FX Street Chat

Kathy Lien
Chief Strategist
 Disclaimer
Leveraged foreign exchange and options trading carries a significant
level of risk, and may not be suitable for all investors. The high degree
of leverage can work against you as well as for you. Before deciding to
invest in foreign exchange you should carefully consider your
investment objectives, level of experience, and risk appetite. You
should be aware of all the risks associated with foreign exchange and
option trading, and seek advice from an independent financial advisor
if you have any doubts.
The contents provided in this seminar are subject to change at any
time without notice.

There is no guarantee that the systems, trading techniques, FX

PowerCourse, trading methods, indicators or other information
presented at this seminar will result in profits or not result in losses.
The content is provided for informational purposes only and is not
intended as a trading recommendation.
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Fundamentals
101

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 Fundamentals Data and Numbers
to Watch

#1
Economic Growth Data
GDP (Gross Domestic Product)
NFP (Non-Farm Payrolls)
ISM (Institute Of Supply Management)

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 Fundamentals Data and Numbers
to Watch

#2
Monetary Policy Meetings
FOMC (Federal Open Market Committee)
CPI (Consumer Price Index)

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 In terest Rate S p read
12

1.6
1.65
1.7
1.75
1.8
1.85
1.9
1.95
/31
/2
1/ 0 04
31
/2
00
2/
28 5
/2
00
3/
31 5
/2

GBP/USD
00
4/
29 5
/2
00
5/
31 5
/2
00
6/
30 5
/2
00
7/
29 5
/2
00
8/
31 5

UK/Fed Funds Spread

/2
00
9/
30 5
/2
10 00
/31 5
/2
11 0
/30 05
/2
12 00
/30 5
/2
UK/Fed Funds Spread and the Impact on GBP/USD Pair

00
5

0.00
1.00
2.00
3.00

G BP /US D

U S D /JP Y
12
90
95
100
105
110
115
120
125

/31
/2
1/ 0 04
31
to Watch

/2
00
2/
28 5
/2
00
3/
31 5
/2
00
4/
29 5
/2
00
5/
31 5
/2
00
6/
30 5
/2
00
USDJPY

7/
29 5
/2
00
8/
31 5
/2
00
9/
30 5
/2
10 00
/31 5
/2
11 0
Fundamentals Data and Numbers

/30 05
/2
12 00
/30 5
/2
00
5
Japan/Fed Funds Spread and the Impact on USD/JPY Pair

Fed Funds - Japan Rate Spread

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0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50

F ed F u n d s/JP Y S p read
 Fundamentals Data and Numbers
to Watch

#3
Trade Flows
CA (Current Account)
TIC (Treasury International Capital) System

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 Fundamentals Data and Numbers
to Watch

#4
Political Events
Markets Hate Destabilization
Politics Always Trumps Economics Because
Future Risks Become Impossible To Handicap

EZ Constitutional Crisis
CAD No Confidence Vote
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 Fundamentals Data and Numbers
to Watch

#5
Central Bank Comments

3 Most Powerful Policymakers In The World:

Ben Bernake
Jean Paul Trichet
Toshihiko Fukui

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 Fundamentals 101
All You Ever Need To Know To Trade FX
In Summary:
If Economic Growth Is Strong => Interest Rates Will
Rise And That Should Attract Capital Which Will Be
POSITIVE For The Currency.
BUT Watch Out For Large UNFUNDED Trade Balance
Deficits And Any Signs Of Political Turmoil Which Will
Lead To A Drop In Investor Confidence And Will Be
NEGATIVE For The Currency.

Finally Always Monitor Central Bank Speak And

Consider Carefully What Monetary Authorities Say.
They Move Markets. B
Fusing Technical With
Fundamentals

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 Setups, Setups, Setups!

Seven Day Extension Fade Statistical Significance

Trading Rules

Look for 7 consecutive bars of weakness (where each bars

close is below the prior)
Buy at the open of the next bar
Place stop at the low of the seventh bar minus 10 pips
First target is amount risked, move stop on remaining half to
breakeven
Second target is three times the amount risked

**Reverse for Short

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Seven Day Extension Fade NZD/USD

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Seven Day Extension Fade EUR/USD

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Seven Day Extension Fade USD/CHF

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Seven Day Extension Fade
GBP/USD Hourly

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Seven Day Extension Fade Failed Trade

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Trading in Action = Anatomy of a Trade
Short AUD/USD Recommendation on 11/01/06

Fundamental Reasons
Looking for a strong October non-farm payrolls Recent
Jobless claims, ADP and Hudson Employment Reports were
very strong

Technical Reasons
Statistical Significance Over Past 10 Yrs, AUD/USD saw a
7 day move 14 times, with only 3 of those 14 lasting for
longer than 7 days

Went short AUD/USD at 0.7735, 0.7765 stop, exited at

0.7712, at 0.7687 = 58 pips in 24 hours.

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AUD/USD Chart

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 Setups, Setups, Setups!
Moving Average MACD Combo Rules:

1. Wait for the currency to trade above both the 50 SMA and 100
SMA
2. Once the price has broken above the closest SMA by 10 pips or
more, enter long if MACD crosses to positive within last 5 bars,
otherwise wait for next MACD signal
3. Initial stop set at 5 bar low from entry
4. Exit half of the position at 2 times risk, move stop to breakeven
5. Exit second half when price breaks below 50-SMA by 10 pips.

