Currency Trader Magazine 2011-08
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SORTING THROUGH THE EURO DILEMMA P. 16Strategies, analysis, and news for FX traders
August 2011 Volume 8, No. 8
The Aussie dollar bull: Running on empty or refueling? p. 6
Why doesnt the Euro do what its supposed to? p. 10
Hong Kong dollar: Still made in Japan p. 24
Trading the CMI: A trend/range hybrid strategy p. 20
Contributors .................................................4 Global Markets Aussie dollar stalls .....................................6The Australian currency has long since rallied pastitspre-financialcollapsehigh,butsome analyststhinkitsbullishrunmayhaverunoutof fuelforthetimebeing. By Currency Trader Staff
Currency Futures Snapshot ................ 31 . International Markets............................ 32N umbersfromtheglobalforex,stock,and interest-ratemarkets.
On the Money Puzzles and perversity in FX .................. 10 avethefinancialmarketsbeenbesottedby H gazingintothestarryeyesoftheEuro? By Barbara Rockefeller
The Euros significance ........................... 16Despiteallthetalkofcountriesleavingor beingthrownoutoftheEU,Europereallyhas noPlanB. By Marc Chandler and Rab Jafri
Looking for an advertiser?Clickonthecompany nameforadirectlinktothe adinthismonthsissue. eSignal FXCM Price Futures Group World Research Group
Trading Strategies Tackling trending and ranging markets with CMI ..................................... 20Atwo-partsystemusesasimpleindicatorto triggerbothtrendandcountertrendtrades By Daniel Fernandez
Advanced Concepts Hong Kong dollar still made in Japan.... 24ThelegacyofJapansglorydaysandthe exceptionalcaseoftheHongKongdollar By Howard L. Simons
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CONTRIBUTORSq Howard Simons is president of Rosewood Trading Inc. and a strategist for Bianco Research. He writes and speaks frequently on a wide range of economic and financial market issues.ApublicationofActiveTrader
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Editor-in-chief: Mark Etzkorn firstname.lastname@example.org Managing editor: Molly Goad email@example.com Contributing editor: HowardSimons
q Barbara Rockefeller (www.rts-forex.com) is an international economist with a focus on foreign exchange. She has worked as a forecaster, trader, and consultant at Citibank and other financial institutions, and currently publishes two daily reports on foreign exchange. Rockefeller is the author of Technical Analysis for Dummies, Second Edition (Wiley, 2011), 24/7 Trading Around the Clock, Around the World (John Wiley & Sons, 2000), The Global Trader (John Wiley & Sons, 2001), and How to Invest Internationally, published in Japan in 1999. A book tentatively titled How to Trade FX is in the works. Rockefeller is on the board of directors of a large European hedge fund. q Daniel Fernandez is an active trader with a strong interest in calculus, statistics, and economics who has been focusing on the analysis of forex trading strategies, particularly algorithmic trading and the mathematical evaluation of long-term system profitability. For the past two years he has published his research and opinions on his blog Reviewing Everything Forex, which also includes reviews of commercial and free trading systems and general interest articles on forex trading (http://mechanicalforex.com). Fernandez is a graduate of the National University of Colombia, where he majored in chemistry, concentrating in computational chemistry. He can be reached at firstname.lastname@example.org. q Marc Chandler (email@example.com) is the head of global foreign exchange strategies at Brown Brothers Harriman and an associate professor at New York Universitys School of Continuing and Professional Studies. Chandler has spent more than 20 years analyzing, writing, and speaking about global capital markets. He has worked for several consulting firms and banks as well as a hedge fund in the early 1990s. Chandler appears regularly on CNBC and Bloomberg Television. He is the author of Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange (Bloomberg Press, 2009). q Rab Jafri has several years of capital markets experience with a focus on forex. Currently, he works for one of the largest banks in New York, covering risk and controls for the FX derivatives desk. Prior to this role, Jafri worked with FXCM, an online foreign exchange broker in New York, writing market commentary for the FX and commodities research desk. Jafri also spent several years with Terra K Partners, a financial advisory firm specializing in foreign exchange markets, writing monthly articles as well as building several different FX financial products. Jafri has a bachelors degree in economics and international relations from The Ohio State University and a masters degree from The New School University in global finance.August2011CURRENCY TRADER
