Financial Risks

To estimate a role of a stock exchange in insurance of risks, we shall define their basic kinds. As is known, the financial risk as those is reflection of uncertainty and the unpredictability of results of activity caused by changes of the prices for the goods, rates of exchange, interest rates, and also political decisions. In this connection it is possible to allocate:
Risk of the party under the transaction. This risk for creditors acts in the form of risk of the borrower, for suppliers of the goods - in the form of risk payless, for buyers - in the form of risk of non-delivery;
Risk of the interest rate. The percentage risk for the borrower arises owing to possible falling the market interest rate on the involved resources that entails increase of cost of the loan. The percentage risk for the creditor arises because of possible growth of the market interest rate on the placed monetary resources, consequence of that is reduction of the percentage income of operation;
Price risk which is expressed in an opportunity of adverse change of the prices in the future. For buyers of the goods it is a question of possible falling the prices in comparison with a today's level, whereas for sellers - on the contrary;
Currency risk. The currency risk is a risk of revaluation of national currency in which the economic result of activity is estimated. As a subject of currency risk own means and profit of the economic agent serve;
Risk of liquidity. Involving extra means, the enterprise always faces to risk to appear unable to satisfy requirements of creditors and to find out the insolvency. In it the risk of liquidity is expressed, its size is defined by structure of passives and actives of the enterprise;
System risk. This risk named also country, consists that at adverse political, economic and legislative changes the investor can lose both the income, and the capital. The risk is defined first of all by a condition of economy, the size of a public debt and political stability in the country. The system risk, as well as risk of the borrower, is estimated by means of system of the international ratings (ratings of agencies Standard both Poor's and Moody's), appropriated in case of an estimation of system risk to the governments. However not all the governments have this rating. Russia where the system risk is very high and remains to those in the near future, only recently has received low enough rating. The estimation of this risk in the internal and world financial markets is reflected in the low price and high profitableness of the Russian state securities in US dollars (spread under the Russian eurobonds in relation to T-bonds makes about 400 basic items), and also in higher level of profitability in a home market in comparison with world. However the internal investor with the limited opportunities international diversification an investment portfolio first of all should concentrate on how to operate means in a home market.
The system of relationships of cause and effect in economy transforms one kind of risk to another. As an example the oil market where dynamics of the prices in many respects is defined by political decisions of the countries-exporters can serve. Thus, oil futures quoted in the advanced industrial countries are futures for a condition of the international attitudes between the advanced industrial countries and the countries - exporters of oil, transforming political risk in price.
Transformation of political risk in currency occurs in the Russian currency market where the basic operator is the Central bank. Dynamics of a rate of exchange depends on its actions and from political decisions of the government and, hence, the future currency market.

What is currency market FOREX

Market Forex (FOReign EXchange market) - the interbank market which has generated in 1971 when international trade has passed from the fixed exchange rates to floating. The major principle on Forex consists in an exchange of one currency for another. Thus the rate of one currency concerning another is defined very simply: a supply and demand – an exchange which both parties agree.
The currency market develops of two basic components: the market of exchange trade and out of exchange the currency market which actually is interbank. On it it is necessary the basic volume of the operations which are carried out on FOREX.
This market on volume surpasses all the others. The daily volume of transactions in market Forex is estimated in 1-3 billion dollars a day, and it makes from one up to three annual budgets of the USA. For comparison: the day time turn of the American stock exchange of securities makes 300 billion dollars, the joint-stock market - 10 billion dollars. Half a year is required to the New York joint-stock stock exchange to reach a daily turn of the currency market.
The future and share markets have one more essential difference and restriction: trade interrupts in the end of day and renews only in the morning of next day. Thus if you trade in the Russian market, and some events essential to the market have occured in the USA in the morning opening of the market can appear completely not such as you expected.
Forex is not "market" in traditional sense of this word. It does not have uniform center, it has no concrete place of trade, as, for example, currency futures. Trade occurs by phone and through terminals of a computer simultaneously in hundreds banks all over the world. Hundred millions dollars everyone are on sale and bought some seconds, as makes an essence of so-called currency trading.
For reception of the information on a condition of the financial markets in a mode of real time, and also financial and economic news the international information systems, such, as, for example, Tenfore are used.
Forex unites four regional markets: Asian, European, American, Australian. Exchange operations do not stop in current of all working week, the market works 24 hours per day. Practically in each of time zones there are the dealers, wishing to quote currency. The relative calm in market Forex is observed only from 23:00 up to 4:00 hours Moscow time. It is connected by that 4 o'clock in the morning - opening of the Tokyo stock exchange and 23 hours closing New York.
The basic participants of the currency market are: the central banks, commercial banks, currency stock exchanges, investment funds, exporters and importers, the broker companies, private persons.
The prominent features of the market attractive both for beginners, and for professional investors:
Liquidity: the market operates with huge monetary weights and gives free rein at opening or closing of a position of any volume practically under the market quotation existing at present;
Availability: an opportunity to trade 24 hours per day, the participant of the market does not test necessity to wait to react to this or that event;
Flexible regulation of system of the organization of trade: in the currency market the position can be opened on in advance target date at will of the investor that allows to plan in advance on time the future activity;
Cost: market Forex traditionally has no commission charges, except for a natural market difference bid/ask (between by purchase and by the sale, given to the trader bank);
Unambiguity of quotations: because of high liquidity of the market the majority of sales can be executed on a uniform market price that allows to avoid a problem of the instability existing in futures and other currency investments where can be during one time and for a determined price the limited quantities of currency are sold only;
Orientation of the market: movement of currencies has quite certain orientation which can be tracked for long enough interval of time. Each concrete currency shows only to it characteristic changes in time that gives investment managers of an opportunity of a manipulation in market FOREX.

