-term pain, from euro but is potentially weakness with better in the long sterling up 8% run for Greece and against the single its creditors as now currency and the contagion risk is Two major issues cast a long shadow over pound has held its less than it was the rest of this year: the ongoing Greece own against the three years ago. mighty US dollar, The only problem saga, and the Federal Reserve’s approach up just over 1% with the latter to raising interest rates year to date. scenario, which is the reason why Whilst the first there has been half shows a very mixed picture when it country will probably have been thrown so much time and resource vested in comes to returns across asset classes, it yet another lifeline by the EU and other negotiations, is that it means an end to suggests bifurcation amongst investors creditors in the form of €7.2 billion to a single currency project that was never and indicates a wide ranging concern shore up the country’s finances through supposed to fail and if it’s alright for about what the second half has in store. the summer. Investors have been one member to see an end to austerity There are two major issues casting a long showing relief with equity markets whilst having their outstanding debts shadow over the rest of this year with bouncing, but even if a deal is agreed, written off, then other members such the first being the ongoing Greece saga it then has to be ratified by the Greek as Spain, Portugal, Ireland and even and the second being the US Federal parliament who have of course been Italy will be asking why isn’t it the same FX TRADER MAGAZINE July - September 13


FX

GLOBAL MARKET WATCH

for them. Either way the financial markets are becoming more and more accepting of whatever the outcome of these negotiations, the main reason why they are seen by so many as being inconsequential is because a Grexit remains firmly on the cards.

moves this year or in 2016, investors, businesses and consumers have been used to ultra-low interest rates for years and are nervous about monetary tightening. The Federal Reserve is significant because any rising of

considerably since then, the trend could easily continue as this time these economies not only have to deal with the prospect of more expensive debt, they have to do so at a time when many countries across the globe are seeing growth stall. This combination has the potential to make their currencies depreciate even further against the dollar, making their debt problems worse.

As if this wasn’t enough of a headache for investors there’s the other issue of having to deal with the com mencement Ultimately, the of central bank world is going m o n e t a r y to find interest tightening. rate hikes hard to Whilst a few stomach as we’ve central banks been used to near around the globe zero rates in many continue to ease major developed monetary policy, economies for for example earlier Investors, businesses and consumers almost seven in the year the years. At least European Central have been used to ultra-low interest rates we can be safe Bank introduced for years and are nervous about monetary to assume that its long awaited tightening when rate hikes quantitative easing do come, they program and more are likely to be recently the Bank of Korea, Reserve Bank of Australia interest rates has ramifications beyond gradual rather than precipitous, and Reserve Bank of New Zealand cut the shores of the US, in particular with the tightening cycle for the their interest rates, the Federal Reserve emerging markets as it makes their Fed expected to peak around 3.00% and Bank of England are getting debt, much of it dollar denominated, towards the end of 2017. But this may twitchy trigger fingers to commence more expensive. We saw the potential not be enough to put investors’ minds hiking. of an emerging market rout back in at rest during the remainder of 2015. 2013 when the Fed commenced the Whilst we are still some way off those tapering of its quantitative easing Angus Campbell first rate rises with question marks and even though most emerging Senior Analyst over whether even the Federal Reserve market currencies have depreciated FxPro

14 FX TRADER MAGAZINE July - September 2015


ASK THE COACH “Hello, I live in Kenya and I have been trading for about a year or so, I have a very big problem with over trading. Please can you kindly advise me, thank you.” “Ken J.”

Steve Ward Traders Coach answers your questions

Overtrading is a common problem particularly for shorter time frame traders and it can arise for many different reasons, so without knowing your particular trading context – that is what you trade, how you trade, your

FX

your variance from this value – this could be the number of trades made or your trading volume for example. Of course there may be situations when a higher trading frequency is to be accepted e.g. when the markets are particularly busy and are giving more trading opportunities than the norm – in these cases with effective evaluation you will be aware of this through your market conditions analysis so you will actually be assess your trading levels against market conditions to create a

Overtrading can arise for many different reasons. One of the first aspects to be aware of is when you are overtrading, and when you are not overtrading.

Write to FXTraderMagazine Ask your question to our professional traders coach by sending an email to askthecoach@ fxtradermagazine.com

trading strategy, your motivations, personal styles and your trading and personal history – I have provided a few explanations behind why traders overtrade and some possible solutions, and I hope that in amongst these you will find a solution for yourself. One of the first aspects to be aware of is when you are overtrading, and when you are not overtrading. It is unlikely that you are overtrading all of the time so it is useful to identify times when you are not overtrading and to see what clues there are as to what is happening in these situations – can you be like this more of the time? By identifying the times when you are not overtrading and doing more of what you do in these situations you can also reduce the amount of times when you are overtrading. To identify when you are overtrading you will need to have some kind of baseline measure to work from so you can assess

more robust measure. Here are some reasons as to why traders and you may be overtrading and some possible solutions; Gambling and excitement – this is occurs when the trader is trading the markets for the feelings of excitement and fun rather than for profit much the same as most people who play in the casino. If your goal is purely to have fun and to create excitement then you also need to accept the fact that overtrading is likely and profitability in the long run is unlikely. If you want profitability from your trading then you need to make a shift in your motives and goals away from fun and excitement towards a more professional and structured approach with trading profitability as your desired outcome. Lack of a clear trading strategy – here the trader has no defined strategy and therefore

FX TRADER MAGAZINE July - September 15


FX ASK THE COACH there are no parameters to determine when to trade or not so any given price movement or market move provides the temptation to trade. Traders in this situation are very prone to chasing the markets and often find that as they go long the market comes off and as they go short the market rallies. It feels as if the market is out to get them. Does that sound familiar? The most important area that you can focus on is to work on developing a trading strategy which clearly defines what a trading opportunity is whether that be based on price action, fundamentals, technical analysis, or a combination. This will help you to become more selective with your trading. Boredom – in quiet market conditions, when the trader is spending large amounts of time at the screen there will be times when there are little or no trading opportunities and feelings of boredom can arise. This is a natural part of trading, and is much like the stakeout scenario that the police and special forces operatives encounter, where you are waiting and poised for action. However these situations present the trader with the challenge of being patient and staying out of the market. For some traders this can be very difficult – particularly those who are new to trading, those who are gamblers/trading for excitement, those who are over enthusiastic or those who need to make money. I have provided more details on these below. A really important question to ask yourself is ‘Am I trading to relieve boredom or to make money?’ You need to make money – this is one of

16 FX TRADER MAGAZINE July - September 2015

the worst situations to trade in. It is a strong and powerful state but also not conducive to good trading as your whole decision making focus is on making money and not on trading your strategy and the two are not always the same. Assessing your financial needs and your trading performance is very important. Anything that you can do to relieve the necessity to have to make money will be a great step forward for you. Enthusiasm – newer traders like yourself are blessed with enthusiasm. Traders who are entering new markets are using new trading methodologies are also prone to over enthusiasm and a willingness to get involved. Whilst this enthusiasm is undoubtedly positive there is also the dark side to consider of being over enthusiastic and looking for any opportunity to trade. Maintain your enthusiasm but re-direct it towards developing your ability to trade your strategy when trades appear and to develop the discipline required to stick to your strategy. If you have to trade consider doing it on the simulator/demo account where the costs are obviously considerably lower. Also consider using your enthusiasm to do any reading or development work that may be required or any other trading specific tasks. Lack of patience – traders who lack patience will overtrade as they will be taking opportunities that are not a part of their trading strategy and so will by nature be taking more trades than is necessary. Practise patience, look for opportunities to sit and watch the markets, make time to simply view and not do, maybe try practising


ASK THE COACH mindfulness to help you to identify and work with overcoming the urge to relieve the feeling of impatience. Learning to be patient is a great skill to develop as a trader, so do not see not trading as time wasted but rather as time well spent in developing the skill of patience. In revenge – where traders have lost money through a trading loss, a mistake or fat finger etc there is often an urge to ‘get my money back’. Whilst the intention of such a behaviour/ t h o u g h t is positive the ensuing behaviour is often not. Traders who chase losses will be skewed towards taking any potential trade that could make money, regardless of whether it is a strategy trade or not as the mental framework, the goal as such is now to make money and not to trade the strategy. Where you have had a big loss or lost a large amount of money through a series of trades you may wish to incorporate a ritual to take a time out. This time out allows you time to readdress your trading state and to refocus but also and importantly breaks the behavioural pattern of lose money → feel angry → get money back. The time out causes

a break in the behavioural pattern and enables you to refocus – using breathing and relaxation techniques or taking a slow walk can all help to diffuse the emotions that are running through the system at this time at reduce the impact of revenge trading. Fatigue – when you are tired, either physically or mentally, your brain

lacks the energy to function fully, and on low fuel one impact on your performance will be a lower level of self-control. Self-control, not trading, requires you to apply the brakes in your brain to stop you trading and this takes fuel. When you are tired and fuel is low your self-control will also be low, and overtrading will be more likely. The two keys to optimising brain functioning at an energy level are rest and glucose (from eating). Make sure, as far as you can, that when you are trading you are rested and have fuelled up.

FX

Focus – focusing on not overtrading can be counter-productive as one of my clients found out – be continually thinking about not overtrading you are of course by nature thinking about overtrading, and you are also creating an internal resistance – try to not think about a white bear. When I asked my client what he would be doing if he was not over trading he answered that he would be ‘being patient and selective’ – focus on that instead I said. He made a considerable difference by simply shifting his focus to the positive outcome that he wanted rather than what he was trying to avoid. So there are a few reasons behind why traders overtrade and some possible solutions for helping you to overcome them. Consider which might be the most appropriate for your situation, give them a try and let me know how it goes.

Steve Ward If you would like a trading per formance or psycholog y question answe red by Steve please send it to askthecoach@ fxtradermagazine.com

FX TRADER MAGAZINE July - September 17


FX MONETARY POLICIES by Chris Pulver

Central Bank Season Heats Up Understanding monetary policy market moves

When you hear Central Bank uttered in the financial world, what is the first word or phrase that comes to mind? If you have been living under a rock then perhaps the term renders no familiarity and carries no influence on your trading. But for the vast majority of traders and investors, the Central Banks of the world have been responsible for and provided some of the most controversial market movements in the past seven years, with a trend (no pun intended) that looks very likely to continue.

18 FX TRADER MAGAZINE July - September 2015

Let’s take a trip down memory lane and review some of the BIG decisions that shaped the Forex Market and global monetary policy. These decisions led to what many experts have coined the currency wars where a country’s central bank adjusts monetary policy in some capacity with the intentions of stimulating a country’s lending, borrowing, spending, growth, etc. Notable central bank decisions include the following -

US Federal Reserve (Figure 1) November 2008 - Federal Reserve unveils $800 billion plan to stimulate borrowing and spending March 2009 - Federal Reserve buys $300 billion in long-term Treasury bonds QE1 November 2010 - Federal Reserve buys $600 billion in additional bonds - QE2 September 2011 - Federal Reserve cuts interest rate on consumer loans with $400 billion dept-swap


MONETARY POLICIES

Figure 1 - US Federal Reserve QE programs relative to the Dow Jones Industrial Average (DJIA)

June 2012 - Federal Reserve extends Operation Twist September 2012 - Federal Reserve launches QE3 by buying mortgage securities June 2013 - Federal Reserve discusses scaling back in purchases - Taper Talk April 2014 - October 2014 - Federal Reserve tapers stimulus from $85 billion to $0 Bank of Japan April 2012 - Bank of Japan announces an aggressive asset purchase program by $10 trillion yen April 2013 - Bank of Japan announces an open-ended asset purchase program October 2014 - Bank of Japan announces expansion to asset purchases in the wake of US Fed taper

The list is much, much longer and there is no preferential treatment with the mentionable, but they are a few of the most significant central bank decisions in recent years. This year’s Swiss National Bank fiasco was more or less the Black Swan of the Forex Market with a move that most traders would agree was something neverbefore-seen and most likely never to be seen again. The SNB was openly committed to defending the 1.2000 exchange rate through December 2014 after an intervention back in August 2011. The SNB was so committed in fact it

FX

was willing to venture into negative interest rate territory to stay ahead of the fundamentally weak euro. The SNB ventured into negative interest rate territory in December 2014 with a cut from 0% to -.25%. SNB speeches and press releases assured the markets and traders that the SNB would consider intervention if anything unsavory hit the markets and threatened the 1.2000 peg. Weeks later, in a relatively unassuming Libor Rate Decision the SNB announced a rate cut (cutting rates 50 bps to -.75 which technically should weaken the CHF) but the not-so subtle kicker being the 1.2000 floor was removed - within a matter of seconds the CHF moved nearly 2,000 points and appreciated on the move (Figure 2). This anomaly crippled traders, brokers, and permanently tarnished the reputation of Central Banks worldwide. Yet, here we are in 2015 and the year has already witnessed more Central Bank actions with plenty more on the horizon.

European Central Bank March 2008 - ECB announces LongTerm Refinancing Operation (LTRO) May 2010 - ECB Securities Marketing Programme (SMP) initiated March 2011 - ECB creates refinancing program and bond-buying program May 2014 - ECB discusses QE program March 2015 - ECB initiates QE program through September 2016

Figure 2 - EURCHF Price with 1.2000 floor protected and removed

FX TRADER MAGAZINE July - September 19


FX MONETARY POLICIES Since January 2015, over 20 central banks have participated in changes to monetary policy with the majority being rate cuts - see for yourself at http://www.cbrates.com/decisions. htm. Summer 2015 will play host to additional central bank decisions with the US Federal Reserve and RBNZ as some of the more noteworthy. The US Fed is contemplating a raise in interest rates for the first time in six years while the RBNZ is contemplating a cut in interest rates after a period of tightening and increasing throughout 2014.

term trader. Traders may feel duped into trading a news announcement where price does the opposite of what the news suggests. Traders may also try to trade in the direction of a central bank decision but be months behind the true power move that comes after one’s patience and capital has worn thin.

publish reports, press conferences, and statements monthly. It may seem dull and mundane, but if traders are looking for obvious keywords and phrases that reflect the bank’s stance on monetary policy and the economy, they are able to ascertain the potential guidance necessary to identify the bank’s longterm wishes and direction. In short, is the central bank optimistic ( t e r m e d hawkish), on the economic outlook or is it sluggish (termed dovish), on the economy? Are they willing to cut interest rates or looking to increase rates? Whatever the stance may be, the tone and dialogue is usually The important component to profiting consistent in from these macro market moves is the central bank releases and hints to understand the underlying tone at the eventual established in advance movement of the markets.

What does this all mean? As a trader, it means that frankly, we’re at the mercy of the central banks and their decision making. The topic of monetary policy is discussed regularly and an immediate rate cut or increase does not necessarily equate to an instant follow through in the Forex Market. Central banks usually create a tone in the market months before price begins to catch up with the big picture typically this does not bode well for the patience or lack thereof for the shorter-

20 FX TRADER MAGAZINE July - September 2015

The important component to actually trading and profiting from these macro market moves is to understand the underlying tone established in advance. This practice may actually require reading the scintillating literature of the central banks as they

Let’s put this idea into perspective. The European Central Bank’s (ECB) Mario Draghi was discussing restructuring the LTRO program, mentions QE, and consistently uses phrases like whatever it takes to save and preserve the euro. Rate cuts had


MONETARY POLICIES

Figure 3 - EURUSD price action behavior in the wake of ECB Monetary Policy

taken place but the decline of the euro was not immediate (May 2013 cut from .75 to .50, November 2013 cut from .50 to .25). The EURUSD rally could not be stopped until an ECB Press Conference in May 2014 faked a move through 1.4000 (topping at 1.3992) and moved reversely to bearish for the remainder of the week and pretty much to present day. Rate cuts continued in June 2014 and September 2014 (.25 to .15 and .15 to .05 respectively) as the euro continued its rapid depreciation. While traders were watching Eurozone headlines of contagion (Greece default, Spain/Italy/Portugal in trouble), end of the euro, bailouts, etc. price action of the EURUSD was not entirely correlated until months later. Once the correlation matched up and the rubber hit the road so to speak, the selloff in the EURUSD was incredibly one-directional (Figure 3). Perhaps this was the perfect storm of institutions convinced that selling the euro and buying dollars was the

best play and the selloff momentum substantially increased but today the talk of the EURUSD target is parity (1.00 exchange) while the current price is in the 1.0800 to 1.0900 area. Another timely example is the Reserve Bank of New Zealand (RBNZ). The NZD strength has been unprecedented despite mixed signals and communication from a central bank that has been tightening monetary policy and increasing rates since 2014. A brief interest history of the RBNZ and interest rates reflect a rate cut from 3.00% to 2.5% in March 2009. The 2.5% Official Cash Rate (OCR) remained steady until March 2014. At this time, policy began to shift in a dramatic fashion when the RBNZ took action with four rate increases in 5 months (March 2014 2.5% to 2.75%, April 2014 2.75% to 3.00%, June 2014 3.00% to 3.25%, and July 2014 3.25% to 3.5%). The current OCR is 3.5% but it is being

FX

questioned as the tone of the RBNZ has been consistently dovish noting an unsustainably high exchange rate and a desired lower rate. The RBNZ’s preference for a weaker currency was so convincing that traders discovered the RBNZ sold NZD in the open market in August 2014 and April 2015 to provide some added evidence to its case and see further NZD weakness. However, rate decision action by the RBNZ hasn’t been taken since July 2014. The RBNZ has achieved some of the desired targets for weakness by intervening and selling NZD and talking about the desired direction, but no actual adjustment in monetary policy has been made. With a June 2015 cash rate decision and press conference quickly approaching, this is potentially being priced in or the market may press the NZD to further weakness. The NZD as a whole has been a relatively tricky currency to trade due to the OCR and the yield it offers against in major counterparts. It is true the NZD has weakened significantly against the greenback (August 2014 - Present) as the USD rally was one of the largest and most stubborn movements the Forex Market has witnessed in years (Figure 4). However, despite the weakness against the USD, the NZD appreciated against its counterparts testing or making new historic highs/lows. The EURNZD and AUDNZD created fresh new historic lows as the pairs hit 1.3900 and 1.0020 respectively. It took months for the NZD weakness to catch up, yet again showing the lag in central bank rhetoric and price correlation - but it did indeed catch up and April was a significantly weak month for the NZD against other

FX TRADER MAGAZINE July - September 21


FX MONETARY POLICIES market picture. If traders understand that a certain central bank is constantly mentioning and reiterating the desire for a weaker currency, the central bank will most likely get it in some fashion.

