International Forex Inforamtion

Neal Wolkoff, CEO of ELX Futures, was in Chicago this week serving as Chairman and host of The LaSalle Street Dinner Dance, which benefits the Chicago Area Council, Boy Scouts of America. While not...

Michael Moscow, former president of the Federal Reserve Bank of Chicago, said we could expect a slow, sluggish recovery with unemployment most likely remaining above 7% through 2012, as he addressed attendees of the second annual CME Group Global Financial Leadership Conference in Naples, Fla.

Moscow led off an impressive group of speakers who all focused on economic conditions in light of the financial crisis the economy is still grappling with. Moscow said that inflation was not a problem short-term but does pose a problem longer-term. He said that as the economy slowly recovers, "the Federal Reserve will be under pressure to delay tightening monetary policy."

While not suggesting when they should act or by how much, Moscow said, "They will have to do it before employment is back," adding, "I think the Fed will do the right thing."

Moscow said the Fed’s job is complicated by the United States’ large fiscal deficit, which he described as "unsustainable," a theme echoed throughout the day by other speakers.

Following Moscow, a group of central bankers, including former Fed Governor Frederic Mishkin discussed the current economic condition in light of the credit crisis.

The panel compared the economy to a critical patient needing to be revived. While everyone on the panel agreed that the patient has survived emergency procedures and is out of intensive care, no one believes that it is back to normal.

Mishkin, who was at the Fed as it struggled with the fallout of the Lehman Brothers bankruptcy a year ago, said that the financial disruption was more complex than the shock that caused the Great Depression. He added that the Fed was faced with a choice of extending its activities and expanding its role or not expanding and risking another depression. "The probability of a depression was not low," Mishkin added.

Later former Fed Chairman Paul Volcker addressed the crowd after being delayed in Washington as the advisory committee he chairs met with President Obama.

Following the theme of past speakers, Volcker said of the economy, "the patient is out of the operating room and I think he is out of intensive care but I’m not sure about it."

"For a decade, this country has been living beyond its means," Volcker said. "It is unsustainable. It was [made possible] by the magic if financial engineering."

Of his meeting with the President, Volcker said that the President understands the importance of not having to rely on consumption and rebuilding our exporting capacity.

In its statement today the Federal Open Market Committee said it would maintain the Fed funds rate at 0 to 0.25% and that economic conditions "are likely to warrant exceptionally low levels of the Federal funds rate for an extended period."

New York Court Imposes $500,000 Fine and Other Sanctions Against David P. Lee, Former Natural Gas Trader for Bank of Montreal

Lee settles CFTC charges of mis-marking and mis-valuing the Bank’s natural gas options book to exaggerate trading profitability; court also bans Lee from commodity-related trading.

Washington, DC — The Commodity Futures Trading Commission (CFTC) today announced that it has entered into a consent order settling charges brought against David P. Lee of New Jersey, a former trader for the Bank of Montreal (BMO), for mis-marking and mis-valuing BMO’s natural gas options book and deceiving the bank (see CFTC Press Release 5571-08, November 18, 2008).

Judge George B. Daniels of the U.S. District Court for the Southern District of New York entered an order on November 5, 2009, requiring Lee to pay a $500,000 civil monetary penalty. The order also permanently bans Lee from any commodity-related trading.

The order stems from the CFTC’s complaint filed on November 18, 2008, that charged Lee with unlawfully mis-marking his natural gas options positions between at least May 2003 and May 2007 and with mis-valuing other natural gas options positions from October 2006 until May 2007. Further, the complaint charged that Lee and various brokers deceived BMO by fabricating purportedly independent broker quotes delivered to BMO’s back office for price verification. The order found that this conduct violates anti-fraud and false reporting provisions of the Commodity Exchange Act (CEA) and CFTC regulations. The CFTC’s litigation against other named defendants continues.

The CFTC thanks the Manhattan District Attorney’s Office, the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York for their assistance.



The following CFTC staff members are responsible for this case: Joan Manley, Christine Ryall, Eugene Smith, Patricia Gomersall and Paul Hayeck.

The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a consent order against Michael Kourmolis, of Brooklyn, N.Y., permanently prohibiting him from engaging in any activity related to trading any commodity interests, including soliciting funds, registering with the CFTC and trading on behalf of others or himself.