MANAGEMENT of the CAPITAL

Management of the capital and trading tactics
Conclude the transaction in a direction of the intermediate tendency.
At the ascending tendency buys on short-term falling of the prices, at descending sell on short-term positions.
Keep profitable positions as it is possible longer, in time close unprofitable.
Use protective stop-orders for restriction of possible losses.
Do not give in to emotions. Make the plan of the work in the market.
Having made the plan, follow it.
Do not forget about principles of efficient control the capital.
Diversification the portfolio, but do not forget about "golden mean".
Establish a parity of possible profit and losses it is not less, than 3:1.
Adding positions (building a pyramid), adhere to following rules:
The quantity of positions at each subsequent level should be less, than on previous;
Add only to profitable positions;
Never add to unprofitable positions;
Have stop-order as it is possible more close to a break-even sales level (break-even point).
Never bring an additional guarantee payment for maintenance of unprofitable positions, it is better to keep residual means.
To avoid the requirement about entering an additional guarantee payment, watch that the rest of the enclosed means was not less than 10 % from the ordered size of the mortgage.
First close unprofitable positions, then profitable.
If you are not engaged over short-term trade, never accept decisions directly during the tenders; it is better to do it, when the markets are closed.
Analyzing a situation, go from the long-term schedule to short-term.
Use inside day time schedules for more exact definition of the moment of an input in the market and an output from it.
Master subtleties usual " between day time " trade before to try to be engaged inside of day time trade.
Try to not listen to a voice of so-called worldy wisdom, do not overestimate advice of experts with which the press dazzles.
Accustom itself to not be afraid to remain in minority. Anything terrible in it is not present; when your estimation is true, the majority of other participants of the market, as a rule, with it will disagree.
Skills of the technical analysis come in due course. Be typed experience gradually, not forgetting a saying: " the Century live, a century study ".
Aspire to simplicity: complex analytical tools are not always effective.

The general remarks on management of the capital

The total sum of the enclosed means should not exceed 50 % of the general capital.
The total sum of the means put in one market, cannot exceed 10-15 % of the general capital.
The norm of risk for each market, in which trader puts the means, should not exceed 5 % of a total sum of its capital.
The total sum of guarantee payments, deposited at opening a position on one group of the markets, should make no more than 20-25 % of the general capital.

Technical analysis

Substantive provisions
Essence of the technical analysis.
The technical analysis as a whole can be defined, how a method of forecasting of the price, based on mathematical, instead of economic calculations. This method has been created for cleanly applied purposes, namely reception of incomes at game in the beginning on securities markets, and then and on future. All techniques of the technical analysis were created separately from each other and only in 70th years have been incorporated in the uniform theory with the general philosophy, axioms and main principles.
The technical analysis is a method of forecasting of the prices by means of consideration of schedules of movements of the market for the previous periods of time.
Practical use of the technical analysis means existence of axioms.
Axiom 1. Movements of the market consider all (or the prices consider all).
Any factor influencing the price (for example, a market price of the goods), - economic, political, psychological – is in advance considered and reflected in its schedule.
Axiom 2. The prices move targeted.
This assumption became a basis for creation of all techniques of the technical analysis. The main task of the technical analysis is definition of directions of movement of the prices (or tendencies or trends) for use in trade.
Definition of tendencies which gives Dow, looks as follows: at the ascending tendency (the bull trend) each subsequent peak and each subsequent recession above previous. In other words, at the bull tendency should be a curve with consistently increasing peaks and recessions. Accordingly, at the descending tendency (the bear trend) each subsequent peak and recession will be below, than previous. Such definition of the tendency is establishing and serves as a starting point in the analysis of tendencies.
There are three types of trends – bull (movement of the price upwards), bear (movement of the price downwards) and lateral (the price practically does not move). All three types of trends meet not in the pure state as movement « on a straight line » on the price schedule can be met very seldom.
The tendency operates until will submit obvious signals that it has changed.
Axiom 3. The history repeats.
Analysts assume, that if certain type of the analysis worked in the past will work and in the future as this work is based on steady human psychology.
The technical analysis is subdivided into two methods:
Graphic
Mathematical - the computer analysis.

Graphic method

The method is based on the analysis of price schedules - drawings on the schedule of change of the price for the certain time interval. Generalized name CHARTS.
Time intervals:
1. A monthly grouping of given – Monthly (M)
2. Week Weekly (W)
3. Day time Daily (D)
4. Intraday time data:
Hour Hourly (H)
- Half-hour Semihourly
15-Minute Quarterly
5-Minute
Types CHARTS:
a) Line – linear

b) Bar – for each period of a grouping four prices are defined:


High (top price); Last, Close (the price of closing); Open (the price of opening); Low (the lowest price)
c) CandleStick (the Japanese candles) – if the price of opening below the price of closing, a body of a candle white. If the price of opening above the price of closing – a candle dark


The line which the price cannot punch upwards, refers to as a line of resistance (Resistance – res), and a line which the price cannot punch downwards, refers to as a line of support (Support – sup). These lines are drawn either on ends Bar or under the prices of opening (Open), closings (Close). They enable purchases-sales, anticipate events, and allow distinguishing a situation in the market.

The channel formed as a result of carrying out of parallel lines (sup, res), is an optimum range of trading changes. The direction of the channel downwards or upwards defines the tendency of the market (Trend). At the ascending tendency a trend raising, at descending – going down.

Figures (Reversal Patterns)

Head and Shoulders - a head-shoulders.
Left the Head Right the Line
Shoulder a shoulder of a neck

Left the Head Right the Line
Shoulder a shoulder of a neck
Breakdown by a line of a neck is a signal of the beginning of strong movement of the market against the previous tendency. Usually the prices pass distance from a point of breakdown not less than distances from top of a head up to a line of the neck, measured on verticals.
Double Top - double top (bottom)

The first bottom; the second bottom; a line of a neck.
Triple top (bottom) – threefold top (bottom)
The first second third line
Top top top of a neck


Figures of continuation (Continuation)

Flag

Pendant

Wedge

Triangles
H–Price base.
The price punches at least on price base H. In a triangle not less than four waves.

