fx debates

7/29/2019 Fx Debates

1/22

Saxo #FXdebatesTrading insights rom

our Top Analysts

SAXOMARKETS.CO.UK


2/22

Investors are still lookin

or an alternative to

money, as the risk o

debasement has never

been reater, notes

Ole Hansen, Head o

Commodity Stratey at

Saxo Bank. Does this make

old the hottest currencytoday? Is old really

money? It is the question

central bankers wish they

never had to answer

INDEX

John Hardy Rakesh ShahNick BeecroftOle Hansen

Rakesh Shah

Steen Jakobsen

To correct the

imbalances the monetary

union has created, a

proound restructurin

o the system is theonly option. Europeans

need to either embrace

a mandate or chane,

or ace the slow death

o japanisation, arues

Steen Jakobsen, Saxo

Banks chie economist.

The Federal Reserves

aressive quantitativeeasin proramme since

the onset o the nancial

crisis in 2008 has been the

chie driver in weakenin

the US Dollar. However,

despite the late 2012

launch o an open-ended

QE3 and the Feds best

eorts to kill it, there areencourain sins or the

reenback, arues John

Hardy, Head o FX Stratey

at Saxo Capital Markets.

Is there a nancialtimebomb hidin in

the nancial markets?

Currency wars, ar rom

helpin the nations

involved in competitive

devaluation, may actually

damae rather than boost

lobal trade says RakeshShah, Head o Saxo FX

Academy. Find out how

to benet rom this

situation in this chapter.

How lon will it take beore

the Renminbi replaces the

Dollar as the worlds rst

reserve currency? Years,

decades - or centuries? NickBeecrot, Chairman o Saxo

Capital Markets stresses

that the Chinese are a

patient nation and alsowarns that the supertanker

o Chinese RMB

appreciation could chane

direction in heavy seas.

To optimise your tradin

experience on our award-

winnin tradin platorm,

Head o Saxo FX Academy

Rakesh Shah presents itskey unctionality in the

platorm as well as his 10

olden rules or practical

applications in tradin.

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CHAPTER I PAGE 5 CHAPTER II PAGE 8 CHAPTER III PAGE 11 CHAPTER IV PAGE 14 CHAPTER V PAGE 17 CHAPTER VI PAGE 20

The Dollar& the FED

The Euroin crisis

Gold: justanothercurrency?

YuanDiplomacy

CurrencyWars

10 Rulesfor praticaltradingstrategies

00:00

FOREWORD PAGE 3

Blomberg

By Robert Bierman

WELCOME PAGE 4

By Torben Kaaber and

Charlotte Kan

Join the Saxo #FxdebateS


3/22

FOREWORD

In a world with ew economic certainties, currencies

have become a key indicator as to who is winnin in

the lobal economy. The Euro, the Yuan and the Dollar

have become headlines beyond the nancial news,

dinner conversation where never beore discussed and

topics or debate when nancial leaders ather. With

the status o the worlds biest currencies up or

discussion, invariably old attracts interest as an option.

Saxo and Bloomber LINK have convened the worlds

leadin nancial minds or DISCUSSION and DEBATE.

Lately, reardless o the primary purpose o the atherin,orein exchane is a topic at the top o the aenda.

News on the Bloomber Terminal covers an

astoundin rane o topics. Take the past month,

or instance, in October 2012, stories in the top ten

most read rane rom Lance Armstrons troubles to

senior executive chanes at Citiroup, the state o

unemployment in the U.S. and the price o Oil.

Whats interestin is to look loner term. In the 12

months precedin October 2012, the most-read story

on the Bloomber Terminal was headlined CentralBanks Cut Cost o Borrowin Dollars to Ease Crisis.

That headline ran November 30, 2011 as the world

souht to nd ways to ease the impact o the Euro

crisis. Fast orward nearly a year later and the most-

read story o September 2012 was Fed Undertakes

QE3 with $40 Billion MBS Purchases per Month.

Bloomber LINK and Saxo Capital Markets have teamed

up in an eort to ive ocus to key issues that recur

in debates amonst serious participants in the orein

exchane markets. This e-book is one o the products o

that collaboration. The best minds at Saxo Capital Market

have brouht orward their best thouhts on the FXmarkets and shared them with you in this publication.

We know you will nd the contents to be thouht-

provokin and useul as you consider how you

will play in the FX markets. There will be more to

come as our collaborators at Saxo Bank continue

to build this library o valuable insiht.

The debate will continue in live orm as the

#FXdebates produced by Bloomber LINK and Saxo

Capital Markets convene in-person in 2013.

The FX debate will continue or lon into the uture,and we thank you or joinin it alonside us.

Robert Bierman

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4/22

The lobal economic slowdown and the Eurozone debt

crisis have tested not just the world leaders and their

people, but also investors ability to anticipate, innovate

and allocate. The possible collapse o the sinle market

and its consequences on the lobal economy have orcedorex players to be creative and examine various investment

scenarios. At Saxo, we believe that the development o the

Euro crisis and touh economic times will present hue

challenes, but also a myriad o opportunities or orex

traders. Our Saxo eBook aims at challenin your views

and help you become more creative in your tradin. We

invite you to join the debate and share your views with us.