The court’s order, entered on November 10, 2009, in the U.S. District Court for the Eastern District of New Year, stems from a CFTC complaint filed July 23, 2003, against defendants Kourmolis, Thomas Qualls, and International Foreign Currency, Inc. (IFC) (see CFTC Press Release 4825-03, July 30, 2003). The CFTC’s litigation continues against IFC and Qualls.

The CFTC complaint alleged, and the court’s order finds, that Kourmolis fraudulently solicited customers to open accounts at IFC to trade foreign currency futures contracts. The order finds that in his solicitations, Kourmolis falsely told at least one customer that because of IFC’s “large fund and our banks and institutions overseas,” IFC had the ability to “maximize profit potential while also minimizing capital risk.” Kourmolis also misleadingly represented in writing that customers would have personal accounts and that their funds were insured by a bank for up to $25 million.

In a related matter, in January, 2007, a grand jury in the U.S. District Court for the Eastern District of New York indicted Qualls on several counts of wire and mail fraud and obstruction of justice. The obstruction of justice counts alleged in part that Qualls concealed documents with an intent to impair the CFTC’s action and made false statements in a CFTC deposition. On November 5, 2008, a jury convicted Qualls (US v. Thomas Qualls, Criminal Docket No. 07-014 (E.D.N.Y.). Prior to the verdict, Qualls fled and was later arrested in Canada.

The following CFTC Division of Enforcement staff members are responsible for this case: James H. Holl, III, Katherine Scovin Driscoll, Gretchen L. Lowe and Vincent McGonagle.




The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a consent order against Michael Kourmolis, of Brooklyn, N.Y., permanently prohibiting him from engaging in any activity related to trading any commodity interests, including soliciting funds, registering with the CFTC and trading on behalf of others or himself.

The court’s order, entered on November 10, 2009, in the U.S. District Court for the Eastern District of New Year, stems from a CFTC complaint filed July 23, 2003, against defendants Kourmolis, Thomas Qualls, and International Foreign Currency, Inc. (IFC) (see CFTC Press Release 4825-03, July 30, 2003). The CFTC’s litigation continues against IFC and Qualls.

The CFTC complaint alleged, and the court’s order finds, that Kourmolis fraudulently solicited customers to open accounts at IFC to trade foreign currency futures contracts. The order finds that in his solicitations, Kourmolis falsely told at least one customer that because of IFC’s “large fund and our banks and institutions overseas,” IFC had the ability to “maximize profit potential while also minimizing capital risk.” Kourmolis also misleadingly represented in writing that customers would have personal accounts and that their funds were insured by a bank for up to $25 million.

In a related matter, in January, 2007, a grand jury in the U.S. District Court for the Eastern District of New York indicted Qualls on several counts of wire and mail fraud and obstruction of justice. The obstruction of justice counts alleged in part that Qualls concealed documents with an intent to impair the CFTC’s action and made false statements in a CFTC deposition. On November 5, 2008, a jury convicted Qualls (US v. Thomas Qualls, Criminal Docket No. 07-014 (E.D.N.Y.). Prior to the verdict, Qualls fled and was later arrested in Canada.

The following CFTC Division of Enforcement staff members are responsible for this case: James H. Holl, III, Katherine Scovin Driscoll, Gretchen L. Lowe and Vincent McGonagle.



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Forex Ultimate Hedge Plays

The S&P/Eur correlation will be there while the global business cycle is not showing expansion, and using that correlation to trade, or hedge the S&P while the NYSE is closed, can be done in forex. If a trader expected a drop in the S&P, they could open a position in SDS, for example, the Ultra-Short S&P500 ETF, that trades on the NYSE.

The majority of forex flows comes outside of the U.S., and as such any position in SDS is likely to have moves building while the U.S. cash market is closed. As such, using the correlated moves in Eur/Usd as a play to either hedge investment portfolios, or to play the momentum in S&P without the market being open, is an option.

Finding correlated price action in a futures market is a benefit, if the market your investment vehicle is bought and sold in is closed, (S&P Futures move virtually 24 hours a day, while SDS trades for 7 and a half on the NYSE).