Math method

TECHNICAL INDICATORS – mathematical functions constructed on the basis of the price or volumes.
Indicators can be divided on two groups:
confirm tendencies;
prompt turns of trends

Indicators of tendencies:

Sliding averages (Moving Average)
Sliding averages is the tools of the technical analysis smoothing fluctuations of the studied size by averaging on some historical period. Serve for revealing trends. Lack of sliding averages is delay of the average values in relation to a rate of the studied size. Sliding averages differ with a method of averaging.
Simple Movings (Simple Moving Average)
Pays off by summation of the prices of closing for the certain number of the individual periods (bars or candles).
Р1, Р2, Р3, Р4, Р5... Р10
Рi - the prices of closing of bars or candles
МАn = (Р1 + Р2 + Р3 +... + Рn)/n
Where n - the time period of calculation sliding average.
This sliding average refers to simple and is used more often. It possesses inertness. Two sliding averages usually use:
МА9 = 9
МА14 = 14,
Where 9 and 14 – the time period.
The point of crossing of two Moving МА9 and МА14 is a signal of change of the tendency.
Lack is a regular delay of a signal.
Advantage – is easy to define a direction of a trend, also it is possible to use them as lines of support and resistance.
If we study all three trends, we choose threefold Moving:
4– 13 – 34

Weighed Movings (Weighted Moving Average)
Р1, Р2, Р3

Exp. Movings (Exponential Moving Average)
Р1, Р2, Р3

Most close reflect the prices, but badly work in consolidation.

Oscillators

The basic signal at oscillators is divergence.
Divergences
Situation when the direction of movement of the price and technical indicators does not coincide. Divergence it is considered a strong attribute of a turn of a trend. Distinguish divergence bull and bear. Examples divergence are resulted in further.
Oscillator (Price Oscillator - OSC)
One of the most widespread methods of the technical analysis. Calculate simple sliding averages with long and short the periods of averaging to reveal natural fluctuations by means of averaging with the short period, on a background of more long-term tendencies. Testifies to resale when the average with the short period is less a than average with the long period and on the contrary.
Gives a signal to purchase when the size of parameter OSC exceeds the established percent S from long period an average, and a signal to sale at negative OSC.
Parameters: the periods of averaging n> m, factor S.
The formula:
OSC = МАn - МАm
Buy: OSC> S*Man
Sell: OSC <-S*MAn
It is necessary to consider the following moments at use oscillator:
Oscillators are used, as a rule, in trend less sites of the market. At the developed trend in attention signals on a trend (are accepted only i.e. at an ascending general trend - only signals on purchase).
Crossing with a zero line as a signal is weak and takes into consideration only in the event that does not contradict the basic tendency of movement of the price.
Critical values oscillators speak only that current change of the prices occurs too quickly and, hence, it is possible to expect fast correction. From this also that oscillator can reach a zone over-long before the termination of a trend (if in the beginning of a trend of the price changed considerably), however, follows, and long to remain there in process of the further development of a trend. Hence, especially strong signal arises in the event that in a zone over-oscillator makes some fluctuations and only then leaves it.