Figure 4 - NZDUSD price and RBNZ Central Bank actions

its counterparts. The EURNZD rallied from 1.3900 to 1.5400 (1500 points), the AUDNZD rallied from 1.0020 to 1.0880 (860 points), the GBPNZD rallied from 1.9400 to 2.1480 (2000+ points and breaking a 3 year high above the 2.10 handle). Technically, the NZD is positioned for more weakness. Combining this with an upcoming rate decision traders will anxiously await the green light from the RBNZ for further weakness. As always, there are no guarantees that the technical’s will match the fundamentals and in light of the extreme NZD weakness from April there may be a hesitation if the RBNZ does not take action and match the expectations of the market sentiment. Technical levels to watch with the NZDUSD as the primary barometer include 7000 and 6700. Prices falling to these levels would most likely correspond to higher highs on EURNZD, GBPNZD, and

22 FX TRADER MAGAZINE July - September 2015

AUDNZD. For the Forex Market to be excited about a falling high-yield currency, there is usually a high degree of volatility to support the movement, hence the NZD becoming so weak so quickly in April and potentially continuing through the summer depending on the RBNZ’s actions in June. Are we having fun yet? This article is going to turn readers into central bank experts, right? Surely traders wish they had a Central Bank Hotline and as the final minutes approach prior to a rate decision or press conference, we receive a courtesy call to properly prepare us for the upcoming movements to be positioned correctly as the market’s movers and shakers take action in colossal fashion. Until this happens, the art of reading and interpretation will have to suffice. For the most part, the central bank releases are not worthy of the NY Times Bestseller list, but they are helpful in providing clues to the shape of the big

As you have read and observed, the price action is not immediate, but traders should not be surprised when the fundamental outlook, technical landscape, and central bank rhetoric merge into a consistently powerful move in the financial markets. This macro picture outlook can help you with finding major direction and trends for weeks, months, and even years (e.g. Japanese Yen from 2012 - Present). Although trading the news can be an incredibly difficult task for the intraday trader, the trader planning on the macro level and allowing the fundamentals and technical’s to connect will help place you on the proper side of the big move. Ask any traders who were buying EURJPY, GBPJPY, USDJPY in early 2012 or selling EURUSD, GBPUSD, AUDUSD, NZDUSD in late 2014 and certainly they would agree that it was an enjoyable and profitable ride. These moves just take time to set up. Successful trading is routinely about planning, preparation, and risk management. Giving a little extra love to the central bank’s messages and desires may help your macro outlooks and provide some incredibly lucrative moves in the very near future.

Chris Pulver Expert analyst Market Traders Institute


BUILDING ROBUST FX TRADING SYSTEMS by Caspar Marney

Learn how to: Find a good historical data source Identify an edge Exploit the Volume profile Know your currencies Use price updates as proxy for traded volumes Trade using Marney Volume and Range indicators - disclosed formulas Download Marney’s PDF eBook here Download the iPad/iPhone version here Download the Android Mobile version here Download the Kindle version here

The author, Caspar Marney, manages assets for some of the world’s leading investment banks and financial institutions. He predicted the huge Yen move of 1998 on live television, a move larger than the Pound’s exit from the ERM on Black Wednesday. Caspar started his trading career as a spot currency trader and technical analyst with HSBC in London and moved to SBC Warburg, later UBS, as Global Head of Technical Analysis for FX and precious metals, where he became one of the bank’s most successful proprietary traders. He is a regular commentator on financial news channels, a visiting University lecturer, a frequent guest speaker at trading events as well as regular contributor to trading publications.


FX

CURRENCY WATCH by Keith Raphael

The Ja pa nese Yen Mid year Up date

Breather Continues

$JPY Long-term Bullish Outlook complete… Sideways Consolidation or Developing Top? In our second annual long-term U.S. Dollar Outlook from January 2015, we continued to stress, and have now completed, our bullish three year, longterm outlook of a rally from 96.80 to 118.80 for January 2015, as well as 120.70 for March 2015. Since achieving these goals, we have continued to forecast a medium-term consolidation [112.30 – 124.15] through August 2015. The price data from the last six months has not altered the view of the Japanese Yen against the U.S. Dollar as much as it has versus other key currencies. The rally to the 124.15 top of the medium-term consolidation view has begun to produce weak multiple 24 FX TRADER MAGAZINE July - September 2015

divergences and waning, bullish, medium-term momentum. The combination is a further confirmation that we will see the forecast correction to 115.55, now out to October from June 2015, in a further consolidation view [115.55 – 124.15] into November 2015. Although we do not expect a deeper decline than 115.55 through the balance of 2015, we have completed the rally in both the medium-term and long –term outlook into early 2016. Only a monthly close back above 125.85 (producing a further rally to 135.20 strong longterm resistance over four months) or now a monthly close back below 115.55 (confirming not only the long-term top

but also producing a decline to retest 107.80 over two months ) would alter our consolidation view for the next six months. Unlike the U.S. Dollar versus the Japanese Yen [$JPY], the British Pound versus the Japanese Yen [GBPJPY] is just now reaching its medium-term objective. The GBPJPY is about two months behind the structure of the $JPY. The long-term technicals and momentum have already begun to erode. We are forecasting a further rally to only 200.60 strong long-term resistance through August 2015 before lower to retest 174.90 in December 2015 in a developing mediumterm consolidation through early next


CURRENCY WATCH

FX

year [174.90 – 200.60]. Only a monthly close above 200.60 (resulting in a rally to 215.90 strong long-term resistance over three months) or a monthly close back below 174.90 (completing a top and producing a decline to 162.90 over two months) would alter our waning bullish medium-term and long-term outlooks.

Chart 1: U.S. Dollar versus Japanese Yen – Monthly Chart

Chart 2: British Pound versus Japanese Yen – Monthly Chart

Chart 3: Euro versus Japanese Yen – Monthly Chart

The final currency pair of particular significance to FX traders is the Euro versus the Japanese Yen [EURJPY]. The peak in EURJPY occurred five to six months before either $JPY or GBPJPY, of course aggravated by the strong decline in the EUR$. In our January long-term annual outlook in FX Trader magazine, we forecast that the medium-term top was completed at 148.10, and forecast a subsequent medium-term consolidation [134.15 – 149.25 into August 2015. In light of this strong decline from the peak at 149.80 in December 2014 to 126.10 in April 2015, there is now a neutral/bearish medium-term and longterm technical aspect developing. We are forecasting a weak retest of 144.70 through August 2015 before a decline to retest126.20 in December 2015 in a broad, neutral/bearish medium-term outlook through the first quarter of 2016. Only a monthly close back above 145.15 would delay the forecast decline and yield a retest of 149.70 over the subsequent two months. Even under this circumstance, we believe that the longterm top is complete in EURJPY, and a retest of 149.70 would be only a longterm double top commencing a deeper long-term decline to 118.85 over a 12 month period.

Keith Raphael President Crosscurrents Investment Advisory FX TRADER MAGAZINE July - September 25


FX

FUNDAMENTAL ANALYSIS by Jarratt Davis

US interest rate hike: a matter of when, not if

The issue that has preoccupied the currency market more than anything else this year – aside perhaps from the Greek debt issue – is when the world’s largest single-country economy will raise interest rates. It’s the same for the majority of Forex traders who are monitoring the long-term strength of the US dollar. At this moment in time, there seems to be a consensus amongst economists and commentators that an interest rate rise is not a question of if, but when. The US Federal Reserve Bank has not increased the Fed Funds Target Rate since June 2006. Exactly when they will do so depends on the health of the economy, as reflected by the data. The 26 FX TRADER MAGAZINE July - September 2015

Fed have said they won’t begin lifting their benchmark federal funds rate from near zero until they see more improvement in the labour market and are confident inflation will rise toward their 2% target. Data is king, not speculation The Fed are data dependent, and the last two months of data has been, on the whole, positive. Quarter one data was poor overall and the Fed attributed this to transitory factors in their April statement. Thus far they have been proven correct; data has improved and of note was the Core Consumer Price Index readings for April which came in better than expected, showing an

increase of 0.3% for the month. Since that positive reading we have seen the CPI readings for May, which showed core inflation rose only 0.1% for the month, slightly missing estimates. Nevertheless, in annualised terms the last two months’ of core readings amounts to a core inflation rate of 2.4%, which is actually above the Fed’s target of 2%. Inflation has been the weakest link for all major economies this year, since the massive drop in oil prices, and the US has been no exception. It’s within the context of low inflation that the positive Core CPI readings for April become so important. The core reading of 0.3% m/m is the highest since January 2013.


FUNDAMENTAL ANALYSIS

An annual core CPI reading of 1.7% may suggest that inflation is on its way back to 2%

Although the most recent readings for May have dropped back down to 0.1%, this may still be the start of an upward trend. Annual core inflation is at 1.7%, which is only 0.3% below the Fed’s target. In normal times the target inflation rate would refer to the total CPI however given the considerable drop in oil prices, the Fed are more focussed on core readings. The Fed have stated: “Core inflation measures that leave out items with volatile prices can be useful in assessing inflation trends.” An annual core CPI reading of 1.7%, up from 1.6% at the start of 2015, may suggest that inflation is on its way back to 2%, as the Fed requires. Throughout 2014 the employment situation was healthy and unemployment gradually dropped to where it now is at 5.5%, slightly up from the prior month where it hit 5.4%, which was the lowest since 2008. However it is also wage growth

that the Fed want to see increase. The recent reading, for May, showed average earnings better than expected at 0.3%, up from 0.1% in April. This rise sends a strong signal about improvements in the labour market that the Fed have said they are monitoring to inform their rate decision. When will we see interest rates rise? Below is a list of upcoming Fed rate meetings this year and their associated rate hike probability as per CME Group Interest Rate Contracts. The numbers show the probability of any rate increase at that particular meeting, not necessarily the first rate hike; it includes the probability of subsequent rate hikes. July 29: 0% September 17: 17% October 29: 34% December 16: 57% January 27: 72%

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The recent FOMC statement was upbeat and signaled that the Fed recognises the increase in economic activity since the first quarter. They noted a decrease in labour market slack and an expansion in the economy. However their projections for the Fed Funds Rate for the end of 2016 and 2017 were lowered, along with growth forecasts for those periods. This saw the dollar sold off aggressively, however it does little to change to fundamental picture. Any forecast for a period of the time that is 18 or 30 months into the future is going to be a loose estimate at best. It will be the inflation data over coming months – for both prices and wages – that provides the most accurate estimate of the futures rate path. Yellen reiterated repeatedly at the press conference on June 17 that the Fed has not made any decisions on when to raise rates and that they remain data dependent. If Fed members themselves have not yet decided when they will raise rates then we must look to the data. If upcoming data continues to trend higher, this may cause some individual Fed members to consider a rate increase at the September meeting, despite the market currently pricing only a 17% chance of it. In essence, all US-related data released over the coming weeks is vitally important to inform the market about when the first rate hike will occur.

Jarratt Davis FX trader, Funds Manager and Mentor Author of How to Trade a Currency Fund FX TRADER MAGAZINE July - September 27


FX TRADING METHOD by Sam Barr y

Revolutionize the way you trade using the COT report and Volume Profile to view the market from a different angle

Having spent years in the markets myself sometimes it is very easy to forget, when looking at a chart, the amount of information the market is trying to give you in this simple snapshot. For most of us now, we will be using some form of Candlestick or Open, High, Low, Close bar. They are in essence the same thing but very often when looking at these charts or even a ticker, it is all too easy to forget what the market is actually portraying and the sheer volume of information that single chart is attempting to convey. But before we go head long into some of these interesting insights, let’s take but 28 FX TRADER MAGAZINE July - September 2015

a minute to re-calculate and re-position what our charts are saying to us. So how do we get to a candlestick chart in the first place? BACK TO BASICS: THE CONCEPT OF PRICE Don’t worry I don’t intend to bore with the basics of supply and demand, but the concept of a price being accepted and formulated in an ‘over the counter’ market such as FX means that in an order book across the globe, a buyer and a seller was matched and filled at that price. Realistically, given how fragmented

the market is, it typically means a large institutional liquidity provider got matched across multiple orders and filled his one order with lots of other orders from either clients directly or a broker, who in turn matched his order and spread to a client order. It is in essence organised chaos. Instantly now we are starting to get a view of what that price means, and this brings us to our first interesting point. What my team and I do is we look at underlying order books in the markets to determine potential and current trends. We then use these to


TRADING METHOD

FX

MULTI TIMEFRAME ANALYSIS First, let’s look at multi-timeframe analysis. The first example is pretty obvious and so I won’t show it in any great detail. Most traders we talk to tend to focus on one timeframe, and this is instantly both a good discipline and a fatal flaw.

Chart 1: EUR/USD 30 min chart

trade algorithmically. The reality is we don’t actually do much of this, the computer systems we design and develop do; but the concept is one that can be applied to even the most simplistic of charts. What is fascinating about this process and the journey we have taken is presenting a new picture

of the market in a slightly different way to get a completely different picture. I shall start with some very basic examples. My point and conclusion to this article (if you don’t mind a spoiler or two…) is the simple power of taking a step back and reviewing the market from a different angle.

I hope for most of you reading this that you are already familiar with the concept of trend trading, and that capturing trends is statistically one of the most profitable ways to trade. So assuming we are applying our techniques to trend trading, the simple act of reviewing the same currency or underlying asset on different timeframes allows us to build up a much bigger picture of the overall trend. Now that’s great, and 95% of you will be familiar with that. But the reason this works is fundamental to the way the market is built. Your large airline or oil company for instance doesn’t intraday trade the EURUSD for hedging purposes, it uses much longer timeframe positions and different market structures for this. So if you know where the big orders are playing that will likely swamp any market they operate in then playing on the side of these is already moving the market in your favour. Let’s work through an example on everyone’s favourite; EURUSD.

Chart 2: EUR/USD 240 min chart

Without looking below, what are your current thoughts? Down trend, up trend? FX TRADER MAGAZINE July - September 29


FX TRADING METHOD THE COT (COMMITMENT OF TRADERS) REPORT Now let’s explore what happens when we actually consider plotting some information about the underlying orders alongside our longer timeframes.

Chart 3: EUR/USD Daily chart

For a very basic example let’s take recent EURUSD moves. Although each chart is displaying the same underlying price information the sheer scale of the chart instantly creates a different picture and set of possibilities. Let’s start at the bottom and move up through the timeframes. For this I am picking a good example in a major trending market. This is really to highlight the point, that just zooming out on the charts can give you a very different picture in the market. Which brings me to my next point; which is that potentially what I have done here is fill your mind with doubts on what trade you were in. Well in part that’s not a bad thing, as you are challenging your own internal safety net on placing bad trades; but it can also lead to the inability to pull the trigger, as the picture will never be perfectly clear.

30 FX TRADER MAGAZINE July - September 2015

Used well though, multi timeframe analysis and reviewing multiple timeframes can in fact result in increasing the probability of your trades playing out, using the strong prevailing trends as determined by larger order flows to help take advantage of smaller intraday or lower timeframe trends.

Chart 4: EUR/USD Daily – COT report

Here I am going to take the COT Report. Most of you will be familiar with this report as it spans decades in trading terms and has been used by some of the most famous traders, and for good reason; like many before we can easily show that statistically, even though the data is delayed (it is Tuesday’s order book snap shot delivered on Friday), simply following the order book has in the past been, longer-term, consistently profitable. If I over lay the current orders from large liquidity providers onto our higher timeframe charts we start to get an instant picture of where the market wants to go.


TRADING METHOD

FX

MARKET PROFILE Many of you may use these charts or a version of these charts already. But let’s take a market profile of what is happening to create our price chart. Fundamentally all this is doing is showing you the scale of the orders filled to create each price point we hit. Before we look at the charts, let’s just consider what that means.

Chart 5: EUR/USD Daily - Volume Profile

This one act of overlaying order book information (note charts below show when data is released not reported, i.e. the Friday when it is released) has instantly transformed my normal candlestick chart and my multiple timeframes into a tool that has instantly more value to me. All I did to achieve this was overlay some extremely basic information about how price was formed at that time; after all this is simply the orders that played out in the market.

The two additional indicators below (COT Index and COT Strength) show potential translations of the Net Position considering additional information on Order Book relative to its past. Now let’s start to take it down a level and let’s play a very basic picture of what is happening at each price level to form that price.

Although easy to plot and understand, essentially we are saying we will know for every price point hit today, the scale of how many orders were out there in order to get that price point to my chart on my computer. Instantly this shows us key levels in the market, the large spikes are where orders played out the most, using previous time periods / bars we can get very accurate levels for the next period or bar.

At the bottom of my chart all I want you to consider is the concept of ‘follow the Green line’. This is in essence following the position of major financial institutions or taking up the same view as what large corporates are expecting the market to do (note not the same side as Corporates as they operate hedging positions, so opposite to what they are expecting). The top indicator is the very basic of the COT report, the Net Positioning.