Contributing writers: BarbaraRockefeller, MarcChandler,ChrisPeters Editorial assistant and webmaster:KeshaGreen firstname.lastname@example.org
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Volume8,Issue8.CurrencyTraderispublishedmonthlybyTechInfo,Inc., POBox487,LakeZurich,Illinois60047.Copyright2011TechInfo,Inc. Allrightsreserved.Informationinthispublicationmaynotbestoredor reproducedinanyformwithoutwrittenpermissionfromthepublisher. TheinformationinCurrencyTradermagazineisintendedforeducational purposesonly.Itisnotmeanttorecommend,promoteorinanywayimply theeffectivenessofanytradingsystem,strategyorapproach.Tradersare advisedtodotheirownresearchandtestingtodeterminethevalidityofa tradingidea.Tradingandinvestingcarryahighlevelofrisk.Pastperformancedoesnotguaranteefutureresults.
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Aussie dollar stallsThe Australian currency has long since rallied past its pre-financial collapse high, but some analysts think its bullish run may have run out of fuel for the time being.
BY CURRENCY TRADER STAFF
Long the darling of hot-money FX traders, the Australian dollar (AUD) has lost some of its luster in recent months as its impressive rally phase has sputtered into a sideways range (Figure 1). Indeed, it appears to be almost a changing of the guard, with Aussie bulls handing over the baton to the New Zealand dollar (NZD), or kiwi, which has outperformed the AUD in recent months. FIGURE 1: CHANGING OF THE GUARD
Despite boasting the highest central bank lending rate among major industrialized nations at 4.75 percent, the AUD has lost some attractiveness, although any bearish sentiment surrounding the recent consolidation must be put in context considering the currency was, as of Aug. 2, just a little below its highest level vs. the U.S. dollar in nearly 30 years (Figure 2). Nonetheless, some of the catalysts that have propelled the Aussie dollar higher over the past two years may be absent in the relatively near future, making sizable new gains more difficult than they have been in the recent past.
In recent months momentum seems to have swung away from the Aussie dollar (top) toward the New Zealand dollar (bottom).Source for all charts: TradeStation
After a lengthy, wide-ranging consolidation between November 2010 to mid-March 2011, the Aussie/U.S. dollar (AUD/USD) pair jumped more than 13 percent (low to high) over the next six weeks, from around .9703 to 1.1011 on May 2. The advance has stalled since then amid a bevy of factors that have dampened global risk appetite. Over the past three months, Aussie/dollar has largely traded within the 1.0400-1.0800 range, although it pushed to a new high at 1.1079 on July 27 before turning lower again. The flare-up in the European sovereign-debt crisis, questions about Chinese growth prospects as theOctober2010CURRENCY TRADER August2011CURRENCY
authorities continued to tighten monetary policy, and a more general soft patch in the global economy led to softer demand for risk assets globally, including the Australian dollar, says Stephen Roberts, chief economist, Australia, at Nomura Australia. The kiwis recent surge has been more a matter of perceived upside potential on the interest-rate than immediate edge. The New Zealand dollar has been on fire for the past two months, says Greg Anderson, director FX strategy at CitiFX. A lot of the hot money has switched from long Australia to long Kiwi. Australia has the highest rates in the G10 countries, but they are parked there. New Zealand has the second-highest rates (2.5 percent) and they are in the process of signalling further rate hikes.
Australia has long been a solid economic performer, bolstered by its close trade relationship with China. A major commodity exporter, the bulk of Australian exports head to China or other Asian destinations. Chinas voracious appetite for raw commodities prices for which have risen in recent years has underpinned Australias growth prospects. Australia has significantly benef