Fundamental analysis

The rate of exchange is influenced with the factors reflecting a condition of economy of the given country: Parameters of economic growth (national product, volumes of industrial production, etc.); Condition of trading balance, degree of dependence on external sources of raw material Growth of monetary weight in a home market Rate of inflation and inflationary expectations Level of the interest rate Solvency of the country and trust to national currency in the world market Speculative operations in the currency market Degree of development of other sectors of the world financial market, for example a securities market competing to the currency market.Money in another’s countryInterest rates differential (a difference of interest rates)JPI – 0,5 % GBP – 6.00 %In the form of securities:T-bills (exchequer papers)USA – Bonds UK – Gilts Germany – Bunds Japan – JGB USA – deficiency of the budget negativeJapan – deficiency of the budget positiveThus Japan places the basic means in bonds USA about 60 % of volume of the market.The central bank of Russia places about 80 % of the reserve means also in bonds USA.
Share indexes DJIA–USA Nikkey – 225 - JapanFTSE – 100 – UK CAC – 40 - FranceDAX – 30 – Germany Hang Seng – HK (Gong )
Dow-Johns's index (DJI)
There are Dow-Johns's 4 indexes.Dow-Johns's industrial index (The Dow Jones Industrial Average - DJIA) - a simple average indice of movement of share prices of 30 largest industrial corporations. Dow-Johns's industrial index is the oldest and the most widespread among all parameters of the share market. Its structure is not constant: its components can change depending on positions of the largest industrial corporations in economy of the USA and in the market, however in modern conditions such cases are rare enough. Basically on its components it is necessary from 15 up to 20 % of market cost of the actions quoted at the New York stock exchange. This index is charged by addition of the prices of the actions included in it and division of the received sum on certain denominators (which it is corrected on size of crushing of actions and dividends in the form of the actions making over 10 % of market cost of releases, and also on replacement of components and merges and absorption). Dow-Johns's index is quoted in items. From recent time for it there were future contracts in Chicago.Dow-Johns's transport index (The Dow Jones Transportation Average - DJTA) - an average indice describing movement of the prices for the actions of 20 transport corporations (airlines, the railway and road companies).Dow-Johns's municipal index (The Dow Jones Utility Average - DJUA) - an average indice of movement of share prices of 15 companies, an engaged gas - and electrosupply.Dow-Johns's compound index (The Dow Jones Composite Average - DJCA) - a parameter made on the basis of industrial, transport and municipal indexes of Dow-Johns.
Index (S&P) This index is published by the independent company " Standard an Poor ". It is made in two variants - under actions of 500 corporations and under actions of 100 corporations. S&P - 500 represents the index of actions of 500 corporations weighed at market cost which are presented in it in a following proportion: 400 industrial corporations, 20 transport, 40 financial and 40 municipal companies. Actions of the companies registered at the New York stock exchange are included in it basically, however there are also actions of some corporations which are quoted at the American stock exchange and in outside a turn. The index represents about 80 % of market cost of all releases quoted at the New York stock exchange. This index more complex in comparison with Dow-Johns's index, but it is considered also more exact by virtue of that in it actions of greater number of corporations are presented and actions of each corporation are weighed on size of cost of all actions which are being hands of shareholders. Futures and options on it are on sale on the Chicago commodity exchange.S&P - 100. The index is estimated on the same basis, as an index under actions of 500 corporations, but consists of actions of corporations on which exists the registered options at the Chicago stock exchange of options. Basically it is industrial corporations.
Index of the New York stock exchange (NYSE Index) The given index represents the parameter of movement of share prices of all corporations which have registered the papers at the New York stock exchange weighed at market cost, that is, as a matter of fact, it is a parameter represents the average price for the action on all companies at the New York stock exchange, weighed on market cost of actions of each corporation (with corresponding updatings under factors of crushing of actions, merges and absorption). Unlike Dow-Johns's index which is expressed in items, index NYSE is expressed in dollars. Operations with options on this index are carried out at the Most New York stock exchange. Operations with future contracts are carried out at the New York stock exchange of futures which is division of the New York stock exchange.
Indexes of the American stock exchange (AMEX) The American stock exchange publishes two basic indexes which are estimated on absolutely different basis. The basic market index of the American stock exchange (AMEX Major Market Index) is a simple average indice of movement of the prices of 20 leading industrial corporations. It has been conceived by the American stock exchange as an original substitute of an industrial index of Dow-Johns. Though it pays off and published by the American stock exchange, its structure includes actions of the corporations registered at the New York stock exchange. It is remarkable, that 15 from them are also components of an industrial index of Dow-Johns. Operations with futures on this index are carried out at the Chicago trading stock exchange.The index of market cost of the American stock exchange (AMEX Market Value Index) is estimated on essentially other basis: it is the parameter weighed at market cost of all let out actions of those corporations which are included in it as components. For the first time it has been published in September, 1973. It includes as components more than 800 share issues representing securities of corporations of all large branch groups, registered on the American stock exchange, including, besides ordinary actions, the American depositary certificates and subscription certificates. From the technical point of view it is unique by virtue of that at its calculation is supposed, that dividends in the form of the cash, paid on actions entering into its structure, reinvesting, and they are reflected in this basis in an index. Options on this index are quoted at the American stock exchange.
Index (NASDAQ) The national association of share dealers estimates a lot of the indexes representing as outside a turn as a whole, and papers of corporations of separate branches. The core is index NASDAQ in which are included as components of the action about 3500 corporations (except for quoted at stock exchanges). This index is a parameter weighed at market cost of its components. For the first time it has been calculated in February, 1971.Operations with options and futures on this index are carried out on the Chicago commodity exchange.Falling of share indexes leads to falling of national currency
The central banks The Central Bank watches a rate of inflation in the country, a rate of national currency and tries to adjust them by means of three basic interest rates:Discount rate – Discount rate. The Interest rate, under which Central Bank finances commercial banks.USA–6,50 %Switz.–3,75 %UK – 6,00 %EU - 3,75 %Japan – 0,5 % The American and English rates high enough, therefore to them foreign investors show the big interest.The rate – Repo rate. The Interest rate applied by the Central Bank in operations with commercial banks and other credit institutes at purchase (account) of the state exchequer obligations. The Central Bank this most carries out regulation of the market of loan capitals. Fed Funds (rate Repo USA)The pawn rate - Lombard rate. The Interest rate applied by the Central Bank on the security of the real estate, gold and exchange values at delivery of credits to commercial banks.At reduction of interest rates business activity raises and inflation increases. Decrease in interest rates conducts to reduction in price of national currency. Increase of interest rates leads to decrease in business activity, decrease in inflation and rise in price of national currency. In modern conditions a method of influence on a rate of national currency practice of purchase and sale by the central banks of the foreign currency, named continues to remain currency intervention. The central banks:USA:FED – Federal Reseve System;The decision on change of rates is accepted FOMC–Federal Open Market Committee which session passes time in six weeks two days: Monday and Tuesday. Chairman of board - Alan Greenspan The rate on federal funds (refinancing) = 6.50 % The discount rate = 6,0 %.Germany: Bundesbank (BBK, Buba) – the Central Bank of GermanyBuba cooncil meeting - session Buba – each 2 weeks on Thursdays;Chairman of board – Ernst Welteke Great Britain: Bank of England – BOE;Session once a monthChairman of board – Eddie GeorgeDiscount rates = 6.00 %Switzerland: Swiss National Bank (SNB);Session – every Thursday;Chairman of board – Hans MeyerRate LIBOR = 3.25 %Japan: Bank of Japan (BOJ);Session 24 hours per day;Chairman of board – Masaru HayamiDiscount rates = 0.50 %EU: Europian Central Bank (ECB);Chairman of board – Willem F. Duisenberg, President of the ECB Discount rates = 3.75 %. Alongside with the central banks broker firms which, working with concrete bank, represent itself as intermediaries between the seller and the buyer of currency function in the currency market. Through the broker it is possible to carry anonymity to the certain advantages of work at fulfilment of transactions, a continuity of process of the quotation, and an opportunity to offer own prices.Last decades in the currency market there was a change of character of trade to transferring accent on change of promptness of trade: significant growth of transactions which execution occurs in the future was outlined. All this has led, on the one hand, to the raised susceptibility of the currency market to tactical changes and for substantial growth of currency fluctuations, and on the other hand, to growth of opportunities for highly effective investment. At many stock exchanges a wide circulation alongside with operations on purchase and sale of currency operations with derivative financial tools - have received currency both financial futures and options. As examples of such stock exchanges in already for a long time the recognized world centers of trade in currency can serve the London International Stock exchange of Financial Futures (London International Financial Futures Exchange - LIFFE), European Options the Stock exchange in Amsterdam (European Options Exchange - EOE), the German Urgent Stock exchange in Frankfurt (Deutsche Terminboerse - DTB), the Singapore Stock exchange (Singapore International Monetary Exchange - SIMEX) (Sydney Futures Exchange - SFE) and the Stock exchange of Urgent Trade in Sydney.