Chart 6: EUR/USD Daily – Volume Profile

FX TRADER MAGAZINE July - September 31


FX TRADING METHOD This includes two simplified looks at how orders are working on lower timeframes and the COT chart as previously described at the bottom. Instead of presenting a lot of information we are however simply colouring areas to give us a view of whether the pressure is to the upside or to the downside in the market. If we then use our Volume Profile on intraday basis we can then build strategies for getting more efficient entry and exit prices. FINDING THE INFO: ONLY HALF THE BATTLE

Chart 7

Areas built on a large number of orders means there was significant interaction at those levels, the key spikes typically show all the major levels people have orders at in the market. The largest spike gives a real clue to where the market might go in the next period or bar; for instance if the largest amount of orders were below where we closed then buyers won over sellers and we are in a uptrend on the day; if sellers beat buyers and the largest majority of orders sit above the close price then we are in a down trend. It turns out overlaying this and some extremely basic strategies can generate a great deal of numerous profitable strategies that can be tested to be pretty reliable in both short and longer term trends on a backwards basis; given they are fundamentally built on the principles of the market it is very easy to conclude that there is a statistically significant chance they will continue to prove profitable Take a more detailed look at Chart 6 and

32 FX TRADER MAGAZINE July - September 2015

consider how the market closed in relation to the largest spikes of the previous bar. Closing below the major orders suggests pressure to the downside or a market in a down trend, therefore understanding this basic information can allow you to build an effective strategy simply by using that as your bias for the next period.

The joy of this is that all of this information is readily available on your trading platform already. Most of this information is free and you can pull it yourself. The Commitment of Traders report for instance is here: http://www.cftc.gov/marketreports/ commitmentsoftraders/index.htm

What happens if we take these concepts and simplify them down to some real basics?

The challenge is that most of the people you are trading with and against simply don’t know this information exists or how powerful it is. Or crucially, if they do have it they fail to take the next step of translating it into a picture that provides the trader with all the necessary information as quickly as possible in an easily digestible manner.

The following is an example of a really simplified version of what we do on our more advanced algorithmic systems but it gives a lovely example. If we take the overall trend using multi time frame analysis then overlay some basic order book information. If we use this to look for key spots where they align then simplify the picture; after the key to this is to build the best possible picture in the simplest form. We can present something like this.

Now imagine what you can do when you really start to play with this data to pull out information. That’s where it becomes really exciting. Sam Barry CEO Littlefish FX


How to Trade a Currency Fund By Jarratt Davis

Learn how to: Trade Professionally Build Credibility Find Funds Trade at an Institutional Level Face Fund Trading Psychology Create a Step-by-Step plan Live your Dream Download Jarratt Davis’ PDF eBook here Download the iPad/ iPhone version here Download the Android Mobile version here Download the Kindle version here

Jarratt Davis has been ranked among the best performing FX traders between 2008 and 2012 by Barclay Currency Traders Index. In this book, Jattatt shares his journey from “Forex novice” to a fully fledged Forex Fund trader. After establishing his career in 2006 and mastering the art of FX trading by teaching himself techniques online, Jarratt became one of the few self-taught traders to reach an institutional level. He traded on behalf of companies and funds in Hong Kong and London, pumping trades worth up to $10 Million a time on a daily basis, and today he is regularly ranked within the top 10 performing currency traders. Today, Jarratt and his team train investors, traders and industry professionals. Jarratt Davis is also regularly featured on Bloomberg TV, FX Trader magazine, Currency Trader magazine and FXStreet.com.


FX

FUNDAMENTAL ANALYSIS by Yann Quelenn

Mexico wants to attract more investors Implications for the USD/MXN

We are currently bearish on the Mexico peso due to fundamental reasons. Mexico is one the wealthiest countr y in terms of oil resources and natural gas in the world. It is ranked 18th in terms of reser ves and relies significant on revenues for GDP growth. Yet, lack of steady investments prevents those vast reser ves to deliver their full output potential.

34 FX TRADER MAGAZINE July - September 2015

Petroleos Mexicanos (Pemex), the state-owned energy company, has a monopoly on the local crude market limiting competitive investments. Over the last two decades, Pemex has been unable to maintain or even increase production to meet growing demand. With revenues steadily decreasing, its inability to exploit higher oil prices weighed on the country’s GDP. In addition, the lack of capital for upkeep meant

infrastructure are antiquated (adding to production issues) and create more midstream issues which makes the oil transportation challenging. NORTH AMERICAN TRADE AGREEMENT

FREE

In 1994, Mexico, aware of those critical issues entered into the North American Free Trade


FUNDAMENTAL ANALYSIS Agreement in order to boost investment and consequently growth. Investments have marginally supported oil and gas production. Yet, it appeared that those investments have not been entirely sufficient to reverse the decrease of oil production over the last ten years. While demand and price for oil remained high, exports have decreased and for this reason. Ironically, Mexico had to import even more natural gas from the United States in order to support its oil and electricity production.

BANXICO AND THE ENERGY MARKET The energy market is a key sector for Mexico. Alongside the significant investments, Banxico is also willing to lend a helping

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as growth has historically been very volatile. It is also important to add that Mexico will not leave inf lation going up if Federal Reser ve pushes rates higher. Indeed, we think that Banxico will copy the United State’s rate policy to maintain this balance. The Central Bank is for now on a patient stance.

As a result of those facts, we remain bearish on the M X N as oil foreign investments are still of a concern and low oil price is set to continue as OPEC decided to keep production Ironically, Mexico had to import more l e v e l unchanged and natural gas from the United States in The market therefore to order to support its oil and electricity reality is now oversupply the production pushing Mexico market. We to liberalize its target the pair energ y markets, U S D M X N in particular infrastructure hand by utilizing monetary policy to reach 16.00 within the next investments are highly requested. tools. For the time being, its policy three months against a backdrop New reforms will take place rate remains unchanged at 3.00%, of US recover y. allowing foreign private keeping policy accommodating. Yann Quelenn companies to drill Mexican oil Market Analyst and above all bring investments The stable inf lation below 3% Swissquote Bank to the sector. leaves room for further easing

FX TRADER MAGAZINE July - September 35


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TRADING PSYCHOLOGY by Efthivoulos Grigoriou

How To Eliminate Emotions from Trading

In this article, the author unveils his personal trading approach, which he built during his professional trading career, and which allows to remove the emotional part of trading by gauging the emotions surrounding the market or a specific instrument, and by applying some consistent rules.

Psychology plays a significant role in trading as it does in a game of poker, or even in athletics, such as tennis or football. Mastering the psychology of trading is one of the most difficult elements of learning how to trade on the market. Besides gaining the basic knowledge of the market structure and the ability to understand how the economic machine works, the idea of trading, in the end, is to avoid losing. The ability to control your emotions and maintain discipline is the most important skill you should develop. A trader

36 FX TRADER MAGAZINE July - September 2015

must learn to contend with market challenges of individuals and the crowd psychology in order to progress from a novice to an expert. If you want to make profits when investing in different asset classes, such as currencies, indices, equities, commodities, or bonds, you have to understand that trading is primarily a game of psychology. Only the toughest players survive. The real edge separating professional traders (those who make a living from trading) from failed traders is clearly their mental approach to the market.

What You Need To Become a Successful Trader Consistent practice and focus are required to become great at nearly anything, including trading. This practice requires patience, discipline, determination, and most importantly, the ability to control your emotions. The number one question I receive constantly from traders is: ‘‘How do I become a professional trader?’’ The reality of the situation is that only 10% of traders can make a living at it, and only 5% of traders make a lot money. Sure, everyone makes a winning trade


TRADING PSYCHOLOGY

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thinking, experience, discipline, instinct, and skill are essential, especially in the trading world. So our emotions must be kept under control. Trading Is the Study of Mass Behaviour

Figure 1: The Cycle of Market Emotions

occasionally, but in the long term, their portfolios and their accounts remain about the same or even dwindle down to nothing. There are all sorts of reasons for this, such as bad timing, poor risk and money management, lack of trading discipline, unrealistic expectations, such as the expectation to get-rich-quick, and a lack of knowledge. I’m sure we’ve all been here before - you make a trade and end up in a winning one. Before you realize it, you are in a winning streak. At this point, you feel like you have mastered trading and you could overcome any market condition. Therefore, continuing your winning streak.

Source JFD Brokers

hope that it will turn in your favor but it didn’t, and you close the trade in a huge loss.

The market is the result of collective human behaviour. It is a perfect and measurable representation of collective optimism or fear. The movement of the market is the movement of the mass psychology. Many traders lose money because they fail to realize that looking at a chart of the market is like looking at the collective psychology of its participants. For this reason, professional traders place a heavy emphasis on studying price action and volume relationships, which help guiding them in their trading. And here comes the Golden Rule of Trading: ‘Trend is your friend, so trade with the trend’. In other words, do not fight the market, just go with it.

At this point, you become angry and frustrated and you want your money back. Thus, we come back to the cycle of market emotions, which explains the relationship between our feelings and our judgments. Figure 1 is a visual representation of the 11 Eliminating the Emotional Part stages of the cycle of market emotions. Is the Key to Success Trading Is Not a Hobby

Since trading is a business, we should treat it as a serious business venture, not a hobby. Therefore, we must separate it from our personal lives. The world of This is completely understandable, as it trading has very little room for emotions. is a natural human emotion to express a There is only room for calculated, wellpositive reaction after a win. But we’ve all planned decisions. Our emotions have been on the other side as well. When you a tendency to skew the decision-making enter into a trade that doesn’t work out the process, and far too often, they generate way you wanted, and eventually after the poor decisions that lead to losses. Success market bottomed for a few times and or failure in the business world can bring you have remained in the trade with a out the best and worst emotions. Clear

With that being said, I’d like to discuss the emotional part of trading, which in my opinion is the key to becoming a more refined trader; the first step to success in trading. To achieve this success, you need to learn how to control your emotions, or how to eliminate them. If you manage to understand human psychology and what motivates buying and selling decisions, you will be able to position yourself ahead of the action. This way you can anticipate profitable trade setups. FX TRADER MAGAZINE July - September 37


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TRADING PSYCHOLOGY

The four emotions that traders suffer from most often are fear, hope, greed, and regret. You need to suppress these emotions to be successful. Letting emotions control trading decisions is the biggest mistake any trader can make. Experiencing many consecutive losses is emotionally difficult to handle and can test a trader’s endurance and resilience.

telling the audience that controlling your emotions and having discipline in your trading are essential elements of success but no one tells you how to achieve this emotional control and personal discipline while trading on the market.

emotions when I dealt with the market. As I have mentioned in previous articles, price is king! I have had more consecutive winning trades since I started paying closer attention to price action. How to Eliminate Emotions from Trading

When analysing the market, the Fear and greed, or first thing to do trying to beat the from a technical market, can lead perspective is to cutting winning to identify the trades short and market trend letting losing trades and determine run out of control. the support and Remember, the resistance levels. true battle is not How do we do between you and that? By drawing the market, but trend lines. How in learning how exactly these lines to control your are drawn will be own emotional discussed in another impulses. article, since it The world of trading has very little room is a complicated for emotions. There is only room for Don’t forget, it’s subject. I’ve had very important to the opportunity to calculated, well-planned decisions understand that all meet some traders instruments’ price who draw trend action is completely dependent on the When I think back on my early trading lines just with one glance at the market. emotional reactions of the various market career, I remember the times when This is not the approved method and, if participants. Without emotions, prices I continuously changed my trading you have this habit, you’d better get rid of would sit flat, since people are the main technique in order to achieve the best it. Why? Because you must have some strict catalysts for market moves. results. But no matter what technical rules and these rules will make your trade indicator or trading system I used, I easier and free from emotions. Generally, Price Is King! always yielded the same result: losses. It rules demolish emotions and emotions did not matter what I did, I had to fix demolish our trading accounts. Therefore, I have read a lot of books and attended the real problem, and that was in my less emotions mean more opportunities a lot of seminars, all of which ended by mind. Therefore, I had to control my for better results.

38 FX TRADER MAGAZINE July - September 2015


TRADING PSYCHOLOGY This brings us to my theory, which I discovered through my own trading experience. The theory is that by gauging the emotions surrounding the market or a specific instrument, and by having some consistent rules, you can control and even eliminate your emotions when trading. Trend lines that serve to identify the market trend and determine support and resistance levels are the primary tool I use to gauge the emotions surrounding an instrument or the market overall.

I am going to explain what support and resistance levels are, and I will show you the basics of how I find these levels on a chart. This unique approach shows you which prices are apt to stall or rebound before they change at all, and which ones are most valid. This is really a very

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battle between the buyers (bulls) and the sellers (bears). The continual battle between the bulls and the bears, which takes place near the support and resistance levels, is what makes the market a fascinating study of the basic laws of supply and demand. Many traders look at these levels to gauge entry and exit points for their trades. These levels can be drawn by using technical analysis tools, like rising and falling trend lines, or by applying more advanced method, such as Fibonacci Retracement (ratios).

But the secret comes down to the support and resistance levels, which are the keys to understanding which trends or A support level lines are most is formed when Looking at a chart of the market is like valid. These are the price tends looking at the collective psychology of its based on the to find support, participants traders’ emotions, preventing since support and the price from resistance levels are declining further. largely shaped by those emotions. unique approach, which is why I like it, This means that the price is more likely as it involves NO emotion, just reaction. to ‘‘bounce’’ off this level rather than Therefore, I identify the participants in break through it. However, once the the market by drawing a trend line, on Support and Resistance price has broken his level, it is likely to that particular instrument which could Levels continue dropping until it finds the be a stock or a forex currency pair at any next support level. given moment. Then I determine when Support and resistance levels are largely the next level of market participants shaped by traders’ emotions and this is A resistance level is the opposite of a will buy or sell, based on the validity of where the forces of supply and demand support level. It’s when the price tends the trend lines, including support and meet. Support and resistance levels to find resistance, preventing the price resistance lines. are where you really see the ongoing from rising further. This means that the

FX TRADER MAGAZINE July - September 39


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TRADING PSYCHOLOGY timeframe rather than a daily one. Psychological levels occur when prices end in multiple 0s. Traders tend to be drawn to these psychological price levels for several reasons. One is that these prices have been important in the past and traders know they are likely to be important again. If a level worked in the past, as a support or resistance, the trader may assume that it will provide solid support or resistance again in the near future, like 1.2000 in EUR/USD, 1.7000 in GBP/USD and 175.00 in GBP/JPY.

Figure 2: EUR/USD 1-H chart

Source JFD Brokers

price is more likely to “bounce� off this level than break through it. However, once the price has broken this level, it is likely that it will continue rising until it finds the next resistance level.

apply the technical analysis method on a specific instrument by determining the market’s overall direction, using a trend line. From then on, I identify the psychological support and resistance levels of an instrument (i.e. GBP/JPY) Trading Approach in conjunction with tops, lows, or inside swings. To do this, I use a higher In my trading approach, I first start to timeframe, for example, a weekly

Then I switch to a lower timeframe, such as a daily timeframe, and I identify the support and resistance levels from that specific timeframe. If the support and resistance levels taken from the weekly timeframe coincide with the daily ones, I determine that those are strong and significant levels, and set them as targets. These levels may attract more attention and create more anticipation among the traders. Now that I have set my target levels, I switch to a lower timeframe, such as 4-hours, and I identify the rest of the support and resistance levels. If some of these levels coincide with the ones from the higher timeframes, they also become significant and I will use them as targets for my shortterm approach. I use the support and resistance levels taken from the higher timeframes as targets and exit points for my medium-term approach.

Figure 3: GBP/JPY Weekly chart

40 FX TRADER MAGAZINE July - September 2015

Source JFD Brokers

Then, I have the option to switch to


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Conclusion

Figure 4: GBP/JPY Daily chart

a lower timeframe and identify the remaining support and resistance levels, which I will use to determine my entry points as well as my stop loss points.

Source JFD Brokers

on a weekly or yearly chart.

Finally, I get a confirmation for the most significant levels in conjunction with a 100-period SMA, as well as a 200-period SMA, from the 4-hour I also find that timeframes are very chart going up to the weekly chart. important to my trading because Both of the moving averages act what often appears to be a major as a confirmation of these levels, support area on a daily chart might which make them more valid if they be nothing more than a correction coincide with any of these levels.

Figure 4: GBP/JPY 4-H chart

Source JFD Brokers

Trading is like war. You are battling some very smart, experienced and very well capitalized opponents. To be successful, you need to have an edge, because psychology plays a major role in all forms of trading. For this reason, you need to consistently keep your emotions under control. This can be a tough task when money is involved, but it can be accomplished by establishing and focusing on these set plans and rules of action. If you consistently follow your rules without breaking them, you could eliminate emotions in trading. And if you achieve that, it can help you improve your trading decisions and, thus, trading will become an art! Back in 2005, when I was studying in the United States, I had the opportunity to meet with a professional trader. I remember that the last thing he said to me before I left the States was, ‘‘the most important way I grew as a trader was by learning to control my emotions. Control and eliminating your emotions in trading correlates strongly with success.” It took me five years to build my confidence and find a way to control and, in the end, eliminate emotions in trading.

Efthivoulos Grigoriou Head of Global Research and Analysis JFD Brokers

FX TRADER MAGAZINE July - September 41


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MACROECONOMICS by Justin Lin

A Supranational Reserve Currency The solution to reach global stability and avoid conflicts of interest

Former chief economist at the World Bank, Justin Lin, explains why US, not Asian, policies caused the financial crisis, and analyses how to fix endemic global imbalances The hypothesis most frequently cited as the cause of the global crisis centers on imbalances in the global economic and monetary system. In particular, large surplus countries caused tectonic market distortions by using their foreign reserves to purchase US Treasury bills.

42 FX TRADER MAGAZINE July - September 2015

These purchases of government securities depressed interest rates in the US, which in turn sparked a debt-fuelled spending spree by the country’s consumers that ultimately resulted in housing and other bubbles in the US. Once the bubble finally burst, the US faced a

major financial crisis that resulted in an economic crisis that rippled across the world. Potentially, this hypothesis is plausible. But what caused the large surpluses in China and other Asian countries? There are three commonly accepted theories.