Reverse For A Short

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Moving Average MACD (Hourly Chart)

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Moving Average MACD (Daily Chart)

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K
Moving Average MACD (Hourly Chart)

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Moving Average MACD (Daily Chart)

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Moving Average MACD (Hourly Chart)

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Trading in Action = Anatomy of a Trade
Short USD/CAD Recommendation on 10/19/06

Fundamental Reasons
Saudi Arabia Announced Plans to Back OPECs Production
Cuts by 1 million barrels a day to take effect Nov 1 With
more a announcements possible in Dec
US Philly Fed on Deck > Could be Weak

Technical Reasons
Moving Average MACD Formation

Went short USD/CAD at 1.1347 , 1.1372 stop, exited at

1.1310, at 1.1320 = 69 pips in 4 hours.

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B B
Fusing Fundamentals With Technicals
**The Key to Trading Is:

Look For an Attractive Technical Setup

And

Trader Either in Anticipation of an Economic

Release

Or

On the Back Of One

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Trading in Action = Anatomy of a Trade
Short USD/JPY Recommendation on 11/14/06

Fundamental Reasons
Surprisingly Strong Japanese GDP (2.0% vs 1.0%)
We Anticipate Weak US PPI and Retail Sales

Technical Reasons
Selling Retracement to a Key Daily Fibo Level

Went short USD/JPY at 117.82 , 118.15 stop, exited at

117.62, at 117.23 = 67 pips in 5 hours.

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B
 Our Motto

It is Us Against the Market - Trade Defensively!

Steal Pips as Often as Possible

Always TWO Targets > One Conservative, One

Aggressive

Never Let a Winner Turn Into a Loser

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30 Minute Break!
DailyFX Tools to Help You Trade

Speculative Sentiment Index

Tick Indicator
To Determine Support & Resistance
 Real Time Market Sentiment (SSI)
FXCM Speculative Sentiment Index
Real-Time Snapshot of Speculative Sentiment - Throw out
the COT Report!
SSI Captures Global Market Sentiment, Not Just US
(Includes Positions From North America, Asia and Europe)
Much more Information than the COT
Gives Contrarian Signals
Accurately Predicts Market Turns and Profiles the Trading
Environment
 Ways to Interpret the SSI
- Ratio of Longs to Shorts Positive > Bearish for the Currency
- Ratio of Longs to Shorts Negative > Bullish for the Currency

**Key is the FLIP and the SLOPE

- Watch Out for Extreme Positioning and Early Sign of a

Possible Turn
- Consistent Flip Flopping > Characteristic of Range Bound
Environment
FXCM Speculative Sentiment Index
FXCM Speculative Sentiment Index
 Tick Indicator

GBP/USD
The pair currently trades within a large cluster zone between
1.8820/70. This offers good opportunities for short range
trading or playing breaks of the range, in either direction. A
break below does not encounter cluster support until 1.8760.
Cluster support is closer on a break above, at 1.8910/20.
Tick Indicator
 Tick Profit
Indicator
Opportunities

Report
Published
 Tick Indicator
Comments Made on 11/16
USD/JPY
USDJPY currently rests between two cluster areas, 117.18
and 118.09. At the moment, the tick clusters are potential
support and resistance with a break above resistance
providing a bullish bias and a break below support a
bearish one.
Tick Indicator
Why is This Important?
Volatilities Were at Record Lows
3 Month ATM EUR/USD Implied Volatilities
 11
11 /1/2
/2 0

1.15
1.17
1.19
1.21
1.23
1.25
1.27
1.29
1.31
1.33
1.35
1.37
1.39
12 9 /2 04
/2 00
7
1/ /2 0 4
24 0
2/ /20 4
25 0
3/ /20 5
29 0
4/ /20 5
26 0
5/ /20 5
27 0
6/ /20 5
24 0
7/ /20 5
22 0
8/ /20 5
19 0
9/ /20 5
1
10 6/2 05
/1 0
11 4 /2 05
/1 00
1
12 /2 0 5
/9 05
/
1/ 20 0

EUR/USD
6/ 5
2/ 200
8/ 6
3/ 200
9/ 6
4/ 200
6/ 6
EUR/USD and ATM Vol

3M Vol
5/ 200
5/ 6
6/ 200
7/ 6
7/ 200
6/ 6
8/ 200
4/ 6
9/ 200
4
10 /20 6
/
10 2/2 0 6
/3 0 0
0/ 6
20
06
Volatilities Why Does it Matter?

5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50
11.00
Scalping News Releases
 Scalping News Releases What Does it
Mean?

Taking Quick Profits 20-30 pips

Low Risk 15 pips
The Market Trades on Expectations and You Need to
Know When Expectations are Misaligned
Ride the Momentum
No One Ever Went Broke Taking Profits
- Always Trade 2 Units
- Take Profit on 1 Unit at 50% of Risk
- Move Stop to B/E or Scratch
- Trail 2nd Unit for at Least 2X Risk
- In Trading What is Mathematically Optimal is
Not Necessarily Psychologically Possible

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How Can I Learn More?

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 How Can I Learn More?

The Markets Change and So Should You!

Resources:
Research - Daily FX

Education - FX Power Course

Strategies - Euro Course

 Thank You,
Good Luck And Good Trading