The Report on positions under currency futures on 2007/05/07

The report on positions under currency futures on 2007/05/07
The main center of trade in currency futures is the Chicago Commodity exchange (Chicago Mercantile Exchange (CME). Among professional traders the future currency market is even more widespread, than market FOREX on conditions spot on which we it is traded. Therefore, having the information on what positions, short or long, at present prevail in the market of currency futures, we can spend more reliably trading operations in the market spot.
The given report is based on the report under transactions of traders (Commitment of Traders Report (СОТ) the American federal commission on trade in commodity futures (CFTC). The report leaves weekly, as a rule, late at night on Friday or on Monday and shows the open interests for the various markets, including for the market of currency futures, for every Tuesday weeks. The open interest represents quantity of the open future positions on purchase and on sale. In the report of traders divide on two groups: commercial traders-hedgers and noncommercial traders – speculators.
Commercial traders use the future market for hedging risks in the commercial activity. Their overall objective - to not earn money in the currency market, and insurance from undesirable fluctuations of rates of exchange. Therefore at calculation of long and short positions under currency futures we shall not consider them. Noncommercial traders are usual participants of the market who try to earn on movements of rates of exchange, spending operations under the purchase and sale of currency future contracts.a In it they practically do not differ from traders in market FOREX on conditions spot. The quantity of the open future positions, especially if it is maximal or minimal for the certain period of time can be a signal of a turn of the tendency.
Pure Long Positions. Pure Long Positions show excess of long future positions above short. For example, we shall admit, that long positions on pound sterling was 25,3 thousand, and short 17,4 thousand then make 25,3–17,4=7,9 one thousand Or long positions was 18,7 thousand, and short 24,6 thousand then make 18,7-24,6 =-5,9 thousand, that is short positions dominate.
If on any currency it is more than long positions than short, that is it is more 0 and in dynamics by the previous periods tends to growth the given currency will grow. If the price of currency grows, and falls or remains constant the tendency, most likely will not exist long, there is a probability of a turn of the tendency. Similar on a principle divergence on volume. Pure Long Positions in the future market carry out a role of volumes of the tenders on FOREX-spot, but they more informative because are expressed in quantity of contracts (real volume of the tenders), instead of in quantity of transactions, in the second it is the open positions of all participants of the currency future market in the world, and not just clients and dealing companies.
It is similarly possible to consider a situation when negative, that is short positions exceed long. When on any currency negative, also tends in dynamics, in relation to the previous periods the currency will decrease to fall. If the price of currency falls, and grows or remains constant the tendency, most likely will not exist long, there is a probability of a turn of the tendency.
There is still a situation when long and short positions are approximately equal, or a difference between them insignificant, these are the moments of indecision of the market when it was not defined what to do further. It can be both the beginning of a turn of the tendency, and a time respite before renewal of a trend.
Some currency pairs in the report the nonclassical appearance, for example currency pair have Franc is classically written in such kind - USD/CHF,in the report this currency pair is written CHF/USD. It is connected with a format of an output of the report. In it on the first place currencies on which Pure Long Positions are considered always cost. As it has been mentioned above, the report leaves, as a rule, either on Friday, or on Monday, but data in it are reflected as of Tuesday of accounting week, therefore, logically to believe, that the information which you receive from the report, the latest situation in the market can mismatch some. Data of the report, as a rule, are a little bit late for acceptance on them of the trading decision. Therefore, first, pure long positions under currency futures should be considered in dynamics, secondly for fuller picture it is necessary to combine the analysis data of the information with the analysis of the report on options to levels which has no such delay. These two reviews cover all market of derivative currency tools which is not less widespread than market FOREX on conditions spot. Also it is not necessary to forget, that on pure long positions, also as well as on indicators, periodically there are periods bull or bear divergence when future pure long positions start to miss dynamics of an exchange rate, these moments are the important trading signals.

Pressure upon dollar will proceed and in May

The last month was marked by serious falling of dollar. Its quotations to the main European currencies only in April have decreased more than on 2 %. Stimulus to easing dollar and growth of Europeans were both the American news, and messages from the Europe.
To one of the first pushes became the offer of the Ministry of Finance of the Great Britain on granting tax privileges for transnational corporations, transit capitals back to the Great Britain. The similar practice was used by the United States in the past and has led to growth of dollar. It is no wonder, that investors have reacted purchases of pound to the similar initiative of the British officials.
News about that inflation industrial and consumer prices in the Great Britain in March was considerably above, than that was expected by analysts, only has strengthened demand for pound. The positive news background was present and at the Eurozone. Indexes of German institute Zew have appeared above forecasts. Moreover, experts of institute expect the further acceleration of economic growth in Germany during the following of 6 months. All this promoted that pair GBP/USD could overcome important psychological a mark in 2 dollars for pound and be fixed above it. The euro could grow above a level 1.3600.
The American currency had no place to get support: the important data on economy of the USA appeared not so favorable. Rates of growth of consumer prices in Staffs have completely coincided with expectations of economists and have made +0.6 % of m/m and +2.8 %, that has disappointed investors, and the volume of purchases of the American securities foreign investors in February has made only 58 billion dollars though value 81.5 billion was expected
Rates of a rise in prices define a monetary and credit policy of the central banks. Preservation of inflation at a present level can have, finally, adverse consequences for economy. Not without reason, officials of the Federal Reserve at the session in the beginning of month have agreed that the basic subject for anxiety there is a risk of high inflation. The committee believes, that the further toughening of a monetary and credit policy can appear necessary for achievement of lower rate of inflation. Therefore the Federal Reserve has especially noted, that the further change of a monetary and credit policy will depend on change of prospects of growth of inflation.
Interest rates in the Eurozone have remained also at a former level. Jean-Claude Trishe, contrary to expectations, has refrained from use of the formulation « special vigilance » with reference to inflation. As experts believe, was refrained from the use of the mentioned formulation to avoid even more rapid growth of uniform currency which and without that was at multimonthly heights.
The bank of Japan also did not begin to change the monetary and credit policy and has left interest rates at a former level. Performance Fukui has surprised with nothing the market, it has confirmed, that in the country the moderate economic growth proceeds. Fukui again has concentrated attention that cannot give the forecast on the future of interest rates as the decision concerning a credit policy in advance is not accepted.
Thus, from a position of questions under interest rates, the situation in the currency market continued to consider percentage differential. I.e. currencies of those countries where increase of rates is expected, were in demand, while expected downturn of rates stimulated sales of dollar in the USA.
The forecast for May
After enough rough events in the currency market the last month last spring month can become less interesting. It will be more exact less interesting, most likely, for those investors who prefer quiet investment on a trend. In May of movement of rates, most likely, there are more diverse. Certainly, prospects of change of interest rates remain former: they support idea of sale of dollars for the European currencies. However high levels on euro and the pound, reached these April days, will stimulate partial fixation of profit and sale of the European currencies. Therefore first half of May, most likely, will be noted by decrease in quotations of euro/dollar and pound/dollar. Such succession of events is especially probable, if the American economic parameters in the beginning of May will appear above forecasts.
The European official believes that the Bank of Japan does a mistake, not raising the rates. However Japanese, on the contrary, do not wish to hasten with similar increase since inflation in the country is still very small while low rates of economic growth cause fears in the government of Japan. Whether the position of Bank of Japan will change or not – cost of yen will depend on it also. If officials will give a signal about fast increase of rates it will lead to growth of yen. Otherwise, speculators will continue to use the Japanese currency for financing purchases of currencies of other countries.As a whole in May of analytics expect, that the euro/dollar will change within the limits of 1.3430-1.3720, pound/dollar – 1.9770-2.0300, and dollar/yen – 122.50-118.50.