If price action is strong in the open market that will determine an assets value (SDS for example), how do you protect an open SDS position, in a closed NYSE market? Why not trade the market that is open, with a high correlation, even if it is just to hedge your other position?

The institutional use of forex is not in a leading indicator capacity, and as such the flows we see on our charts are created by the read on global risk tolerance in correlated markets. It always has been, and it always will be. It must make sense to hedge your investment portfolio with trades that are in a market that is actually open, if at all possible, and that is the beauty of using forex as it is designed; hedging forward commitments, or open positions.

Trade Plan of the Day: TheLFB Trade Plan is one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, S&P futures, oil, gold, and the dollar index.

U.K. and Euro-zone 52.6% (01:00 EDT-11:00 EST). Asia 21.1%. (18:00 EDT-02:00 EST). U.S. 16.6% (07:00 EDT-16:00EDT). Overlap 9.7%.

The above is the International Bank for Settlement numbers that analyze the global flow of forex trade. It reveals that the European futures market open, from around 01:00 EDT through until the Chicago reversal at 07:00 EDT are the main times to expect sustainable moves, over the long run in forex, and by default, those moves are set by the direction of the global equity market, both futures and cash. There will be periods of change, but overall the reads are very reliable.

Forex is a commercial market, used to hedge forward commitments, and garner interest rate differentials. As such, it is a market that follows the moves in risk tolerance, or not, at any given time, as it shows itself in the correlated global market place.

Take a look at S&P and euro charts; euro has followed, not lead that move. S&P leads, Eur/Usd follows, and will hold that 85-90% correlation until global expansion hits the business cycle, and at that time it will drop to between 65-70%, as we have seen in forex cycles since 1979.

At that point, interest rate differentials will take over, and the central banking and commercial lending sector will hang their hats on Libor rates and Ted spreads. In the mean-time, trade the charts when the market is open, and hedge the position with 24 hour forex.

TheLFB Charting LinkTheLFB Charting: S&P Elliott Wave view
4 Hour chart trend: Long. Main price points: 1098.50, and 1015-1120. Looking for: Wave C
S&P futures traded lower into the 1080 – 1083 support zone as discussed and posted here yesterday, where traders may already be seeing some up-side reactions from the 38.2% Fibonacci test. The current wave count structure signals for a final push higher in wave V), which may find the top somewhere around the 1115-1120 zone, especially once the wave III) top at 1100 is taken out.
Overall, an expanding diagonal pattern in black wave 5, or the C position, does not look to be complete. Each leg of our expanding diagonal pattern should be structured by three waves, labeled as wave A, B and C. On the four hour chart below, the market is trading in the last leg of our pattern, wave 5), with an extended red wave C in process.

The US dollar index (USDX) is an important analytical tool for traders in just about any market. The USDX is actually a futures contract which means that if you have a futures trading account you could trade this instrument like corn, oil, gold or currency futures contracts. However rather than trading the USDX most retail traders use it as way to analyze the relative strength or weakness of the US Dollar in general.

The USDX compares the US dollar (USD) against a basket of other world currencies. This basket represents most of the largest free floating, major currencies in the world on a weighted average basis. The currencies included are the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Each of these currencies are given a weight within the index with the largest weight given to the euro.

The euro is typically half the total weight included in the average the chart for the USDX and will often look like a chart of the USD/EUR futures contract. Spot forex traders will notice that the USDX is very similar to an inverse of the EUR/USD spot forex pair. However, because the USDX includes 6 different currencies it is a better measure of USD strength than any single currency pair including the EUR/USD.

The USDX was established in 1973 with a starting value of 100. That means that if the USDX is measuring less than 100 the USD has lost relative value compared to what it was worth in 1973 and if it is above 100 then the USD is stronger than it was in 1973. Currently the USDX is hovering around 82, which means that it is 18% weaker than its starting value. The dollar has not always been weaker than it was in 1973, the USDX showed a 20% improvement in value in the USD in 2001 and 2002.