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The first one was the East Asian economies adopted an exportorientated strategy and, as a result of their exports, acquired large trade surpluses. The second common hypothesis is that East Asian economies learned a lesson in the 1998 crisis. They understood that if they did not have large enough foreign exchange reserves, their countries could once more be subject to speculative attacks. So for s el f-i n s u ra nce , they started to accumulate reserves by exporting more. The third, and most widely a c c e p t e d , hypothesis is that imbalances were the result of East Asian economies - and China, in particular - manipulating their foreign exchange rates. Again, these hypotheses appear plausible, but do they stand up to an examination of the facts? Looking at the export-driven development hypothesis, we know that East Asian economies had adopted exportdriven growth strategies since the 1950s and 1960s. For China, it started later, in the 1970s. Yet we know that before 2000, trade was

basically balanced in East Asian economies, and some economies - such as South Korea - actually ran a trade deficit. So this kind of export-orientated strategy does not necessarily lead to huge surpluses and most east Asian economies did not have large trade surpluses until about 2000. It seems illogical to attribute a strategy that has been in

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have any particular motivation for accumulating reserves as a means for self-insurance. Since the yen is an officially sanctioned reserve currency, Japan would not need to stockpile foreign reserves against some form of speculative attack, yet its foreign reserves also grew.

use for more than half a century to explain what happened in just the last 10 years.

The final hypothesis, that East Asian economies manipulated their exchange rates to increase their exports, also looks inconsistent. That’s because the trade surpluses of other competing economies should have been reduced. But the fact is that almost all other countries competing with East Asian economies also increased their trade surpluses and reserves. So there is an inconsistency.

In the second hypothesis, all the East Asian economies increased their trade surpluses a lot and ramped up their reserves. But we also observed some other countries, such as Japan and Germany, substantially increasing their trade surpluses during the same period of time. But they did not

The value of Chinese currency, in particular, has been the target of discussion in the past decade as the cause of global imbalances. This issue was first raised in 2002. The accusation was that China was manipulating its currency to increase its export competitiveness. But the fact remains that in 2003,

FX TRADER MAGAZINE July - September 43


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China’s trade surplus was smaller than its surpluses in 1997 and 1998. In 1997 and 1998, during the East Asian financial crisis, China did not devalue its currency despite the devaluations of currencies of many of its neighbours - indeed, at that time, everyone said the Chinese currency was overvalued. If in 19971998, China’s currency was overvalued, then its trade surplus should have been smaller than in 2003-2004. But actually, in 2003-2004, the trade surplus in China was smaller than in 1997-1998. So it seems impossible for the Chinese currency to have been undervalued in 2003 and 2004. Moreover, the Chinese trade surplus did not become particularly large until 2005. And between 2005 and 2006, the Renminbi appreciated by about 20% against the dollar. However, even this appreciation did not result in a decrease in China’s trade surplus with the US. At the same time, many developing countries were competing with China, but their trade surpluses did not decline -

44 FX TRADER MAGAZINE July - September 2015

and again their accumulation of reserve also continued to increase. All the hypotheses point to East Asian economies as the cause of global imbalances and the global crisis. However, the issue of global imbalance also manifests itself in the trade deficit in the US. But this deficit has been falling. The

US trade deficit with East Asian economies as a percentage of its total trade deficit declined from 51% in the 1990s down to about 38% in 2007. This implies that the East Asian contribution to global imbalances declined instead of increased. Therefore, some kind of alternative hypothesis is in need to explain the trade deficit in the US. A principal reason for the growth in China’s trade surplus with the US

was the relocation of production from East Asian economies to China and the transfer of the trade surpluses from other East Asia economies to China. In 2001, China ran a huge trade deficit with other East Asian economies. So we need to have a new hypothesis that can be consistent with the evidence. And I believe the only hypothesis that can be consistent with evidence is that global imbalances and the global crisis were triggered by the current internationa l m o n e t a r y system that uses the dollar as a global reserve combined with some policy mistakes in the US. We know that in the 1980s there was a trend towards financial deregulation in the US that allowed financial institutions to operate with high levels of leverage that resulted in an increase in liquidity. Secondly, in 2001, when the US was hit by the burst of the dotcom bubble, the US Federal Reserve deployed very loose monetary policy to help the financial system to recover. The combination of low interest rates and high leverage


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created excessive liquidity in the US monetar y system. This excessive liquidity first aided a bubble to form in the housing market and equity market in the US. It also created huge wealth effects that fuelled household consumption. The US became a huge consumer and saved less.

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to capital-goods-exporting countries, such as Japan and Germany, also running large trade surpluses. Because of the boom in demand in both developing cou nt r ie s and some high-income countries, the demand for commodities increased, causing a commodity price boom after 2000. A ll the countries, except for the US, accumulated r e s e r v e s because of trade surpluses and capital Global imbalances and the global crisis inf lows, which they used were triggered by the current international to purchase monetary system that uses the dollar as a assets in the US to earn a global reserve, combined with some policy return for their mistakes in the US reser ves.

At the same time, the US government, because of the Afghanistan and Iraq wars, also ran a deficit. By that time, China produced many of the goods exported to the US market, resulting in China running a large trade surplus with the US because of the high levels of consumption by the latter countr y. This excess of liquidity and low interest rates also encouraged speculative outf low. So in 2000, total capital outf low from the US to developing countries was $200 billion,

but this fig ure swelled to $1.2 trillion by 2007. Large capital inf lows to developing countries certainly supported the housing bubbles and investment booms

in developing countries, which caused overheating in some economies. With high levels of liquidity supporting investment, the demand for capital goods increased a lot. That contributed

The hypothesis stated at the start of this article only characterises the reserve f lows from the acquisitive countries back to the US. In fact, those reserves were first created in the US. So how can we prevent a similar crisis again? From my analysis, the situation only occurs because the

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dollar is the world’s dominant reserve currency - otherwise it would be impossible for the US to run a large current account deficit for such a long time. It was the dollar’s reser ve currency status c o m b i n e d with financial deregulation in the 1980s and 1990s, plus the Federal Reserve’s low interest rate policy in the 2000s, that caused the bubble and trade deficit in the US.

propose an alternative: to have a supranational reserve currency, which I call ‘paper gold’, which could avoid this conf lict of interest.

avoid the trouble observed in the southern European countries, as every nation would use paper gold as its reserve currency while also issuing its own national currency. In the case of crisis, reser ve c u r r e n c y appreciation can be used as a way to create a scope for structural reform.

Could people accept it? That depends on many factors. But if we opt for If we want multiple reserve to prevent a currencies, similar situation and if all recurring, we the multiple need to address reserve currency the conflict of The SDR is a basket of national currencies, countries have interests associated so it will not address the root cause of certain kinds with using a of structural the crisis that is, the conflict between national currency p r o b l e m s as a global reserve domestically, the national interest and global interest currency. Many system is likely to parties believe the remain unstable, International Monetary Fund’s P-gold would have the advantage which is a lose-lose situation for special drawing rights (SDR) can of gold, but as it would be fiat reserve currency and non-reserve be a reserve or can be a way to money there could also be an currency countries. solve the issue. But the SDR is a increase in the supply of this Justin Lin basket of national currencies, so it reserve according to certain fixed Former Chief Economist at the will not address the root cause of rules, such as the k-percent or World Bank the crisis - that is, the conf lict Taylor rules. To me, the needs are Leading adviser to the Chinese between national interest and growth in the global economy and government global interest. For this reason, I international trade. It would also

46 FX TRADER MAGAZINE July - September 2015


7 Professional Coaching Lessons with Steve Ward

Learn how to: Reach High Performance Develop Resilience Discover Solution Focused Trading Lose like a winner Improve trading decisions Overcome Perfectionism Practice Mental Training for Success Download Steve Ward’s PDF eBook here Download the iPad/iPhone version here Download the Android Mobile version here Download the Kindle version here

Steve Ward is currently one of the most respected trading performance and psychology coaches, who works with traders, trading desks and fund managers at investment banks, funds, energy companies and proprietary trading groups across the globe. He provides coaching and training programs for top tier trading institutions, as well as retail traders. He worked as consultant performance coach to BBC2’s Million Dollar Traders and co-managed a team of 40 professional proprietary traders in London. He is also an approved regular trainer at the London Stock Exchange and has written for many leading trading publications.


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MACROECONOMICS The world needs to be prepared for a system where the dollar, euro and yuan will all be consequential international and reserve currencies

MACROECONOMICS Capital account l ibera l isation will accelerate this year, making the renminbi more freely usable

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Progress of capital account liberalisation and further renminbi i nter n at iona l i z at ion will have a deep impact on the global financial markets

by Li Cui

The growing global role of the Renminbi

The international use of the renminbi has risen dramatically in the past five years. The renminbi is now the second most used currency in trade finance and the fifth most-traded payment currency, according to Swift. The offshore renminbi market has also sprouted, with renminbi

48 FX TRADER MAGAZINE July - September 2015

clearing centres emerging in Australia, Germany, Hong Kong, Singapore and the UK, among others, along with trillions of yuan of bilateral currency swap arrangements between the People’s Bank of China (PBOC) and foreign central banks to provide liquidity support when needed. To

observers, the growth of the renminbi’s international role, along with China’s global investment, epitomises the country’s expanding global ambition, against the backdrop of its fast economic expansion and the further integration of its economy into the global system.


MACROECONOMICS The shortcomings and vulnerabilities of the current global financial system, the rising outreach of Chinese trade and investment, and the progress of China’s financial and capital account reforms, have all shaped the renminbi’s steady rise on the global stage.

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allows, since its international debt does not face the pressure of a selloff and squeeze by investors, as in the case of non-reserve currency countries. Such an “exorbitant

The dollar’s role in the international monetary system has been under continuous debate since it replaced sterling as the reserve currency more than 70 years ago. While the dollar has facilitated the liquidity of the global financial markets, provid ing anchors for A multi-pillar countries during internationa l periods of macro m o n e t a r y stabilisation, the system with the downside of the renminbi as a system has also reserve currency, been prominent supported by a at times. The more open capital US balance of account and a payments crisis wider floating in the late 1960s currency, will resulted in the deliver benefits to collapse of the both the global Bretton Woods The dominant role of the dollar means financial order mechanism as that the US effectively acts as a and better growth the dollar dedomestically. pegged from gold. global central bank In the decade before the global financial crisis, SHORTCOMINGS OF THE privilege” - as Valéry Giscard US fiscal and external deficits rose GLOBAL MONETARY d’Estaing, then the French minister substantially, leading to concerns SYSTEM of finance, noted in the 1960s - could about global balance of payments give the reserve currency country an imbalances. However, the demand by A global financial system that uses a enormous advantage in its economic foreign companies and governments single fiat money as its reserve currency growth and management. In for dollars helped to keep the US faces an acute problem of discipline. The addition, the dominant role of the interest rate low, enabling it to fund rest of the world relies on the reserve dollar means that the US effectively large current account deficits while currency for transactional and savings acts as a global central bank, and US fuelling domestic asset bubbles (such as purposes, generating huge demand for monetary policy has great influence real estate). A report from the United the designated reserve currency. This over international liquidity and Nations Conference on Trade and allows the reserve currency country economic conditions in other parts Development (UNCTAD) attributed to spend more than its export revenue of the world. the build-up of global imbalances

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and global financial crisis in 2008 to the inadequacy of the international monetary system, a view shared by Justin Lin (see his article “A Supranational Reserve Currency� on p. 42)

comments at the IFF AGM in 2014, under the system of a single reserve currency, the role of the reserve currency as a medium of exchange could come into conflict with its role as a store of value, as the demand for the former could reduce the incentive for keeping up with the latter. This

this development - as net creditors in the global financial system, they have a proportionally larger share of US government debt and are vulnerable to big valuation losses on these holdings. The current global financial governance is in need of substantial reforms.

An ultra-loose monetary policy in reserve currency countries since the global financial crisis, with The issue of the sole focus a new global on domestic reserve system e c o n o m i c has attracted objectives, has much attention depressed global in recent years, interest rates and different while driving options have capital flows been proposed. to emerging One approach is markets. For to use a notional instance, a recent currency, such as study by the Bank by extending the for International special drawing Settlements rights (SDR) of (BIS, 2014) the International finds that the M o n e t a r y unconventional Fund (IMF). US monetary The SDR is an At present, the SDR comprises a basket policy spills internationa l over to Asia reserve asset, of four currencies which does not match mainly through created by the the shift in global trade and investment in low domestic IMF in 1969 bond yields and to supplement recent years rapid growth of its member domestic bank countries’ credit, by compromising national subjects the world financial system to official reserves under the Bretton control over long-term rates that are the whims of the monetary policy of Woods system. At present, the SDR key determinants of economic activity. the reserve currency country. A more comprises a basket of four currencies The expected reversal of this process diversified international monetary of developed nations: the dollar, euro, in the coming year will likely imply a system, by introducing competition sterling and yen. Such a composition bumpy ride for the rest of the world. into the system, would likely help to does not match the shift in global ensure the store of value of reserves. trade and investment in recent years As summarised by Kim Jun Il, deputy Emerging market governments, where the importance of emerging governor of the Bank of Korea, in his therefore, are particularly keen to see markets is rising rapidly. 50 FX TRADER MAGAZINE July - September 2015


MACROECONOMICS In 2009, PBOC governor Zhou Xiaochuan proposed that the currency basket of the SDR should be expanded to include emerging market currencies such as the renminbi, to make its currency composition more representative of the reality of global economic power. This year, the IMF will undertake its five-yearly SDR review, where the possibility of including the renminbi will be assessed.

its long history - has remained a small share of global reserve assets (around 4%), with its use mostly confined to the official sector. There remain very limited private market activities in SDR. Moreover, the creation of a global currency such as the SDR will

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multiple currencies would introduce competition and some discipline into the international monetary system.

The new system would be a departure from the current dollar-centric international monetary system. At present, the dollar remains a dominant reserve currency. A lthough its share has d e c l i n e d somewhat since the introduction of the euro, A positive the dollar still assessment would accounts for be a strong vote for about 62% of and powerful sign global reserves of the renminbi’s (compared with internationa l more than 70% status, but the in the early The recent crisis in Europe may have thrown outcome remains 2000s), 87% of highly uncertain, global foreign the currency’s prospects into uncertainty given the IMF e xcha ng e criterion of the transactions, “freedom of use” of currency. likely meet strong resistance from and 81% of international trade current reserve currency countries settlement. It is not the case, however, that a such as the US. notional SDR - even if expanded Although the use of the euro has would be ready to replace the dollar IS THE RENMINBI SUITABLE become more prominent since the as the international reserve currency. AS THE THIRD RESERVE adoption of the common currency By design, the SDR does not have CURRENCY? (accounting for 23% of global reserves, the backing of taxation and/or compared with less than 15% before commodities of national currencies. An alternative approach where the adoption), its further expansion on According to the IMF, “the SDR is an international financial system the global stage could be challenged by neither a currency, nor a claim on the comprises multiple reserve currencies two factors. First, the government debt IMF. Rather, it’s a potential claim on is likely to be more promising. Each market in Europe is segmented and the the freely usable currencies of IMF of these reserve currencies would respective national government debt members”. In addition, it does not have be backed by its respective national markets are shallow. Since there is not enough liquidity. The SDR - despite economy, and the coexistence of a single euro government debt market,

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none of the individual government debt markets come close to the size of the US Treasury market. Second, the recent crisis may have thrown the currency’s prospects into uncertainty. The eurozone economy is still struggling with a prolonged recession. Both the corporate sector and the financial sectors are still going through restructuring since the global financial crisis. Several euro area countries now have very large deficits and debts, raising questions about the sustainability of their public finances. In addition, debt crises in individual countries - in particular, Greece have raised concerns about the very survival of the currency. The prospect of the euro playing a significantly larger international role in the coming decade is likely to be constrained by the uncertainty associated with these debates. Could the renminbi be a suitable candidate for the third major reserve currency? Historically, countries with a large economy and trade combined with a stable macro environment tend to see a comparable rise in the global role of their currencies. In the view of Barry Eichengreen, professor of economics at University of California, the world needs to be prepared for a system where the dollar, euro and renminbi will all be consequential international and reserve currencies. The multi-polar international monetary system is needed to reflect a more multi-polar world economy. In his view, after World War II, when the US accounted for the majority of industrial production of the non-Soviet 52 FX TRADER MAGAZINE July - September 2015

“The world needs to be prepared for a system where the dollar, euro and renminbi will all be consequential international and reserve currencies” Barry Eichengreen, professor of economics at University of California

world, it made sense that the dollar was the principal unit in which exporters and importers invoiced and settled their trade, in which international loans were extended, and in which central banks held their reserves. But this situation makes less sense today, as the US accounts for just 20% of the combined output of countries engaged in international transactions. Indeed, ever since the relaxation in 2009 of the self-imposed constraints on the use of the renminbi in trade settlement, the share of China’s currency in global trade has rapidly grown, driven by the real needs of

merchants to manage exchange rate risks in trade transactions. While the initial policy focus was to encourage the denomination and settlement of bilateral trade transactions in renminbi, the government started to actively promote the use of the renminbi in investment transactions to spearhead capital account reforms. The latter includes the recent expansion of renminbi-denominated cross-border portfolio investment, the increase of renminbi-denominated bonds in the offshore market and the rise of outward direct investment in renminbi. To support the international use


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FX

of the renminbi, the government has also developed related financial infrastructure and expanded currency swap arrangements with central banks across the globe to provide liquidity support in offshore renminbi markets. The private sector has embraced these liberalisation measures, and transaction volumes have increased strongly from a low base. CONDITIONS FOR INTERNATIONALISATION SHAPING UP There are still several important shortcomings inhibiting the renminbi’s global status. First, as the Chinese financial system remains bank-dominant, the bond market is still comparatively small. The size and liquidity of China’s debt market currently lags behind those of existing reserve currency economies. In particular, the total debt outstanding in China stands at around $5 trillion (versus $25 trillion for the US and $9 trillion of Japanese bonds). The Chinese government’s bond debt is around $3.3 trillion, compared with more than $12 trillion of US government debt. The turnover ratio is relatively low, as well. In China, the turnover ratio is about 1, compared with 14.2 in the US, pointing to low liquidity in the market (Prasad, 2014). A global reserve currency will need to be supported by a large and liquid bond market so that global investors

The Chinese financial system remains bank-dominant, and the bond market is still comparatively small can invest and maintain the value of their assets. Second, the exchange rate exhibits limited flexibility under the managed float regime. Both the daily central parity rate of the renminbi against the US dollar and the daily trading range around the central parity are controlled by the government. And third, cross-border capital flows still face various restrictions. It should be noted, however, that the de jure measure of capital account openness likely significantly overstates the restrictiveness of the system, as incremental reforms over

the years have greatly increased the mobility of the cross-border flows. Cross-border bank flows are particularly large, with their size (relative to Chinese GDP) on par with open economies such as Australia, according to the IMF. Current account transactions including trade and services - have also been used as channels for disguised capital f lows at times. Despite these challenges, recent incremental efforts to liberalise the Chinese currency have resulted in the rapid increase in its use as an international currency. First, the bond market has grown

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rapidly to become the third largest in the world. The development of the bond market also suits domestic objectives, as it reduces the reliance on the banking system for financial intermediation, while improving the role of direct financing, to better manage the system risks. The gradual opening-up of the domestic bond market to foreign investors could see liquidity rise.