In the USA for April 88,000 new workplaces have been created

After revision of value of parameters « new workplaces » for March and February, 2007 have lowered up to 177,000 and 90,000, accordingly. Still, the basic source of reduction of unemployment and creation of new workplaces there are companies and the organizations rendering various services which for last twelve months have created hardly more 2.0 million workplaces. In April in this area of economy 116,000 new workplaces, basically, due to growth of employment in spheres of granting of services of public health services and restaurant business, and also in spheres of granting of technical services, local self-management and regular educational programs (Tab. 1) have been created. In spheres of public health services and social security employment has increased on 47,400 for April that is the highest value among components of a parameter « new workplaces ». This result has been reached owing to creation of new workplaces in hospitals and polyclinics, and also in the field of granting services of sisterly service and care on a residence. Employment has increased slightly only among experts of sphere medical. For last twelve months in spheres of public health services and social security 425,200 new workplaces have been created. Rates of growth of employment in sphere of restaurant and hotel business remain high. Restaurants, bars and cafe have created 25,000 and 336,400 workplaces, in monthly and annual calculation, accordingly. Demand for the attendants for hotels and motels has slightly grown. Despite of rather rigid visa mode the North-American continent remains to one of the most attractive directions for the European and Asian tourists. Nevertheless, some thousand employees of a casino, museums and theatres have been dismissed. The companies and the organizations, renderingtechnical services have shown impressing results. Only for last month the number of new workplaces in this sphere has made 32,800. For last twelve months, in sphere of granting business and technical services employment has grown on 271,000, basically, due to creation of new workplaces in the field of granting services of computer design and consulting. Employment in sphere of retail trade was sharply reduced. In particular 26,100 workplaces in April have been reduced. The basic sources of decrease became shops on sale of the mixed goods where 41,000 employees have been dismissed. A favorite of decrease in employment in retail trade, except for shops on sale of the mixed goods, became shops on sale of food stuffs and drinks. So significant growth has been partially compensated by decrease in employment in shops on sale of cars and spare parts, building materials accessories and clothes.

TVs on the basis of nanotubes? The Court has told - no for today!

TVs on the basis of nanotubes? The Court has told - no for today!

Canon has lost case against the small American company which specializes on nanotechnologies. The federal court of the USA has decided, that the corporation has formaly not in law with the contract about so-called nanotubes which Canon intended to use in TVs of new generation.
At times, development of revolutionary technologies slowdown not because of lack of knowledge or shortage of material resources. Sometimes on a way of progress there is a banal justice...
Actual example - lost Canon business against small company Nano-Proprietary. The given enterprise specializes on nanotechnologies, not forgetting to license the operating time to large corporations, well and, as usual, to have legal proceedings with them, in case of the slightest missunderstanding...
Present litigation has inflamed because of technology nanotubes which Canon intended to use at creation of new generation of large-format TVs (so-called SED-TV). Having decided to organize for their manufacture joint venture with Toshiba, Canon that has broken the previous contract signed with Nano-Proprietary. Result - the lost proceeding, the fine (the exact sum is not certain yet) and braking of researches in the given sphere.