The USDX is particularly useful for traders in the bond, currency and gold markets. For example, a strong USD is usually correlated with falling gold prices, which means that gold traders are very interested in a break out on the USDX even though they may not be trading the USD directly. Similarly, global crises often increase demand for the USD as investors seek a shelter from uncertainty. This will drive the value of the USD up and often bond yields will drop. These are just two examples of how the USDX is one more inter-market tool you can use for evaluating capital flows and finding new trading opportunities.

Charts for the USDX on the pairs analysis pages in the forex section of the Learning Markets website but if you are interested in trading the USDX you have two attractive alternatives. First, you can open a futures account. There are futures and options on futures available on the USDX that trade on the New York Board of Trade.

Second you can trade ETFs that track the USDX itself. PowerShares offers two ETF alternatives for trading the index. The first is UUP which invests in long futures contracts on the USDX, which means it will move the same direction as the dollar index. The second is UDN which invests in short futures contracts on the USDX, which means that it will rise in value when the dollar index weakens. If you are bullish the dollar you could buy UUP and if you are bearish the dollar you could buy UDN.

(RTTNews) - The Japanese economy expanded 1.2 percent in the third quarter of 2009 compared to the previous three months, the Cabinet Office said on Monday - sharply higher than the 0.7 percent increase that had been forecast after the 0.6 percent quarterly gain in Q2.

It also marked the fastest growth since the first quarter of 2007.

On an annualized basis, real gross domestic product surged 4.8 percent - again shattering expectations for a 2.9 percent increase following the 2.3 percent gain in the second quarter.

Nominal GDP was down an annualized 0.3 percent in the third quarter, while the deflator was up 0.2 percent after adding 0.5 percent in the previous three months.

(RTTNews) - Foreign Direct Investment in China increased for the third consecutive month in October, the Ministry of Commerce reported Monday. FDI rose 5.7% year-on-year to US$7.1 billion in October, slower than the 18.9% increase seen in September. During January to October period, China attracted US$70.8 billion of actual FDI, down 12.6% from the previous year.

RTTNews) - India's economy is likely to grow above 6% in 2009-10 as demand is up across sectors, and the economy is getting back to its growth path, said Confederation of Indian Industries (CII). In a meeting of its National Council held in Mumbai on Friday, over 70% of CII members believed the economy would grow above 6% in the current fiscal.

The industry body said the industry and services have shown signs of recovery with the help of stimulus packages. However, CII expressed concern about the agricultural output, which might pose some risks to the GDP.

CII Director General Chandrajit Banerjee said the industrial production has risen considerably with increase in business confidence, along with the return of stabilized financial markets and capital inflows, all indicative of upside prospects. The industry grew 9.1% in September.

In its survey of 1,022 firms in manufacturing and service sectors, the CII report showed that the second quarter results of the current fiscal showed signs of stabilization.

(RTTNews) - Producer prices in New Zealand saw a 1.4 percent decline in output prices in the third quarter of 2009 compared to the previous three months, Statistics New Zealand said on Monday, versus forecasts for a 0.2 percent increase following the 0.7 percent fall in Q2.

Input prices for PPI were down 1.1 percent on quarter, compared to expectations for a repeat of the flat quarter three months earlier.

Both output and input prices were influenced by falling dairy prices. The dairy cattle farming index was down 24.3 percent, marking the largest fall since the series began in the June 1994 quarter. The dairy product manufacturing index was down 20.9 percent, which was the largest quarterly fall since the September 2002 quarter.

In the year to the September 2009 quarter, the PPI inputs index fell 5.8 percent for the largest annual fall since the series began in the December 1977 quarter. The PPI outputs index fell 2.1 percent.

Also on Monday, New Zealand's Capital Goods Price Index fell 0.4 percent in the September 2009 quarter. The non-residential buildings index was down 1.4 percent to fall for the fourth consecutive quarter. The plant, machinery, and equipment index eased 0.6 percent - largely due to a stronger New Zealand dollar, analysts said. The residential buildings index fell 0.4 percent on lower labor and material costs, the data showed.

Offsetting influences this quarter came from rises in the transport equipment index (up 0.8 percent) and the other construction index (up 0.5 percent).

The CGPI rose 2.3 percent in the year to the September 2009 quarter, compared with rises of 3.8 percent in the year to the September 2008 quarter and 2.3 percent in the year to the September 2007 quarter.