Finally, incremental steps have continued to be taken to liberalise cross-border capital f lows. In the last few years, the government has relaxed cross-border security

The government also established the Shanghai Free Trade Zone (SHFTZ), where more liberal policies on financial flows have been introduced, in the hope of replicating the policies at a later stage in the rest of the country. In February 2015, the PBOC allowed more freedom for companies in the SHFTZ to borrow from abroad. The recent launch of the Shanghai-Hong Kong Connect programme, Second, the which permits exchange rate direct equity regime has also trading between seen steady Recent incremental efforts to liberalise the Shanghai reforms. The the Chinese currency have resulted in the and Hong Kong government stock exchanges, widened the rapid increase in its use as an international has also set the daily trading currency stage for broader band twice libera lisation in the past of portfolio two years, expanding the permitted daily investment, including by flows for individual investors (see range from +/-0.5% to +/-2% expanding the existing channels appendix). around central parity. As US of institutional investors through interest rates start to rise and the Qualified Foreign Institutional CAPITAL ACCOUNT the dollar strengthens, upward Investor (QFII) and Qualified REFORMS pressure on the renminbi has Domestic Institutional Investor receded, with the currency coming (QDII) schemes, and introducing Capital account reforms have under some downward pressure new channels of renminbi-QFII. gathered momentum under the new against the dollar. The two-way Renminbi-denominated bonds leadership in China, and the party’s f lexibility is welcome - and indeed have been issued in more offshore Third Plenary in November 2014 essential for the currency to move centres, including recently in the pledged to “accelerate the pace of capital account reforms towards towards its reserve currency status. UK. 54 FX TRADER MAGAZINE July - September 2015


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FX

full currency convertibility”. There There are, however, active debates on domestic financial restructuring are a few compelling arguments in how renminbi internationalisation before liberalising capital flows. favour of capital account reforms and the associated liberalisation of The main question facing Chinese over time. First, capital account capital flows should be positioned officials is whether the speed of liberalisation is likely to help in the financial reform agenda the external opening-up is too fast improve allocative efficiency and is (it should be emphasised that the compared with domestic reforms. in line with the The standard g o v e r n m e n t ’s dilemma is the view that “impossible the market trinity”, where should play a an open capital decisive role in account, coupled the economy. with the limited A l t h o u g h flexibility of the China does not currency, makes rely on global it difficult to funding for control domestic growth (unlike monetary policy other emerging i nd ep end enc e . To some m a r k e t observers, countries, where d o m e s t i c the funding r e f o r m s gap was the such as bank primary reason restructuring for opening up and state-owned internationally), In a recent speech, PBOC governor Zhou enterprise high domestic indicated that capital account liberalisation reforms should s a v i n g s precede capital are largely will accelerate this year, making the a c c o u n t concentrated in renminbi more freely usable opening-up, so domestic assets that the system (deposits and is sufficiently real estate) with limited diversification. Second, debate is largely on how, rather than resilient to deal with volatile international capital flows operationally, as trade size grows, it whether, to liberalise). that have caused crises in other is difficult to maintain watertight controls on capital f lows. And China’s approach has been emerging markets (Yu Yongding). third, from the governmental unorthodox, as the Chinese Others, however, believe that it is perspective, the liberalisation of government pushed capital feasible that reforms be conducted capital f lows could also be used as account reforms and domestic iteratively without the pitfalls a catalyst for institutional reforms, financial reforms iteratively and suffered by other emerging market mirroring the success of trade simultaneously, in contrast to the peers because: the Chinese economy liberalisation two decades ago. textbook advice of completing is large, and is not just a price

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taker in international finance; and there remain many policy tools through macro-prudence to reduce the vulnerability of its domestic institutions. There are practical considerations in favour of accelerating the pace of reforms, as well. First, capital controls have become quite porous, making capital account opening-up a de facto choice. For instance, despite controls in portfolio (equity and debt) flows, banks intermediated flows are high and volatile. In fact, as a share of GDP, gross bank intermediated flows are on a par with more open economies such as Australia and the US (IMF). In addition, trade flows are often shed as a disguised vehicle for cross-border capital transactions.

The strength of the external balance sheet and recovery in the global economy/US rates make for an opportune time for faster liberalisation for the renminbi to be part of the SDR). He emphasised that, in light of the experiences after the global financial crisis, China’s capital account reforms will adopt an approach of “liberalisation with management”, whereby macro-prudential measures will be used to ensure financial stability after the capital account becomes convertible.

Second, the strength of the external balance sheet and recovery in the global economy/US rates make for an opportune time for faster liberalisation. The current account surplus and large foreign-exchange reserves provide cushions for largerthan-expected capital outflows. And a pick-up in global rates and recovery in the developed markets should allow capital inflow pressures to diminish in RECENT PROGRESS coming years, reducing the pressure of one-way capital flows on domestic Owing to these liberalisation interest rates and monetary conditions. measures, the international use of the renminbi has steadily risen, In a recent speech, PBOC governor as can be seen from several key Zhou indicated that capital account developments: liberalisation will accelerate this year, making the renminbi more • The amount of cross-border freely usable (thereby paving the way renminbi settlements in the first nine 56 FX TRADER MAGAZINE July - September 2015

months of 2014 reached 4.8 trillion yuan, an increase from the 4.6 trillion yuan total in 2013. According to the Bank of China’s global survey, about 87% of domestic firms and 69% of offshore firms plan to use the renminbi in their future cross-border trade settlements. • The third-party use of the currency for payment purposes - an important measure of the international role of the currency - has increased from a low base. According to a survey by the Bank of China of 3,000 domestic enterprises conducting cross-border renminbi business, 41% of their overseas subsidiaries conducted renminbi transactions with third parties in 2014, compared with 10% in 2013.


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FX

outward investment by Chinese corporations and the country’s government. Such investment allows enterprises to benefit from the lower cost of production in neighbouring countries (particularly in Southeast Asia). For the government, such investment - for instance, through the recently launched ‘One belt, one road’ initiative - helps to strengthen the regional trade and economic links.

The steady progress of capital account liberalisation and further renminbi internationalization will have a profound impact on the landscape of the global financial markets • The offshore issuance of renminbi bonds by Chinese banks and corporations has been strong. The first offshore renminbi bond was issued in 2007. In 2014, gross issuance of offshore renminbi bonds and certificates of deposits hit a record high of 564 billion yuan (rising by 47% from the previous year). In October 2014, the British government issued renminbidenominated debt - the first foreign government bonds denominated in renminbi.

1.8 trillion yuan worth of deposits, 272 billion yuan of certificates of deposit and 672 billion yuan of bonds, according to Standard Chartered Bank. Notably, offshore renminbi loan growth is expected to accelerate as more cross-border loan programmes start, paving the way for more rapid offshore banking and monetary expansion through the multiplier effect.

While the initial momentum of the renminbi’s international rise is reflected in its strong trade links, • The offshore renminbi market further growth of the international has expanded. At the end of 2014, renminbi market will likely be offshore renminbi assets exceeded bolstered by increasing cross-border 2.7 trillion yuan, which included capital flows, and in particular

The steady progress of capital account liberalisation and further renminbi internationalisation, as we expect, will have a profound impact on the landscape of the global financial markets. According to estimates by US financial institution Goldman Sachs, assuming China reaches full convertibility by 2020, portfolio inflows and outflows could reach 5-7% of GDP each way, compared with less than 1% of GDP at present. Total portfolio flows could rise to between $1.5 trillion and $2 trillion in the next five years. The annual renminbi cross-border trade could increase to between $2 trillion and $3 trillion in the next few years, or 10-15% of global trade. The renminbi bond market could rise to $20 trillion (15% of the world bond market) with liberalisation in the coming decade. Li Cui Managing Director China Macro Research Goldman Sachs

FX TRADER MAGAZINE July - September 57


FX

INTERVIEW

Yi Gang, State Administration of Foreign Exchange director, discusses five changes in China’s foreign exchange management as well as the long-term value of the renminbi INTERVIEW What progress has been made in deepening reform, streamlining and decentralising administration, and promoting free trade investment? What are the next steps? We have stressed five changes in our foreign exchange management philosophy that are vital for the development of our long-term administrative framework. The move from an approval-based approach to a monitoring-based approach, the switch from pre-regulation to management in the aftermath of an issue, and also the change from behaviour-based management to subject-based supervision - whether it is a financial institution or a company, we will supervise it and it will be responsible for its conduct. Fourthly, we switched from an assumption of ‘guilty until proven innocent’ to a philosophy of ‘innocent until proven guilty’ and finally from using a ‘positive’ list of approved activities/

58 FX TRADER MAGAZINE July - September 2015

parties to a ‘negative’ list of restricted activities/parties. The five transitions have been in practice for a few years and we have already seen the effects. Firstly, trade and investment facilitation has improved. We have abandoned the system of mandatory foreign exchange settlement and sales, and comprehensively reformed the verification system for forex payments (imports) and forex receipts (exports), completely cancelling the verification and approval previously needed for each transaction. This reform has largely benefited enterprises. Our research indicates the average time for settling a transaction used to be 20 minutes, and it is now less than 10 minutes. Meanwhile, we have greatly simplified the foreign exchange administration for trade servicing, shortening the receipt and payment time from 20

minutes per transaction to five minutes per transaction, so enterprises have enjoyed increased convenience and lower transportation costs. We have also made progress in capital accounts. Through streamlining administration and delegating power to lower levels, particularly simplifying foreign debt, direct investment and overseas direct investment, we have steadily promoted the convertibility of capital accounts. Thirdly, we have considerably reduced administration approvals. In the recent few years, we have cut this by about 70%, which helps improve the competitiveness of Chinese enterprises and financial institutions. Lastly, I should emphasise that while we have streamlined approval procedures, we have still needed to strengthen supervision because of all kinds of uncertainties, including liquidity risks associated with cross-border capital flows that still exist in volatile global financial markets. Therefore,


INTERVIEW

while promoting facilitation, we must pay great attention to risks. We must strengthen supervision to prevent systemic problems. At the same time, we will continue to streamline administration and delegate power to lower levels and further increase the competitiveness of Chinese enterprises and economy.

capital is flowing out and currencies are depreciating considerably. The renminbi remains the most stable and strongest currency among all the Brics nations (Brazil, Russia, India, China and South Africa). We should assess the trend of renminbi exchange rates

What do you make of the recent depreciation of the renminbi? A country’s foreign exchange rate is one of the main instruments measuring the overall soundness of its economy and its finances. In 2014, the euro and yen fell by more than 10% against the US dollar, while the renminbi declined by 2%. This means the real effective exchange rate and nominal effective exchange rate of the renminbi has increased compared with the euro, the yen and a basket of global currencies. If the US dollar is the strongest currency, it is fair to say that the renminbi is the second-strongest one. In many developing countries,

FX

and reasonable equilibrium. What is the long-term trend for the renminbi? Firstly, the prospects for Chinese economic growth still look good. Although the past high speed of growth is lowering and b e c o m i n g medium-hig h, the growth speed is still relatively high compared with the majority of the world. Secondly, the Chinese current account surplus is still big. Exports exceed imports, which is extremely important for the stability of the fundamentals of the foreign exchange market.

comprehensively against a basket of global currencies, rather than against the dollar alone. From the perspective of the international balance of payments, economic growth rates and the degree of renminbi globalisation, China’s exchange rate absolutely has the basis of a fundamental stability

Thirdly, renminbi globalisation has accelerated. The world has a demand for the currency in areas such as trade, overseas investment and capital allocation. Foreign capital management companies and individuals are willing to hold renminbi bonds, stocks and other assets.

FX TRADER MAGAZINE July - September 59


FX

FUNDAMENTAL ANALYSIS A slowing economy with a soaring stock market witnessing the “Sell in May and Go Away” adage

China is getting close to allowing the Yuan to be exchanged without limits on any amount

Trading positions depend on whether the renminbi will be included in the SDR currency basket

by Samuel Tay

The Yuan, and China’s Growth Path to Internationalization

The Slowdown of China’s which currently stands as the world’s 2nd largest economy, Economy even though a slowdown is seen Believe it or not, the stock in China’s economy, with the 1st markets of the world’s emerging quarter growth of 2015 seeing its economies are closely bound worst growth since 1992, apart to economic growth of China, from 2009. Analysts are expecting

60 FX TRADER MAGAZINE July - September 2015

to see growth around 7% this year – being the slowest pace in a quarter of a century. The growth yardstick was measured in terms of lower commodity prices, lower rail freight f lows, and lower electricity consumption.


FUNDAMENTAL ANALYSIS

FX

A Soaring Market

Stock f u nd i ng or i njec tions , most entrepreneu rs or e x i st i ng bu si ne ss China’s domestic ow ners a re i nspi re d to stock market however st a r t a vent u re . Fi xe d moved north, while a s set i nve st ment g re w data showed that the at it s slowe st i n ne a rly economy headed south. 15 yea rs i n May 2 015 , m i s si ng e x pe c tations even as growth in retail There were many factors that gave rise sa les and factor y output stea d ied . to the bull market:

Figure 1.

Sourse: Thomson Reuthers Datastream

Figure 2.

Sourse: Thomson Reuthers Datastream

Figure 3.

Sourse: CEIC, Natioanl Bureau of Statistics

- Fourth, despite the fact that the property market ha s been lack luster a f ter the government took mea sures to curb over-specu lation, there was some recover y seen - Second, fiscal stimulus i n May. and government expenditure that - Fi f t h , most a f f luent a re yet sustain specific i nve stors government-supported aware of how to invest industries and inspire of f shore . banks to lend to businesses rose to 2 .6% - Si x t h , it i s more of a in May 2015, slowing socia l bul l market than sharply from a 33.2% a ny t h i ng el se . R i sksharp rise in April t a k i ng a nd b ei ng on 2015, and making the equal ground with peers first five months of on We Chat (Ch i na’s 2015 seeing a 11.1% rise version of Facebook) are in fiscal expenditures just one of the common tra it s of how socia l ly from a year ago. compet it ive a t y pica l - Third, other than Ch i ne se ca n b e come , industries that could inspired by friends to attract government join the bul l run. - First, per capita savings to stock market was relatively low comparable to many major developed economies.

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FUNDAMENTAL ANALYSIS

asset pledged relending , an extension of the PSL operation, (Pledged Supplementar y Lending) which analysts expect to target smaller firms in time to come. Are we seeing the well known trading adage “Sell in May and Go Away� happen in the Chinese stock market? Fig ure 4 shows it clearly. At the time of writing this article, the stock market fell by 13% between 14th and 19th June, thus wiping out 9 trillion Yuan.

Figure 4.

The countr y is getting close to allowing their domestic currency, the Yuan, to be exchanged without limits on any amount. China is expecting the Yuan to be included in the basket of currencies represented in the Special Drawing R ights (SDR) issued by the International Monetar y Fund. Having the SDR status would also mean that central banks could start adding the Yuan to their reser ves, thus adding more liquidity into the Chinese stocks and bonds markets.

Figure 5. Weekly USD/CNH

- Finally, availability of credit, monetar y easing has lowered short, but not long term yields, due to cuts in interest rates and bank reser ve requirements. The fall in short-term rates has

62 FX TRADER MAGAZINE July - September 2015

thus fuelled stock speculation, as banks remain reluctant to lend to the real economy. This however should change, as the central bank has also said it will expand a pilot scheme on credit

How about currency markets? The currency market seems cautious over the development of the SDR , as this could bring


FUNDAMENTAL ANALYSIS

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cycle its currently relatively weak economy.

Figure 6. Monthly USD/CNH

new demand for the currency offshore from central banks globally. The market also fears that there could be a widened

use of loose monetar y policy tools, and expanded stimulus packages that the Chinese may use to support and counter

The chart on Fig ure 6 shows that the currency is looking for new grounds to move on, and this longer-term direction is mainly going to be inspired by a change in market fundamentals. Although it could move within a trading range, the currency action will be shaped by the necessity to stay competitive on the export market and the effect of an expanded circulation overseas. At this juncture, I personally feel that the PBOC is managing its monetar y and expansionar y fiscal policies well, as they do in fact have a deep buffer of resource. Its current growth path could remind, in some ways, how Singapore grew to become a developed nation. In the short term, 6.1850 seems to be a good support to look at for buyers, without any change in the SDR status. If the SDR status is confirmed, prepare for ‘gradual’ streng th in the currency, as central banks across the globe are likely to welcome more Chinese Yuan into their countries.

Figure 7. USD/CNH (Daily)

Samuel Tay Founder Grentone Capital Management

FX TRADER MAGAZINE July - September 63


FX

OPTIONS STRATEGY by Jessica James and Jonathan Fullwood

FX Options: the elephant in the room How to generate significant returns from anomalies and biases in the FX option market

Premium vs Payout The phrase ‘the elephant in the room’ is usually used to refer to a fact which is glaringly obvious once pointed out, but to which people have been oblivious for some time. There is an elephant in the FX options room. FX options are a huge market. The latest Bank of International Settlements survey in 2013 found that there was over 300 billion USD worth of flow every trading day. Spreads are tiny and liquidity is large. So how can 1

there possibly be any systematic bias or predictable pattern which has not already been traded away? And yet, there is. If one were presented with a financial instrument which on average pays back only half of what it cost, one would call it either a bad deal (if bought) or an opportunity (if sold). Or if one were presented with an insurance contract which on average paid back 50% more than its premium, it would be highly desirable to buy, but not good to sell. This situation is exactly what we find with some FX options.