Global FX Strategy Research, 4 May 2007

Global FX Strategy Research
Foreign Exchange
Global
Research Note
ab
UBS Investment Research
The Morning Adviser
Views
Zurich, 4 May 2007
Geoffrey Yu
􀂃 USD: Stronger ahead of payrolls
􀂃 EUR: We adjust our rate call
􀂃 AUD: RBA statement even more neutral
􀂃 SEK: Riksbank to stay on hold
􀂃 GBP: Services PMI declines
􀂃 IDR: It’s alive
􀂃 TWD: Politics on the agenda
􀂃 TRY: Calm political scene but risks remain
􀂃 Tech: AUDUSD under pressure
G10 FX
USD: Stronger ahead of payrolls
The dollar continued to firm overnight in Asia, maintaining its momentum after stronger USD data yesterday. The
greenback traded in a 1.3537-1.3557 range against the EUR and in a 120.27-120.46 range against the JPY. The nonmanufacturing
ISM index surprised at 56.0 (cons. 53.0) while jobless claims dropped to 305k (cons. 325k). After a string
of upside surprises this week the dollar has rebounded to its highest levels in three weeks, while US yields have managed
a similar record. The greenback’s recent rally has mainly been on the back of stronger data; intrinsically this is a
testament to resilient risk sentiment and the strength of growth trades. For the US, labour data remains key to sustaining
market confidence and today’s non-farm payrolls (12:30 GMT, cons. +100k) would set the tone for Fed expectations in
the run-up to the next week’s FOMC meeting. A strong showing would present the Fed with a much better case to
clearly pronounce its continued hawkish bias and avoid the confusion seen in March. We remain short EURUSD as a
trade recommendation and keep our 1m forecast of 1.33 for EURUSD, though we do note that the dollar remains
exposed to weaker economic fundamentals. In recent weeks the market has been much more responsive to downside US
data, and until recently signs of an economic pick-up have been greeted cautiously. Elsewhere, yesterday Treasury
Secretary Paulson spoke on Sino-US economic relations again, repeating his call for faster progress on CNY
liberalisation and the need for short-term progress. Policymakers will be active in the next few weeks: aside from the
FOMC meeting, the Eurogroup meets on Monday where the strength of the EUR may be a topic; the 2nd round of the
Sino-US strategic economic dialogue associated lawmaker summits will be held in mid-May, and the next G7 finance
ministers meeting will be held on May 18-19th. Investors should be on the watch for risk aversion and USDJPY may
especially be exposed to these events.
Ahead today, the unemployment rate in the labour situation report is expected to tick higher to 4.5%. Fed’s Geithner
speaks at 1345 GMT on “Reflections on the Changing Global Economy”. Fed’s Hoenig speaks at 1620 GMT.
EUR: We adjust our rate call
Eurozone PPI in April increased by 0.3% m/m in March after 0.3% in February, in line with expectations. The energy
component of Eurozone PPI rose by 0.6% in March after 0.4% in February, consistent with the increases in oil prices
The Morning Adviser
UBS 2
over the month in March, but we note that most of this will already have shown up in the HICP numbers. The y/y rate
slowed from 2.9% to 2.7%, and excluding energy, PPI y/y slowed from 3.5% in February to 3.4% in March. Underlying
PPI inflation has remained within a 3.4% - 3.6% range since 2006, and as such we believe that the ECB will likely
conclude that pricing pressures in the manufacturing sector have not shifted materially downwards, consistent with the
still-high level of the Eurozone PMIs. Our economists continue to expect the ECB to raise rates to 4.00% in June, and
hike another 25bp to 4.25% by year-end, but now expect rates to reach 4.75% in 2008. This is a non-consensus view
presently, and we would not look for local rate developments to provide much further euro support near-term.
AUD: RBA statement even more neutral
The RBA Statement of Monetary Policy (SOMP) was released this morning, and contributed to a decline in 2-year
yields. The statement was probably even more neutral than in the February release, and suggests that the RBA will not
be lifting for the next 6 months. The RBA lowered its near-term inflation forecasts from 2.75% to 2.5% and said that
core inflation in 2007 could even be "possibly a little lower". However, we remain concerned that ongoing global
buoyancy, and a relatively low real cash rate, may ultimately deteriorate the inflation outlook enough to see a rate hike
towards end year for now our economists see the RBA on hold. We think AUD has underperformed other major
currencies in recent days and is approaching a buy, assuming that US non-farm payrolls is a non-event, and the carry
environment continues.
SEK: Riksbank to stay on hold
We are with consensus in expecting the Riksbank to leave the repo rate unchanged at 3.25% at today’s policy rates
meeting. Stronger May wage settlements have boosted inflation expectations and rates has priced in a less-than-even
chance of tightening. However we continue to see a wage-led pickup in inflation growth during Q2 as unlikely and
remain long NOKSEK as a trade recommendation. In contrast the Norgesbank will likely issue a hawkish June inflation
report and report stronger than expected CPI next week. However our economists have also adjusted their rate calls for
Scandinavia as the Eurozone remains Norway and Sweden’s largest trading partner, and better Eurozone growth would
lead to more caution by the Norges Bank and Riksbank in the face of inflation pressures. We now see Norwegian rates at
5.5% by year-end 2008 and 4.25% for a less-aggressive Sweden.
GBP: Services PMI declines
Services PMI for April fell from 57.6 in March to 57.2 in April, below consensus of 57.5. The survey shows that
business activity has fallen in three of the past four months and has now eased to its lowest level in seven months. The
input price and the prices charged balances eased to their lowest levels in four months, which is likely to provide some
relief to the MPC. The text of the survey suggests that strong competitive pressures prevented firms from passing on
higher past input costs. Taking all the April PMIs together, composite activity balance is slightly higher in April
compared with the Q1 average, mainly because of the strength in the manufacturing survey. By contrast, the composite
prices balance has eased over the same period. The softer tone of the recent services surveys have also been reflected in
the official data with service sector growth easing from a trend-like 0.9% in Q4 to a below-trend 0.7% in Q1. We expect
services output to ease further in response to the policy rate tightening so far and the widely expected rate hike next
week, and for the prices balance to continue falling as activity slows. With markets pricing a high probability of a further
tightening beyond May, we continue to see upside risks for EURGBP, and continue to favour buying the cross on dips
below our 0.68 1-month target.
Emerging FX
IDR: It’s alive
USDIDR finally stirred, slipping below its recent range to the lowest level in four months today. This move is in favour
of our April 13 recommendation to go long the IDR funded by the TWD. In initiating this recommendation we noted the
600% rise in foreign direct investment applications in Q1, increased trade surpluses in recent months on strong non-oil
exports and the higher net foreign buying in the stock market in recent weeks as factors that would support the rupiah.
Reserve numbers for April released on Wednesday also showed increased reserve accumulation to an average of
US$1.9bn a month in the last three months. This is triple the average of US$600mn reserves accumulated per month in
The Morning Adviser
UBS 3
2006. We think BI would be more mindful of the money multiplier from liquidity injected through intervention towards