Note that these are puts and calls on the exchange rate, ie, on the base currency

64 FX TRADER MAGAZINE July - September 2015

Let us take a look at the data. Below, in Figure 1 and Figure 2, we have plotted the average payout to FX put and call options1, divided by the average premium, throughout history since the start of the market. The 34 most liquid currencies were used. The options were the most liquid type, At-the-MoneyForward puts and calls. Additionally, we included trading costs. If options were perfectly ‘fairly’ priced, we would expect to see that all of these data points hovered at about 100%. If, more realistically, we expect trading desks to


OPTIONS STRATEGY

Figure 1: Payout-to-premium ratio for ATMF call options

Source: Bloomberg and Commerzbank

FX

whether option protection was a good idea. But only in the very largest global companies will there be the expertise to perform the historical analysis; while the results would be of interest, it’s unlikely that they would be known or discovered. In contrast, a dynamic trader (for example on an option trading desk) will typically have many option positions and may trade day-to-day if not intraday in order to maximise the returns on a portfolio. They tend to think in terms of how much can be made from the risk management of an option. The resulting payoff-to-premium ratio for a contract is not of interest. Thus while an option desk would have the expertise to decide whether there is a systematic difference between premium and payoff, they would not have any interest in doing so.

It is, to put it mildly, odd that there is so little effort made to analyse historical data, particularly when there is huge make a profit, we might anticipate that tenor. Puts by contrast return 130% for and careful effort put into the initial they would all be a little less than 100%. the same tenor! This is not a small effect; valuation of derivative contracts. If it is an enormous anomaly which has gone the post-trade performance of different But that is not what we see at all. completely unnoticed up until now. This contract types had been considered to Both puts and calls start off, in the 1 really is the elephant in the room. be important from the start, then there week tenor, as might be anticipated. would have been regular evaluation of The payout for both is on average Historical data analysis the situation and it would have been slightly above 80% of the premium. understood a long time ago. As it is, Thus they are both slightly ‘expensive’; How has it not previously been realised popular products, with billions of flow in theory one could generate returns that there is this significant effect? Very dollars spent on them each day, have simply, because nobody has made the been unknown entities when it comes to by selling these short dated options. very considerable effort that it took to calculating their average payback. This This seems reasonable; we know that some collect and clean the data, and perform is not clever. Financial institutions are hedge funds use short dated option selling the historical back tests2. There are two not the only culprits. Academia, usually strategies (though it’s a high risk trade). main types of FX option user, which we so focussed on data, has neglected the But as we look at longer tenors, the story can refer to as static traders (hedgers) fact that historical data are of poor gets very strange. Calls, which pay out for and dynamic traders (investors). A static quality and patchy. Study after study appreciation of the base currency, become trader or hedger, such as a corporate on financial markets is done on tiny very poor value, returning on average only treasurer, would be interested in the datasets with poor quality control, and about 50% to their owners in the 3 year ratio of premium to payout, to judge nobody appears to complain. Figure 2: Payout-to-premium ratio for ATMF put options

2

Source: Bloomberg and Commerzbank

This is the research which underlies the book we have recently completed, published by Wiley, called FX Option Performance. FX TRADER MAGAZINE July - September 65


FX

OPTIONS STRATEGY of the cost of the forwards, once more including premium and bid-offer costs. Additionally, in case the cheaper option hedges provided poor protective qualities, we examined the hedge cash flows in the worst ever depreciation periods for the EM currencies. In the vast majority of cases, the option hedges provided similar protection, to about 90% of the level provided by the forward contracts. While remaining vastly cheaper, they still deliver value during high risk times.

Figure 3: Average cash flow for 3 month hedges of positive EM FX exposure

Source: Bloomberg and Commerzbank

Now is the perfect time for the financial world to review this situation. Increased scrutiny and regulation mean that global markets have an urgent need to increase fairness and transparency, and to be seen to be doing so. We are overdue a change of attitude. Hedging with options Some of this historical data analysis has yielded fascinating results with important implication for hedgers. In figure 3, we show the average results of hedging various Emerging Markets FX exposures. In this case the exposure to the EM currency is positive, ie, the risk is from depreciation of the EM currency. Because the forward rate always locks in a degree of depreciation which rarely actually occurs, these hedges are costly. On average, the quarterly forward hedges cost 6% of the notional amount per year; a very large expense. But, the difference between forward and option hedges is unambiguous – even including the full premium and bid-offer costs, the options cost on average is just over half of the 66 FX TRADER MAGAZINE July - September 2015

forward cost. Twenty out of the twentyfive currency pairs tested have the option cost as less than the forward cost, and the five exceptions have smaller data sets. In the past at least, options have delivered far cheaper hedges. We repeated the backtest using 25-delta out-of-the money long call option positions. We found that the supposedly more exotic OTM options are actually cheaper hedges again than both the ATMF options and the long forward contracts. In this case they are on average about one third

Thus a look at the historical data reveals that at least some hedging strategies can be revolutionised by the appropriate choice of contract. It is not the case that options are a universal panacea; if the exposure were negative (for example if there was a future liability in the EM currency) then forwards would have been a better choice. How about a trading strategy? If there are anomalies and biases in the FX option market, it is natural to wonder whether they may be used to generate returns. Investors like hedge funds, pension funds and insurance companies

Figure 4: Cumulative returns in % notional amount for 1W call selling in USDJPY

Source: Bloomberg and Commerzbank


OPTIONS STRATEGY would be keen to know whether this is an area which could yield diversified alpha in a world of ultra-low yields. Above in Figure 4 we show the returns to a systematic straddle selling strategy in USDJPY. The puts and the calls offset each other elegantly and the result is a surprisingly smooth and profitable series. However, this includes only premium and payout – the marked-to-market variation would have added considerable volatility. But nevertheless, it is clear that even this very simple strategy holds potential, and there are likely to be more to discover. Where did the elephant come from? Can we discover where these very significant anomalies originate? Let’s take a look at the payoff to a Spot rate at inception

simple ATMF put or call FX option.

payout to the long forward contract. This is the contract which would There are a number of features to be used to hedge depreciation risk. the fairly complex diagram shown Now we see why it loses money in on Figure 5 and it is worth going Figure 3; if we end up in the grey through them carefully. area (which on average we do) then it delivers a loss (1) Grey area surrounding spot rate at (6) The straight dashed line is the the start of the deal. This represents payout to the short forward contract. where spot at expiry is most likely to This on average makes money and is be. FX rates do not on average move the return to the carry trade to the forward rate; the long term (7) The long call payout line (solid existence of the carry trade proves this line) – we can see that the likely (2) The solid normal distribution result in the grey area is loss of the line represents the distribution of the premium. But this loss is less than spot throughout the life of the deal the forward loss, as indeed is shown (3) The dashed vertical line is the in Figure 3. forward rate (8) The long put payout line (dashed (4) The dashed normal distribution line) – we can see that this may make is the implied future distribution of money, as was found in Figure 2. As rates at expiry given by the option the tenor of the deals gets longer, the volatility and the forward rate forward rate gets further from spot, (5) The straight solid line is the so puts become progressively better value, and calls progressively worse, explaining the effects seen in Figure Forward rate 1 and Figure 2 very neatly.

Short forward payoff

Long put payoff

Long forward payoff

Long call payoff

Premium cost of ATMF option Most likely range for spot at expiry

FX

Carry cost of forward

Direction of increasing rate

Figure 5: Payoff to FX options and forward contracts

So in fact, once the data is assembled, it is clear that the failure of the spot rate to evolve to the forward as the contract progresses is the cause of the anomalies we found in the data. While this fact has been known for some time – it is the origin of the profitable FX carry trade – it was not previously realised that it had this significant impact on FX option value. There were even some clues that the elephant was there.

Jessica James & Jonathan Fullwood co-authors of FX Option Performance: An Analysis of the Value Delivered by FX Options since the start of the Market FX TRADER MAGAZINE July - September 67


FX

BOOK REVIEW

FX Option Performance An Analysis of the Value Delivered by FX Options since the start of the Market

This practical guide to options trading, which examines how FX Options performed in different markets, will show you where to find value and how to better hedge FX exposures. by Jessica James, Jonathan Fullwood and Peter Billington Published by Wiley, May 2015

On average, do options result in profit, loss, or breaking even? How can corporations more cost-effectively hedge their exposure to emerging markets? Are cheap out-of-the-money options worth it?

FX Option Performance provides the information that investors and traders need to be more effective in the forex options market, by providing detailed,

68 FX TRADER MAGAZINE July - September 2015

specific guidance on structures, performance, rate fluctuation and trading strategies. The daily turnover in FX options

is an estimated U.S. $ 207 billion, but many fundamental facts about this huge and liquid market are generally unknown. This recently published book


BOOK REVIEW

FX

• An examination of the historical payoffs for the most popular and liquidly traded options • A look at which options are overvalued and which are undervalued • Surprising, generally unpublished facts about emerging markets • A review of systemic option trading strategies, what works and what doesn’t

is unique in offering both a practical guide to option trading alongside a historical look at how options performed in different markets, with a view to help investors and hedgers alike make better and more informed decisions.

FX Option Performance begins with a quick and practical introduction to the FX option market. It provides specific advice about structures, performance, rate fluctuation, and trading strategies and also includes:

Not overly technical, the book is an accessible resource for anyone with an interest in options trading, showing readers where to look for value, and helping corporations hedge their FX exposures. Where to find it? Paperback version click here.

About the Authors Jessica James is Co-Head of the FX Quantitative Solutions team at Commerzbank in London. She joined Commerzbank from Citigroup where she held a number of FX roles, latterly as Global Head of the Quantitative Investor Solutions Group. She is a Managing Editor for the Journal of Quantitative Finance and is a Visiting Professor at Cass Business School. She is a Fellow of the Institute of Physics and has been a member of their governing body and of their Industry and Business Board. Jonathan Fullwood is a director in FX Quantitative Solutions at Commerzbank in London. Since joining Commerzbank in 2002 he has also worked in fixed income research and portfolio strategy roles and was awarded a CFA ® charter in 2007. Peter Billington is Global Head of FX Options at Commerzbank in London trading a wide range of currencies and FX products. He joined Commerzbank from Dresdner in 2008 where he was trading Metals (Precious and Base). Prior to this he spent 10 years trading FX Options in various financial centres - London, New York and Singapore.

FX TRADER MAGAZINE July - September 69


FX

TECHNICAL ANALYSIS by Razvan Mihai

Trend Trading Made Simple A very simple strategy based on the definition of the trend

Here’s a short story that you will find very familiar. Around 7 years ago when I first had the chance to learn something about Forex Trading, the first lesson I got to learn was: Trend is your friend! Which means that it is best to trade in the same direction of the main trend. Have you ever heard about it? This first lesson was actually the milestone of everything that followed. Everybody was saying that the best

70 FX TRADER MAGAZINE July - September 2015

strategy, to become profitable, is to trade with the trend. So I started learning about ways how to enter a trade in the direction of the main trend. I learnt about Price Patterns, Candlestick Patterns, Harmonic Patterns, Fibonacci, Technical Indicators, Pitch Fork, Gann, Elliott Waves and many other things that I found on the internet and books. After a while I found out that there is a good and a bad thing about this lesson.

The good thing is that it is very easy to do it, the bad thing nobody tells you how! There are tens or maybe hundreds of ways that could help entering a trade in the direction of the main trend. Combinations of the theories I mentioned earlier, complex strategies and mathematical probabilities which could help you enter a trade in the direction of the trend, but I will show you a very simple strategy, based on the definition of the trend.


TECHNICAL ANALYSIS The father of modern technical analysis, Charles H. Dow, said in his studies that the market is moving in trends and that there are two main directions: up and down. The sideways moves were lines which were part of a rising or descending trend.

Step 2. Draw a trend line on the first correction of the new trend. Breaking and closing above this

FX

trend line can be considered a trading signal (Buy on rising trends and Sell on falling trends). You can

What is an uptrend? The simplest way to identify an uptrend is by looking for Higher Lows and Higher Highs. Once a higher low was drawn, followed by a higher high, we can presume that an uptrend has just started. What is a down trend? A down trend can be defined as a succession of Lower Lows and Lower Highs. When a lower low followed by a lower high are drawn, we can presume that a down trend has just started. In the image below (chart 1), you will observe how a down trend is changed to an uptrend and vice versa on the EURUSD, 60 minute chart. The best thing about this method is that it can be applicable to any instrument and any time frame.

Chart 1

Chart 2

Because we now have an idea about what a trend is, let me tell you which is the core idea of this trend following strategy. TREND TRADING STEP BY STEP Step 1. Keep an eye on the current trend, until a reversal pattern emerges. Like shown in the picture below (chart 2).

Chart 3

FX TRADER MAGAZINE July - September 71


FX

TECHNICAL ANALYSIS parameters based on the traded instrument, time frame and risk appetite. Let us get back to the exit points. After the confirmation of the setup and entering the trade a good Stop Loss can be set under the last higher low. A break below this one would increase the probability of a reversal.

Chart 4

choose to wait for the candle to close above/below the trend line and enter the trade, or trade at the breakout. I would recommend to wait for the close, because false breakouts may occur and diminish the probability of entering a profitable trade. It is very important to practice writing on charts so that in time it will become easy to spot these reversal patterns. FIND A GOOD EXIT POINT This strateg y is very simple to apply, but incomplete at this point. For a good strateg y to

Chart 5

72 FX TRADER MAGAZINE July - September 2015

become even better we would need to find good exit points. These points should always take into consideration your own investment risk and money management system. For example : if your money management system says to have a risk of 1 and a profit target of 3 and the strateg y, exit points offers only a risk of 1 and a profit target of 2, you shouldn’t enter this position. This is a theoretical example. The money management system should be established after testing the strateg y and optimizing the

From my experience with this strategy, a good take profit would be the 127 extension of the last impulse – if the correction did not go below 50% of the last impulse. Depending on the time frame, I would suggest to set the take profit around 5 pips lower than the maximum target. This way it will increase the probability for the price to hit your level. This is one of the easiest strategy I ever tested, but also one of the most effective. Using the basics of technical analysis, combined with price projections for getting out of the trades, proved to bring me very good results in the past years. If you would like to try this strategy, my recommendation would be to test it before you trade real money. One strategy can bring different results from one trader to another. The strategy works with probabilities, but it doesn’t include one of the most important variables – human emotions. Try this strategy on demo accounts, optimize it for your own personality and after that make the next step.

Razvan Mihai


TRADING PSYCHOLOGY

FX

by Rob Colville

Seven trading affirmations to transform your trading success

Whether you already use them, or not, positive affirmations have been proven to work in many different areas of life. Currency trading is no exception to this! Whether a trader, life coach or guru who is top of their field, those who use affirmations regularly will tend to have one thing in common; they use them to help manifest their goals and bring about lasting, positive change to both their professional and private lives. In this article, we will discuss some positive, battle-tested trading affirmations which are based on the habits of successful traders.

But firstly, what is an affirmation? Many affirmations are positively constructed phrases or goals that are repeated, often daily, with the ulterior motive of hardwiring the subconscious mind in order to help to construct our life experience. Affirmations can be applied to many different situations. Whether it is romance, confidence, achieving a greater level or success, or achieving improved health, you may be pleasantly surprised with how easy it can be to come up with your own in order to quash past, potentially damaging believes and

patterns of self-sabotage that may have hindered you previously in achieving your goals. Here are seven trading affirmations that you can immediately take away and use yourself in order to improve your game in financial markets trading. You may wish to tweak them and add your own. Affirmations are, after all, very particular to the individual and their own references. Repeat the following trading affirmations every morning and see for yourself how they can inspire lasting, positive change. FX TRADER MAGAZINE July - September 73


FX

TRADING PSYCHOLOGY

Affirmation 1:

Affirmation 3:

Affirmation 4:

“I’m a profitable trader”

“I will plan the trade and trade the plan”

This broad-brushed statement sets the tone for what follows, it should be your first and most important affirmation. Even if you’re not yet showing a consistently positive book, month after month, say it. Do not fall into the temptation of using this statement in the future tense as you will essentially be prolonging the outcome by nudging it that little bit into the future every time you say it.

Stay true to your strategy! After all, successful strategies have been specifically designed to determine your rules for entry, management and exit. They are effective filters which will prevent you from jumping into the market for no

“I will take full responsibility for my trading” Ever found yourself blaming anything and everyone for a losing trade? Don’t! Ultimately, you are the master of your own destiny.

If you trade a set-up which contradict your rules for entry and it loses money… who is to blame? You made the decision to place it. On the flip side of the coin, if you traded a set-up which did not conform to your strategy’s rules for entry, and Affirmation 2: you made money, you may not want “My trading to believe it but it Using affirmations regularly can help strategy is one I is still a bad trade! you manifest your goals and bring about have full belief You may have in” made money from lasting, positive change to your life it, but through Only use this breaking your affirmation if your chosen strategy other reason than for the sake of being own rules for entry, you have reinforced is both proven in profitability and in a trade. Only trade when your rules to your subconscious mind that gels with your personality. Whether for entry are met and celebrate the breaking your rules can be profitable you’re an intra-day sniper or an end- times when there are no valid trade (even though, in the long run, it is not). of-day set-and-forget trader, do not set-ups that meet your rules as an apply this affirmation to a strategy opportunity to preserve your capital Affirmation 5: where you may have initially “got and stay out of the market. Accept that lucky” on your first trade with an markets can do anything at anytime “I keep the trade risk low no matter and have been unsuccessful since and that no strategy can win the whole how good the trade looks” (this is known as “confirmation time. Placing a trade based solely on bias” - a common pitfall for may “gut feeling” is not a valid reason to be Any strategy’s success is determined rookies) in the market. over time – the more valid set-ups

74 FX TRADER MAGAZINE July - September 2015


TRADING PSYCHOLOGY traded using that strategy will yield a more representative overview of its effectiveness. In order for your trading results catalogued in your trade journal to be as scientific as possible, it’s imperative to keep the risk on any trade as a constant variable, no matter how good the set-up may look at first glance. Keeping the risk low for every trade placed is a must. There is nothing more chilling than watching a losing trade bleed your account to death, especially when you know that the loss would have only been minimal had you risked 1% of your account’s value...rather than 10%!

your journey to becoming a consistently profitable trader. Be realistic in your expectations from trading and accept that small percentage gains made on your trading account over the long term in a conservative fashion are far more achievable than fast wealth.