the end of the easing cycle. And given the high fiscal cost to sterilization of intervention, we think BI would be more
tolerant of rupiah strength than risk a jump in money supply and push inflation up again. We now believe these positive
flows are beginning to filter through to the currency and we continue to look for an overshoot to 8900 in 3 months. As
for the short TWDIDR recommendation, we are currently around 1.8% in the money including carry (working off an
implied carry of 4.275% per annum) and we have moved our stop down to entry before taking into account carry (spot
reference: 275.08) earlier this week.
TWD: Politics on the agenda
It may be 10 months until the March 2008 Presidential elections but Taiwan’s political scene is already moving into
gear. The opposition KMT party this week named former mayor of Taipei, Ma Ying-Jeou, as its candidate for the
election despite the charges he faces of misappropriating funds while serving as mayor. The case is not expected to
conclude until June at the earliest but Taiwan’s constitution allows for two appeals, during which time the accused is free
to participate in any political race. Meanwhile, the ruling DPP party will hold their own primaries from this weekend,
with their presidential candidate being announced next weekend. However, this is not likely to lead to any major
surprises, with either Frank Hsie or Su Tseng-Chang the likely winner. Both these candidates are hard-line proindependence
and are not likely to depart significantly from the current line the DPP takes in its approach towards crossstraits
relations with China. But one development that could be supportive for our short TWD recommendation is the inprincipal
parliamentary agreement to allow insurers to invest as much as 45% of their total assets in overseas
investments announced today. This is a compromise from the 50% proposal rejected earlier this month but higher than
the current 35% cap. The law could be ratified as early as the end of May. Given that there are around TWD8 tn worth
of insurers’ assets in Taiwan, this could mean up to TWD350 bn (US$10.6 bn) in potential outflows after taking into
account other restrictions like hedging and swaps when the decision becomes law. The market may unwind some short
TWD positions with politics back on the agenda this weekend, but we would hold on to our short TWD long IDR
position for now.
TRY: Calm political scene but risks remain
The lira traded broadly sideways yesterday amid a dearth of fresh political catalysts. The political picture appears calmer
at this point than would have been expected, spurring a bullish market reaction. However, we think that political risk has
the potential to deteriorate quickly without warning, and USDTRY could suddenly head significantly higher as current
TRY longs seem contingent on everything staying calm. Elections are now set for July 22. Yesterday, the AKP won key
support from a small opposition party for a package of sweeping constitutional changes that include a plan to have the
president elected by the people, not by parliament. The backing of the centre-right ANAP means the government should
have enough votes to push the reforms through parliament. Data-wise, yesterday’s inflation print was much stronger than
expected, and flew in the face of rate cut convictions. Though we closed out the short Turkey leg of our defensive trade
recommendation (short TRY and ZAR against BRL), we still see risk from USDTRY upside in the current climate.
The Morning Adviser
UBS 4
Technical FX
AUDUSD Under Pressure
EURUSD has probed the 1.3540 support as the pair continues to pull away from recent highs. Continued weakness
would expose the next support at 1.3490 marking the 38.2% retracement of the rally from 1.2865 to 1.3683. Resistance
is at 1.3623 this morning, the May 3 high. USDCHF cleared last week’s 1.2128 high, exposing the 1.2246 April 12
resistance. Tuesday’s 1.2050 low marks important support; only a break there would signal a return of the old bear trend.
As long as it stays above the 1.9823 April 3 breakout high, GBPUSD remains in a bullish state. A move above
Tuesday’s high at 2.0076 is now required to clear the way for a run at the 2.0134 April 18 trend high. Clearance of
1.9823 would instead expose 1.9591, the April 9 low. USDJPY maintains a bullish theme having cleared the 119.89
April 16 high, exposing 120.54 level (0.764 of 122.20-115.15). There is little resistance above there till the 121.65
February 22 high. Initial support is at Tuesday’s 119.06 reaction low. AUDUSD broke the 0.8233 April 24 low,
damaging the underlying short-term bull trend. The next support is the 0.8150 April 9 low. Initial resistance is at
0.8285, the May 2 high. USDCAD keeps its aim on the next support at the 1.1029 September 1 prominent reaction low
ahead of the 1.0929 trend low from May 31. Resistance is located in the 1.1230 to 1.1249 congestion area.
EURJPY focuses at 164.00
EURCHF keeps its focus on the 1.6574 July 1998 synthetic high. Only a break of support from last Friday’s 1.6409 low
would damage the underlying bull trend in the short run. After clearing the 162.43 April 16 high, EURJPY keeps its
overall focus on the upside. The rise above Friday’s 163.48 extreme exposes 164.00 ahead of 2-month 166.18 channel
resistance. Initial support is around last Friday’s 162.20 reaction low. EURGBP is caught between resistance at the
0.6844 April 27 high and Tuesday’s 0.6799 low.
The Morning Adviser
UBS 5
Key Events
04 May 2007 Source: UBS Global Economics
Country GMT Release/Event Frequency UBS Previous Consensus
South Africa 6:00 M3 (Mar) y-o-y n/a 22.9% 20.0
South Africa 6:00 M3 (Mar) ZAR bn n/a 1416.8 1443
South Africa 6:00 Private Sector Credit (Mar) y-o-y n/a 26.1% 24.5%
Switerzerland 6:00 SNB Publishes Balance Sheet n/a n/a n/a n/a
Spain 7:00 Industrial Output NSA (Mar) y-o-y n/f 3.5% 1.9%
Spain 7:00 Industrial Output WDA (Mar) y-o-y 4.0% 3.5% 3.9%
Spain 7:00 Unemployment MoM Net (Apr) 000s n/a -15.8 n/a
Sweden 7:30 Riksbank Interest Rate Announcement % 3.25% 3.25% 3.25%
Italy 7:45 PMI Services (Apr) n/a 55 54.1 54.3
France 7:50 PMI Services (Apr) n/a 58.5 59.2 59.4
Germany 7:55 PMI Services (Apr) n/a 58.1 57.5 57.9
Brazil 8:00 Fipe CPI (Apr) m-o-m n/a 0.1% n/a
Taiwan 8:00 CPI 2001=100 NSA (Apr) y-o-y 0.9% 0.8% n/a
Euro area 8:00 PMI Services (Apr) n/a 57.7 57.4 57.6
Euro area 8:00 Composite PMI (Apr) n/a 57.9 57.4 n/a
Norway 8:00 Unemployment rate(AKU) (Feb) % n/a 2.7% 2.6%
Euro area 9:00 Retail Sales (Mar) m-o-m n/a 0.3% n/a
Euro area 9:00 Retail Sales (Mar) y-o-y n/a 1.2% n/a
Brazil 12:30 Industrial Production (Mar) y-o-y n/a 3.0% 3.6%
Brazil 12:30 Industrial Production (Mar) m-o-m sadj n/a 0.3% n/a
United States 12:30 Nonfarm Payrolls (Apr) m-o-m n/a 180 k 100 k
United States 12:30 Unemployment Rate (Apr) % n/a 4.4% 4.5%
United States 12:30 Average Hourly Earnings (Apr) m-o-m n/a 0.3% 0.3%
United States 12:30 Average Weekly Hours (Apr) lvl n/a 33.9 33.9
United States 13:45
Fed's Geithner Speaks on Global Economy
in Montreal
Canada 14:00 Ivey Purchasing Mgr Index (Apr) lvl n/a 67.3 57.3
Argentina 19:00 CPI (Apr) m-o-m n/a 0.8% n/a
United States 19:00 Treasury Strips (Apr) Apr n/a n/a n/a
Mexico 19:30 Consumer Confidence (Apr) index level n/a 106.5 106
UK 8:30 UK Car Production (Mar) 3mth/yr ago n/a -7.6% n/a
Malaysia 9:00 Money Supply M3 (Mar) y-o-y 14.0% 13.9% n/a
Italy 9:00 Hourly Wages (Mar) m-o-m 0.3% 0.1% n/a
Italy 9:00 Hourly Wages (Mar) y-o-y 2.6% 2.6% n/a
United States 12:30 Employment Cost Index (Q1) q-o-q 0.9% 0.8% 0.9%
United States 12:30 GDP (Q1 Adv) q-o-q 1.8% 2.5% 1.8%
Mexico 14:00 Central Bank Monetary Policy Meeting n/a n/a 7.0% n/a
The Morning Adviser
UBS 6
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