FX

While it may be easier said than done, it is crucial to master the art of letting go. Providing the trade set-up conforms to your strategy’s rules for entry, and you have kept the risk to a minimum, simply place the order with your broker and walk away. Providing your set-up have a positive reward/ risk profile, then you can set-andforget, safe in the knowledge that if the trade does go in your favour then you are set to make potentially a lot more than if the loss sustained goes against you.

All too frequently, the rookie trader falls into the Trading is an art that cannot be deadly trap of s e l f- s a b o t a g e mastered overnight. A skill that can be by watching accomplished after years of dedication. the progress of their trades Just like a university degree. currently in play. This often Remember, becomes an financial markets are a very different kind of animal Trading is an art that cannot simply emotionally exhausting experience where anything can happen at anytime... be mastered overnight but, rather, a as every flicker between both sometimes for no real rhyme or reason. life skill that can be accomplished after positive and negative balances on years of dedication and hard graft...just their broker profit and loss account is often the cause of a veritable Affirmation 6: like a university degree. emotional rollercoaster! “My ambitions in trading are for long Affirmation 7: term gain as opposed to a quick buck” Rob Colville “I will not become emotionally attached Founder Managing expectations will be key in to the outcome of any trade set-up” TheLazyTrader.com

FX TRADER MAGAZINE July - September 75


FX TECHNICAL REPORT

CURRENCY OUTLOOK MAJOR US DOLLAR RATES - FEATURED MARKET – USD/JPY USD/JPY has moved steadily higher since completing a 2 year Head & Shoulders base at the end of 2012 when resistance around 84.1685.53 was cleared. Losses from the 2007 lower top at 124.14 have since been fully retraced, the recent push above 124.14 having also penetrated the 25 year downtrend connecting the 1990 & 1998 peaks at 160.26 & 147.61. Furthermore, the 12, 60 & 120 month (1, 5 & 10 year) moving averages are all rising. As yet, there are no

immediate signs of an end to streng th and with price action contained within a bullish channel we see scope for an initial move to attack the 76.4% retrace of the 1998-2011 decline at 130.55, with the possibility of a move towards the 140-142.50 region (top of bull channel / longer-term bear channel) over the coming 6-9 months. Look for an initial dip to now leave a higher low at a maximum of 105.31-105.44 in the event of a reversal under 115.63-115.87.

MAJOR TRENDS AND TARGETS FOR US DOLLAR MAJORS As at 15 Jun 15

Current level

Major trend

Major targets

Trend change level

EUR/USD

1.1230

Down

0.9700 / 0.8232

1.2875

GBP/USD

1.5500

1.4234 / 1.3500

1.6366

USD/JPY

123.60

Down Up

USD/CHF

0.9310

USD/CAD

1.2355

Up

AUD/USD

.7730

Down

76 FX TRADER MAGAZINE July - September 2015

130.55 / 137.50

Flat

105.31 .8701 / 1.0238

1.3063 / 1.3464

1.1074

.7208 / .7017

.9404


TECHNICAL REPORT FX MAJOR CROSS-RATES – FEATURED MARKET – EUR/SEK EU R / S E K p e a ke d a t 1 1 . 7 8 4 2 i n Ma r c h 2 0 0 9 , a n e w a l l- ti m e tr a d e d h i g h . A p r o l o n g e d decline followed, e v ent ua l l y reaching 8 . 1 7 7 3 i n Au g u s t 2 0 1 2 , b e f o r e tr a c i n g o ut a mu l ti -m o nth d o u b l e b o t t o m a t 8 . 1 7 7 3 / 8 . 2 5 6 1 , c o m p l e t e d i n Jun e 2 0 1 3 b y th e b r e a k a b o v e 8 . 7 9 3 7 . G a i n s a c c e l er a t e d t o a p e a k o f 9 . 7 1 5 1 i n D e c em b e r 2 0 1 4 , a h e a d o f th e l a t e s t s e tb a c k . A p o s s i b l e y e a r - l o n g h e a d & s h o u l d e r s t o p i s b e i n g tr a c e d o ut a b o v e

a 9 . 0 5 6 8 - 9 . 0 6 7 9 n e c k- l i n e , w i th th e r i s k s e en f o r a r e v er s a l t o wa r d s s up p o r t - t urn e dr e s i s ta n c e a t 8 . 7 0 1 3 - 8 . 7 9 3 7 o v er c o m i n g m o nth s . We s e e s c o p e f o r a h i g h er l o w t o th e n d e v e l o p , s e t ti n g up a f r e s h r e c o v er y p ha s e t o wa r d s s up p o r t - t urn e d-r e s i s ta n c e a r o un d 9 . 9 7 3 3 - 1 0 . 0 3 7 4 a n d p o s s i b l y f o rm er s up p o r t a t 1 0 . 3 8 4 4 , a h e a d o f a s u b 1 0 . 5 3 6 8 l o w e r t o p e v ent ua l l y b e i n g l e f t f o r a r e t urn t o un d e r l y i n g w e a kn e s s .

MAJOR TRENDS AND TARGETS FOR MAJOR CROSS-RATES As at 15 Jun 15

Current level

Major trend

Major targets

Trend change level

EUR/GBP

.7235

Down

.6702 / .6537

.8062

GBP/JPY

191.65

Up

199.89 / 215.85

168.08

EUR/JPY

138.60

Flat

149.73 / 159.60

126.11

EUR/CHF

1.0525

Down

1.0071 / 0.8599

1.2033

EUR/NOK

8.7340

Up

9.3002 / 9.8687

8.3146

EUR/SEK

9.2015

Up

9.7151 / 9.9808

8.7013

FX TRADER MAGAZINE July - September 77


FX TECHNICAL REPORT FX EMERGING MARKETS – FEATURED RATE – EUR/CZK EUR/CZK was in a 9 year downtrend from the March 1999 peak at 38.705, this reached as low as 22.925 in July 2008, ahead of a strong recovery which retraced between 38.2% & 50% of the entire decline to reach 29.671 in February 2009, before heading lower. The majority of the 22.925-29.671 recovery was retraced, eventually leaving a higher low at 23.934 in January 2011, ahead of a renewed recovery phase. A base pattern was completed in late 2013 by the break above

26.106-26.189, reaching 28.489 in January 2015, ahead of the latest correction lower. MACD is unwinding from overbought, but its primary signals remain bullish and successfully leaving a higher low now above 25.485, ideally by former resistance at 26.109-26.189, may set up a renewed advance towards the February 2009 recovery peak at 29.671, possibly 30.815-30.924 (50% / 76.4% Retraces of previous declines from 38.705 & 33.395) over the next 9-12 months

MAJOR TRENDS AND TARGETS FOR FX MERGING MARKETS As at 15 Jun 15

Current level

Major trend

Major targets

Trend change level

EUR/CZK

27.270

Up

29.671 / 30.815

25.485

EUR/HUF

313.00

Up

349.93 / 374.81

295.73

EUR/PLN

4.1575

Up

4.2236 / 4.2525

4.1074

EUR/RON

4.4900

Flat

4.2913 / 4.5697

USD/ILS

3.8390

Flat

3.4014 / 4/0978

USD/RUB

54.70

Up

78.39 / 100.00

36.782

USD/TRL

2.7375

Up

3.1335 / 3.5000

2.1905

13.098 / 13.856

USD/ZAR

12.415

Up

EUR/RUR

61.50

Flat

EUR/ZAR

13.950

Up

78 FX TRADER MAGAZINE July - September 2015

10.828 52.40 / 70.20

15.489 / 16.788

12.653


TECHNICAL REPORT FX SELECTED ASIAN FX RATES – FEATURED MARKET – NZD/USD NZD/USD completed a 3 ½ year top pattern in January when the 2013, 2012 and late 2011 lows at .7685, .7461 & .7373 were lost. A retracement of close to 50% of the 2009-2011 .4901-.8840 advance has so far occurred, with the 10 year moving average having been lost and a dead-cross of the 1 & 5 year moving averages also now evident. With MACD back into negative territory for the first time in 5 years, we see the risk of a continued retreat over coming months, with the 2010 / 2007 lows at .6565-.6649 the next key target area and possibly as far as .5831-.5930 (76.4% retrace of .4901-.8840 / 2006 low) further out, where potentially a key long-term

higher low could develop above the 2009 one at .4901, setting up the start of a renewed advance. Successfully regaining support-turned-resistance around .7685.7742 is needed to delay the anticipated fresh multimonth decline and instead set up a return towards the .8052-.8541 region, our ideal maximum for a corrective bounce, where a sub .8833-.8840 lower top could then develop. Steve Jarvis Chief Analyst Tradermade

MAJOR TRENDS AND TARGETS FOR FX EMERGING MARKETS As at 16 Jun 15

Current level

Major trend

Major targets

Trend change level

.6565 & .5831

.8541

1.4244 / 1.4732

1.2830

NZD/USD

.6985

Down

USD/SGD

1.3460

Up

USD/MYR

3.7515

Up

3.8283 / 4.0000

3.5333

USD/THB

33.700

Up

34.459 / 36.280

31.750

AUD/CAD

.9555

Flat

AUD/NZD

1.1085

Down

.9781 / .9000

.9398 / 1.0065 1.1302

EUR/AUD

1.4540

Down

1.3189 / 1.2221

1.5331

EUR/NZD

1.6125

Down

1.2667 / 1.0594

1.6437

FX TRADER MAGAZINE July - September 79


FX

conferences & seminars

Event & Dates

Location & Venue

Type

Description

BigData & Analytics, 1-3 July 2015

Novotel London West, London, UK

Conference

Explore how best to transform your data into valuable insight

RiskHedge New York, 8 July 2015

Metropolitan Club, NYC, USA

Conference

Discussions on hedge fund challenges

2nd Lagos Forex Expo, 13-14 August 2015

Lagos, Nigeria

Expo

FX Week USA, 14 July 2015

Midtown Hotel, NYC, USA

Conference

Event for FX industry leaders to discuss the most pressing questions facing the market

Conference

Focus on the application of Sentiment Analysis to the respective models of trading

Behavioral Models & Sentiment Millenium Hotel, Analysis Applied To Finance, London, UK 15-16 July 2015 MoneyShow San Francisco, 16-18 July 2015

Marriot Marquis Hotel, San Francisco, USA

Finance Magnates Tokyo Summit, Mandarin Oriental Hotel, Tokyo, Japan 29 July 2015

Expo

Conference

Leading FX event in Nigeria

Trading expo in San Francisco Panels, influential industry speakers, exhibitions and networking opportunities Comprehensive training course on international treasury and cash management

International Treasury & Cash Management Training, 3-14 August 2015

London, UK

B2B Forex Forum, 27-28 August, 2015

Radisson Lazurnaya Hotel, Sochi, Russia

Conference

Leading event for forex professionals

FX Week Asia, 10 September 2015

Singapore

Conference

Platform for FX professionals to discuss strategies and technologies in FX trading

2015 China Forex Expo, 11-13 September 2015

Shanghai Mart, Shanghai, China

Middle East Banking Innovation Summit, 14-15 September 2015

The Palm Resort&Spa, Dubai, UAE

The All Stars of Options Trading, New York, USA 15-16 September 2015 Derivative Operations, 28-29 September 2015

Raddison Blue Hotel, London, UK

Finance & Investment Central & East Europe, 29 September 2015

Raddison Blue Centrum Hotel, Warsaw, Poland

80 FX TRADER MAGAZINE July - September 2015

Training course

Expo

A three-day event for traders, investors, affiliates, IBs and brokers

Conference

Discussions on the latest trends in banking innovation

Conference

Event dedicated to options trading

Training course Conference

Training course on derivatives trading Brings together key senior executives from the financial sector


INTERNATIONAL DATA

FX

FX SPOT MONITOR Country

Flag

USD Spot

Last vs USD

% Ch 3M

% Ch 12M

12mth High

12mth Low

Eurozone

EUR=

1.1169

1.8%

-17.9%

1.3691

1.0493

UK

GBP=

1.5729

5.7%

-7.5%

1.7163

1.4629

Japan

JPY=

123.94

3.7%

21.4%

125.61

101.15

Switzerland

CHF=

0.9341

-2.7%

4.4%

1.02

0.86

Australia

AUD=

0.7732

-1.4%

-17.6%

0.9496

0.7589

Canada

CAD=

1.2324

-1.5%

14.6%

1.2788

1.0631

New Zealand

NZD=

0.6847

-10.0%

-21.3%

0.882

0.6847

Sweden

SEK=

8.259

-2.7%

23.1%

8.8211

6.6822

Norway

NOK=

7.8233

-0.2%

27.9%

8.31

6.111

Iceland

ISK=

132.26

-2.0%

16.3%

140.18

112.43

Israel

ILS=

3.7558

-4.7%

9.2%

4.0452

3.4007

South Africa

ZAR=

12.167

2.7%

14.3%

12.5755

10.5035

Egypt

EGP=

7.625

-0.1%

6.6%

7.63

7.15

Saudi Arabia

SAR=

3.7498

0.0%

0.0%

3.7595

3.7465

Czech Rep.

CZK=

24.334

-2.4%

20.8%

25.985

20.037

Poland

PLN=

3.724

0.0%

21.7%

3.948

3.0212

Hungary

HUF=

277.07

1.7%

23.4%

290.95

224.48

Russia

RUB=

53.78

-6.2%

56.1%

69.0825

33.7115

Turkey

TRY=

2.6779

3.6%

25.2%

2.7509

2.0859

China

CNY=

6.2066

-0.1%

-0.3%

6.2741

6.1107

Hong Kong

HKD=

7.752

0.0%

0.0%

7.7706

7.7495

Singapore

SGD=

1.3407

-2.2%

7.4%

1.3924

1.2362

Taiwan

TWD=

30.877

-1.1%

3.0%

31.995

29.839

India

INR=

63.5968

1.9%

5.7%

64.1557

59.6875

South Korea

KRW=

1105.73

0.4%

8.3%

1137.12

1008.8

Thailand

THB=

33.76

3.9%

4.0%

33.9

31.74

Malaysia

MYR=

3.7376

2.0%

16.0%

3.766

3.1465

Indonesia

IDR=

13250

2.1%

10.7%

13374

11495

Philippines

PHP=

45.084

0.8%

2.8%

45.27

43.2

Mexico

MXN=

15.3963

2.7%

18.6%

15.7035

12.9119

Brazil

BRL=

3.0748

-3.9%

38.0%

3.2915

2.1934

Chile

CLP=

632.9

2.0%

13.9%

640.79

548.14

Venezuela

VEB=

2150

0.0%

0.0%

2150

2150

Colombia

COP=

2550.53

0.4%

35.5%

2685.5

1837.5

Levels Date: 23-Jun-15

Source: Thomson Reuters

FX TRADER MAGAZINE July - September 81


FX

INTERNATIONAL DATA

CENTRAL BANKS Country

Flag

Central Bank

Rate Name

Actual

Previous

USA

FED

Fed funds

-0.25

-0.25

Eurozone

ECB

Refi

2.00

2.00

UK

BOE

Bank Repo

0.75

0.75

Japan

BOJ

O/N Call

3.25

3.50

Switzerland

SNB

3 mth Libor

-0.25

-0.25

Australia

RBA

Cash

1.00

1.25

Canada

BOC

O/N Funding

5.75

5.25

New Zealand

RBNZ

Cash

0.1

0.10

Sweden

Riksbank

Repo

5.75

5.75

Norway

Norges Bank

Depo

9.75

9.75

Iceland

CBI

Policy

0.05

0.05

Israel

BOI

Short Term Lending

1.50

1.50

South Africa

Reserve Bank

Repurchase

1.5

1.65

Egypt

CBE

O/N Depo

8.25

8.25

Czech Rep.

CNB

2 Week Repo

7.5

7.50

Poland

NBP

28 Day Intervention

6.00

6.56

Hungary

MNB

2 Week Depo

1.50

1.50

Russia

CBR

Refinancing

7.25

7.50

Turkey

TCMB

O/N Borrowing

1.49

1.49

China

PBC

1 Year Lending

1.75

1.75

Taiwan

CBC

Discount

7.50

7.50

India

RBI

Repo

4.00

4.00

South Korea

BOK

O/N Call

3.00

3.00

Thailand

BOT

Repo

13.75

13.25

Indonesia

BI

BI

3.0

3.00

Philippines

BSP

Repo

4.0

4.00

Mexico

BDM

Target

3.00

3.00

Brazil

BCB

Selic

12.75

12.25

Chile

CBC

MPR

3.00

3.00

Levels Date: 23-Jun-15

82 FX TRADER MAGAZINE July - September 2015

Source: Thomson Reuters


INTERNATIONAL DATA

FX

ECONOMIC DATA GDP

CPI

Industrial Production

Unemployment

y-o-y

y-o-y

y-o-y

level

USA

2.39

0.0

-0.2

5.5

Eurozone

1.0

0.3

0.1

11.1

UK

2.4

0.1

0.4

5.5

Japan

0.6

0.3

1.2

3.3

Switzerland

1.1

-1.2

NA

3.3

Australia

2.3

1.3

NA

6.0

Canada

-0.6

0.9

NA

6.8

New Zealand (participation)

2.6

0.1

NA

69.6

Sweden

2.5

0.1

2.0

8.0

Norway

0.2

2.1

-2.9

2.7

South Africa

2.1

4.6

-2.00

26.4

Czech Rep.

4.2

0.7

4.3

6.4

Poland

3.6

-0.90

2.8

10.8

Hungary

3.6

0.5

6.30

7.6

Russia

-4.2

0.4

5.50

5.6

China

7

1.2

6.1

NA

India

7.3

NA

4.1

NA

Mexico

2.5

0.12

1.10

4.31

Brazil

-1.6

0.74

-7.60

6.40

Levels Date: 23-Jun-15

Source: Thomson Reuters

FX POLL 3 Month

Days since Poll

Poll Median

Poll Min

Poll Max

Poll Mean

Std Deviation

Spot@Poll Date

EurUsd

19

1.070

1.000

1.1600

1.0697

0.0410

1.1237

GbpUsd

19

1.510

1.400

1.6300

1.5089

0.0465

1.5364

AudUsd

19

0.750

0.680

0.8400

0.7586

0.0277

0.7687

UsdJpy

19

124.00

118.00

129.00

123.66

2.4800

123.90

UsdChf

19

0.970

0.910

1.0600

0.9798

0.0411

0.9333

UsdCad

19

1.250

1.170

1.3100

1.2503

0.0343

1.2502

EurJpy

19

131.99

123.42

149.64

132.16

5.2900

139.70

EurChf

19

1.0500

0.980

1.1000

1.0455

0.0254

1.0490

EurGbp

19

0.7092

0.6667

0.7616

0.7085

0.0175

0.7310

GbpJpy

19

186.92

168.94

207.69

186.58

6.7300

191.06

1 Year

Days since Poll

Poll Median

Poll Min

Poll Max

Poll Mean

Std Deviation

Spot@Poll Date

EurUsd

19

1.0400

0.9200

1.1900

1.0477

0.0670

1.1237

GbpUsd

19

1.5100

1.2900

1.6700

1.507

0.0826

1.5364

AudUsd

19

0.7313

0.6500

0.8700

0.7391

0.0466

0.7687

UsdJpy

19

127.00

118.00

135.00

126.86

3.7100

123.90

UsdChf

19

1.0200

0.8800

1.2200

1.0244

0.0631

0.9333

UsdCad

19

1.2500

1.1000

1.39

1.2519

0.0576

1.2502

EurJpy

19

132.45

114.68

153.51

132.48

7.7500

139.70

EurChf

19

1.0800

0.9500

1.1500

1.0686

0.0485

1.0490

EurGbp

19

0.6929

0.6259

0.7984

0.6946

0.0335

0.7310

GbpJpy

19

190.39

163.83

216.48

191.14

11.5000

191.06

Levels Date:

23-Jun-15

Source: Thomson Reuters FX TRADER MAGAZINE July - September 83


FX

INTERNATIONAL DATA

MARKETS VIEW Stock Indices

Last

% Ch 6M

% Ch 12M

Commodities Gold

Last

% Ch 6M

% Ch 12M

1175.51

0%

-11%

MSCI World

1797.81

4%

3%

Silver

15.81

1%

-24%

Dow Jones Ind.

18144.07

1%

7%

Brent DTD

60.21

3%

-47%

WTI

61

11%

-43%

S&P 500

2230.512

12%

32%

Nasdaq 100

4548.74

6%

20%

Eurostoxx 50

3629.58

15%

11%

Bonds

UK FTSE 100

6856.87

4%

1%

5Y Euro

Last

% Ch 6M

% Ch 12M

0.148

147%

-62%

Dax

11539.46

17%

16%

10Y Euro

0.867

44%

-35%

Cac 40

5058.31

19%

12%

10Y US Treasury

2.409

12%

-8%

FT MIB

23591.11

24%

9%

30Y US Treasury

3.201

17%

-7%

Swiss SMI

9131.02

1%

6%

10Y UK Gilt

2.111

15%

-23%

Nikkei 225

20868.03

18%

36%

10Y CH Govt Bond

0.169

-53%

-76%

Australia AORD

5672.744

5%

4%

HK Hang Seng

27404.97

17%

20%

Money Markets

Last

% Ch 6M

% Ch 12M

Shanghai Comp.

4690.0836

50%

132%

US 6M Depo

0.4438

25%

36%

Singapore StraitT.

3354.96

1%

3%

EUR 6M Depo

0.0480

-73%

-84%

India BSE30

27916.86

1%

12%

GBP 6M Depo

0.7284

7%

4%

Brazil Bovespa

53772.43

7%

-1%

CHF 6M Depo

-0.7230

4255%

-1133%

965.06

19%

-30%

JPY 6M Depo

0.1364

-6%

Russia RTSI Levels Date: 23-Jun-15

-22% Source: Thomson Reuters

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84 FX TRADER MAGAZINE July - September 2015


Economic Calendar

FX

JULY, AUGUST, SEPTEMBER 2015 GMT Time

8:30am

July

Wed 1

Thu 2

Fri 3

Mon 6

Tue 7

Wed 8

Thu 9

Fri 10

Tue 14

Wed 15

GBP

Average Earnings Index 3m/y

1:00am

CNY

Manufacturing PMI

8:30am

GBP

Claimant Count Change

1:30am

AUD

Building Approvals m/m

12:30pm

CAD

Manufacturing Sales m/m

1:45am

CNY

HSBC Final Manufacturing PMI

12:30pm

USD

PPI m/m

2:00pm

CAD

BOC Monetary Policy Report

2:00pm

CAD

BOC Rate Statement

8:30am

GBP

Manufacturing PMI

12:15pm

USD

ADP Non-Farm Employment Change

Wed 15

2:00pm

USD

ISM Manufacturing PMI

2:00pm

CAD

Overnight Rate

Tentative

NZD

GDT Price Index

Tentative

NZD

GDT Price Index

12:30pm

USD

Non-Farm Employment Change

3:15pm

CAD

BOC Press Conference

12:30pm

USD

Unemployment Claims

11:45am

EUR

Minimum Bid Rate

12:30pm

USD

Unemployment Rate

1:30am

AUD

Retail Sales m/m

1:30am

AUD

Trade Balance

8:30am

GBP

Services PMI

2:00pm

CAD

Ivey PMI

12:30pm

Thu 16

Fri 17

12:30pm

EUR

ECB Press Conference

12:30pm

USD

Unemployment Claims

2:00pm

USD

Philly Fed Manufacturing Index

12:30pm

CAD

Core CPI m/m

USD

Building Permits

2:00pm

USD

ISM Non-Manufacturing PMI

12:30pm

USD

CPI m/m

10:00pm

NZD

NZIER Business Confidence

12:30pm

USD

Core CPI m/m

1:30am

AUD

NAB Business Confidence

2:00pm

USD

Prelim UoM Consumer Sentiment

4:30am

AUD

Cash Rate

1:45am

CNY

HSBC Flash Manufacturing PMI

4:30am

AUD

RBA Rate Statement

7:00am

EUR

French Flash Manufacturing PMI

8:30am

GBP

Construction PMI

7:30am

EUR

German Flash Manufacturing PMI

8:30am

GBP

Manufacturing Production m/m

12:30pm

CAD

Wholesale Sales m/m

12:30pm

CAD

Trade Balance

1:30am

AUD

Monetary Policy Meeting Minutes

12:30pm

USD

Trade Balance

8:00am

EUR

German Ifo Business Climate

12:30pm

CAD

Building Permits m/m

1:30am

AUD

CPI q/q

12:30pm

GBP

Annual Budget Release

6:00pm

USD

FOMC Meeting Minutes

1:30am

AUD

Employment Change

1:30am

AUD

Unemployment Rate

1:30am

CNY

CPI y/y

Tentative

CNY

Trade Balance

11:00am

GBP

Official Bank Rate

Mon 20

Tue 21

Wed 22

Thu 23

8:30am

GBP

MPC Official Bank Rate Votes

9:00pm

NZD

Official Cash Rate

9:00pm

NZD

RBNZ Rate Statement

1:00am

NZD

ANZ Business Confidence

Tentative

JPY

Monetary Policy Statement

Tentative

JPY

BOJ Press Conference

8:30am

GBP

Retail Sales m/m

Tentative

GBP

MPC Rate Statement

12:30pm

CAD

Core Retail Sales m/m

12:30pm

USD

Unemployment Claims

12:30pm

USD

Unemployment Claims

12:30pm

CAD

Employment Change

12:30pm

CAD

Unemployment Rate

8:30am

GBP

CPI y/y

9:00am

EUR

German ZEW Economic Sentiment

12:30pm

USD

Core Retail Sales m/m

12:30pm

USD

Retail Sales m/m

10:45pm

NZD

CPI q/q

2:00am

CNY

GDP q/y

2:00am

CNY

Industrial Production y/y

Mon 27 Tue 28 Wed 29

Thu 30

12:30pm

USD

Core Durable Goods Orders m/m

10:45pm

NZD

Trade Balance

8:30am

GBP

Prelim GDP q/q

2:00pm

USD

CB Consumer Confidence

6:00pm

USD

FOMC Statement

6:00pm

USD

Federal Funds Rate

1:30am

AUD

Building Approvals m/m

12:30pm

USD

Advance GDP q/q

12:30pm

USD

Unemployment Claims

FX TRADER MAGAZINE July - September 85


FX

Fri 31

Economic Calendar

1:30am

AUD

12:30pm

CAD

PPI q/q GDP m/m August

Sat 1 Mon 3

Tue 4

Wed 5

Thu 6

Fri 7

Sun 9 Tue 11

Wed 12

1:00am

CNY

9:30am Wed 12

Manufacturing PMI

1:45am

CNY

HSBC Final Manufacturing PMI

8:30am

GBP

Manufacturing PMI

Thu 13

ISM Manufacturing PMI

GBP

BOE Gov Carney Speaks

9:30am

GBP

BOE Inflation Report

10:45pm

NZD

Retail Sales q/q

11:50pm

JPY

Prelim GDP q/q

12:30pm

USD

Core Retail Sales m/m

12:30pm

USD

Retail Sales m/m

12:30pm

USD

Unemployment Claims

6:00am

EUR

German Prelim GDP q/q

12:30pm

CAD

Manufacturing Sales m/m

12:30pm

USD

PPI m/m

2:00pm

USD

1:30am

AUD

Retail Sales m/m

1:30am

AUD

Trade Balance

4:30am

AUD

Cash Rate

4:30am

AUD

RBA Rate Statement

2:00pm

USD

Prelim UoM Consumer Sentiment

2:00pm

CAD

Ivey PMI

1:30am

AUD

Monetary Policy Meeting Minutes

Tentative

NZD

GDT Price Index

10:45pm

NZD

Employment Change q/q

10:45pm

NZD

Unemployment Rate

8:30am

GBP

12:15pm

Fri 14

8:30am

GBP

CPI y/y

12:30pm

USD

Building Permits

Tentative

NZD

GDT Price Index

Services PMI

3:00am

NZD

Inflation Expectations q/q

USD

ADP Non-Farm Employment Change

8:30am

GBP

MPC Official Bank Rate Votes

12:30pm

CAD

Trade Balance

12:30pm

USD

CPI m/m

12:30pm

USD

Trade Balance

USD

Core CPI m/m

2:00pm

USD

ISM Non-Manufacturing PMI

6:00pm

USD

FOMC Meeting Minutes

1:30am

AUD

Employment Change

1:45am

CNY

HSBC Flash Manufacturing PMI

1:30am

AUD

Unemployment Rate

Tentative

JPY

Monetary Policy Statement

8:30am

GBP

Manufacturing Production m/m

Tentative

JPY

BOJ Press Conference

11:00am

GBP

Official Bank Rate

7:00am

EUR

French Flash Manufacturing PMI

Tentative

GBP

MPC Rate Statement

7:30am

EUR

German Flash Manufacturing PMI

12:30pm

USD

Unemployment Claims

8:30am

GBP

Retail Sales m/m

1:30am

AUD

RBA Monetary Policy Statement

12:30pm

CAD

Wholesale Sales m/m

Tentative

CNY

Trade Balance

12:30pm

USD

Unemployment Claims

8:30am

GBP

Construction PMI

2:00pm

USD

Philly Fed Manufacturing Index

12:30pm

CAD

Building Permits m/m

12:30pm

CAD

Employment Change

12:30pm

CAD

Unemployment Rate

12:30pm

USD

Non-Farm Employment Change

12:30pm

USD

Unemployment Rate

1:30am

CNY

CPI y/y

1:30am

AUD

5:30am

CNY

9:00am

EUR

German ZEW Economic Sentiment

8:30am

GBP

Average Earnings Index 3m/y

8:30am

GBP

Claimant Count Change

Tue 18

Wed 19

Thu 20

12:30pm

CAD

Core CPI m/m

12:30pm

CAD

Core Retail Sales m/m

Mon 24

8:00am

EUR

German Ifo Business Climate

Tue 25

2:00pm

USD

CB Consumer Confidence

12:30pm

USD

Core Durable Goods Orders m/m

10:45pm

NZD

Trade Balance

NAB Business Confidence

1:30am

AUD

Private Capital Expenditure q/q

Industrial Production y/y

8:30am

GBP

Second Estimate GDP q/q

12:30pm

USD

Prelim GDP q/q

12:30pm

USD

Unemployment Claims

1:00am

NZD

ANZ Business Confidence

86 FX TRADER MAGAZINE July - September 2015

Fri 21

Wed 26

Thu 27

Mon 31


Economic Calendar September 1:00am

Tue 1

Thu 3

Fri 4

Mon 7

Tue 8

Wed 9

Fri 11

PPI m/m

USD

Prelim UoM Consumer Sentiment

HSBC Final Manufacturing PMI

1:30am

AUD

Monetary Policy Meeting Minutes

Cash Rate

9:00am

EUR

German ZEW Economic Sentiment

12:30pm

USD

Core Retail Sales m/m

12:30pm

USD

Retail Sales m/m

Tentative

NZD

GDT Price Index

8:30am

GBP

CPI y/y

12:30pm

CAD

Manufacturing Sales m/m

12:30pm

USD

CPI m/m Core CPI m/m

1:45am

CNY

4:30am

AUD

4:30am

AUD

RBA Rate Statement

8:30am

GBP

Manufacturing PMI

12:30pm

CAD

GDP m/m

2:00pm

USD

ISM Manufacturing PMI

NZD

GDT Price Index

1:30am

AUD

Building Approvals m/m

Fri 11

Tue 15

Wed 16

AUD

GDP q/q

12:30pm

USD

12:15pm

USD

ADP Non-Farm Employment Change

10:45pm

NZD

GDP q/q

1:30am

AUD

Retail Sales m/m

7:30am

CHF

Libor Rate

1:30am

AUD

Trade Balance

7:30am

CHF

SNB Monetary Policy Assessment

8:30am

GBP

Services PMI

8:30am

GBP

Average Earnings Index 3m/y

11:45am

EUR

Minimum Bid Rate

8:30am

GBP

Claimant Count Change

12:30pm

CAD

Trade Balance

12:30pm

USD

Building Permits

12:30pm

EUR

ECB Press Conference

12:30pm

USD

Unemployment Claims

12:30pm

USD

Trade Balance

2:00pm

USD

Philly Fed Manufacturing Index

12:30pm

USD

Unemployment Claims

6:00pm

USD

FOMC Economic Projections

2:00pm

CAD

Ivey PMI

6:00pm

USD

FOMC Statement

2:00pm

USD

ISM Non-Manufacturing PMI

6:00pm

USD

Federal Funds Rate

12:30pm

CAD

Employment Change

6:30pm

USD

FOMC Press Conference

12:30pm

CAD

Unemployment Rate

8:30am

GBP

Retail Sales m/m

12:30pm

USD

Non-Farm Employment Change

12:30pm

USD

Unemployment Rate

Thu 17

Fri 18 Mon 21

12:30pm

CAD

Core CPI m/m

12:30pm

CAD

Wholesale Sales m/m

1:45am

CNY

HSBC Flash Manufacturing PMI

7:00am

EUR

French Flash Manufacturing PMI

7:30am

EUR

German Flash Manufacturing PMI

Tentative

JPY

Monetary Policy Statement

Tentative

JPY

BOJ Press Conference

8:00am

EUR

German Ifo Business Climate

GBP

MPC Official Bank Rate Votes

8:30am

GBP

Construction PMI

1:30am

AUD

NAB Business Confidence

Tentative

CNY

Trade Balance

8:30am

GBP

Manufacturing Production m/m

9:00am

GBP

Inflation Report Hearings

1:30am

CNY

CPI y/y

12:30pm

CAD

Building Permits m/m

8:30am

2:00pm

CAD

BOC Rate Statement

12:30pm

2:00pm

CAD

Overnight Rate

9:15am

EUR

Targeted LTRO

9:00pm 9:00pm

NZD NZD

Official Cash Rate RBNZ Press Conference

12:30pm

USD

Core Durable Goods Orders m/m

12:30pm

USD

Unemployment Claims

9:00pm

NZD

RBNZ Rate Statement

Fri 25

12:30pm

USD

Final GDP q/q

1:30am

AUD

Employment Change

Mon 28

9:45pm

NZD

Trade Balance

AUD

Unemployment Rate

Tue 29

1:30am Thu 10

USD

2:00pm

Manufacturing PMI

1:30am Wed 2

12:30pm

CNY

Tentative

FX

11:00am

GBP

Tue 22

Wed 23

Thu 24

Official Bank Rate

Tentative

GBP

MPC Rate Statement

12:30pm

USD

Unemployment Claims

5:30am

CNY

Industrial Production y/y

Wed 30

CAD

Core Retail Sales m/m

2:00pm

USD

CB Consumer Confidence

12:00am

NZD

ANZ Business Confidence

8:30am

GBP

Current Account

12:15pm

USD

ADP Non-Farm Employment Change

12:30pm

CAD

GDP m/m

FX TRADER MAGAZINE July - September 87


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