Is the Eurozone crisis a major concern or a reat

opportunity or FX traders? As the second most traded

currency lobally, the uture o the Euro and the sinle

currency project will heavily impact FX markets. Our

chie economist Steen Jakobsen thinks we are stuck

in a vicious circle o protest and denial, and the best

way out o the crisis is a radical restructurin o the

Eurozone. Macro has ailed miserably, and needs to be

replaced by micro, he arues. Do you aree? You may

not, and you may be riht. At Saxo Capital Markets, we

like to look at the bier picture and think outside the

box. All over the planet, to revive moribund economiespolicy makers and central bankers are resortin to the

biest orm o denial o all: quantitative easin - or in

the words o Saxos Head o FX Stratey John Hardy

extend and pretend. Will QE Innity ail to revive the

US economy, or does it have an alternative motive - to k

the Dollars value? What about the Renminbi? Is China

determined to take over the Dollars role as the worlds

reserve currency - and i it does when? Find out what ou

experts think, share your views and join the #FXdebates

WELCOME!

Charlotte KanEDITOR AT SAXO CAPITAL MARKETS

Torben KaaberCEO OF SAXO CAPITAL MARKETS

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5/22

Gold,just another

currency?Ole Hansen

CHAPTER I

HEAD OF COMMODITY STRATEGY

Ole Sloth Hansen is a specialist in all traded Futures, with over 20 years experience both on the buy and sell side. Ole joined Saxo Bank in 2008

and is today part o the Tradin Advisory Team analysin a diversied rane o products rom xed income to commodities. He previously workedor 15 years in London, most recently or a multi-asset utures and orex Hede und, where he was in chare o the trade execution team.

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6/22

1850 19501900 1980 TODAY

...AND THAT OF THE DOLLAR

1850-2012

16th C. 18th C. 21th C.

THE VALUE OF GOLD...

1560-2012

Since the 16th Century, golds purchasing power has maintained a broadly constant level. *

An ounce of gold has repeatedlybought a mid-range outfit ofclothing throughout the ages

On the other hand, the USdollar that bought 14.5 loaves

of bread in 1900 buys only 3/4of a loaf today.

SHARE THISINFOgRAPHI

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7/22

A passionate advocate o the necessity to revert back

to the old standard is US Conressman Ron Paul. On

July 13 2011, durin a Conressional hearin beore the

House Financial Services Committee, the Republican

conronted Fed Chairman Ben Bernanke with the question:

The price of gold today is $1,580. The Dollarduring these last three years has devaluedalmost 50%. When you wake up in the morning,do you care about the price of gold?

Clearly puzzled, Bernanke answered that he did indeed

pay attention to the price o old, but that it refects

several thins - like lobal uncertainty. The reason people

hold old is as a protection aainst what we call tail

risks, really, really bad outcomes, Bernanke said, beore

bein interrupted aain by Ron Paul with the question:

Revered throuhout the aes as a symbol o prosperity, thanks to its natural beauty, scarcity, and durability, old has

been the reserve asset that has backed at currencies in nancial economic systems worldwide, rom 700 BC when

old coins were rst manuactured on a lare scale in Lydia (a reion o Turkey), until the Bretton Woods areement

o xed exchane rates was sined in 1944, markin the end o the old standard. Over the past years, with the

world economy hittin the doldrums, old has reained its appeal as a sae-haven asset, but will it last? Here we ask

Ole Hansen, Head o Commodity Stratey at Saxo Bank, whether old can really be considered a currency asset.

The Gold Standard

So whatis gold?Central bankers may dier, but the question

certainly makes them break into a sweat.

The role o old in the nancial markets, its

nature and value, are not only dicult to

dene they are also controversial Is old a

Do you think gold is money?

Lookin increasinly uneasy, Bernanke answered: no,its a precious metal. He went on to awkwardly

explain that old is an asset. Central banks hold

old because it is a orm o reserves, and a lon-

term tradition, accordin to Bernanke. Ater alon pause, Ron Paul sharply concluded:

Some people still think its money.

Fearin that the Feds monetary policy will lead

inexorably to the death o the Dollar, Ron Paul thinks

the US and lobal monetary systems should be totally

reormed because at currencies do not lead to honest

trade as they are not backed by physical assets. Will

old save the world, as Ron Paul seems to believe?


8/22

The Euroin crisis

Steen Jakobsen

CHAPTER II

The cycle between denialand protest is destinedto last or a while

CHIEF ECONOMIST

Steen Jakobsen was appointed as Chie Economist in March 2011. Steen has over 20 years o experience within the elds o

proprietary tradin and alternative investment. He started his career at Citibank N.A. Copenhaen, rom where he moved to

Hania Merchant Bank as Director, Head o Sales and Options. In 1992, he joined Chase Manhattan in London as VP, Head o

Scandinavian Sales, and then the Chase Manhattan Proprietary Tradin group. In 1995-1997 he worked as a Proprietary Trader and

Head o Flow Desk at Swiss Bank Corp., London. In 1997 he became global Head o Tradin, FX and Options at Christiania (nowNordea) in New York beore joinin UBS in New York in 1999 as Executive Director o the global Proprietary Tradin group.

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9/22

12,797

13,174 10,904

4,745 2,570

2,088 1,507

355

1,826

215103% 229% 81% 82.5%

165%

debt

GDP

debt ( bn)

GDP ( bn)

Public Debt / G

< 80

80 - 100

100 - 20

> 200

(2011DATA)

PUBLIC DEBT VS GDP

the euro in crisis share the ebook




10/22

Delay is the deadliestorm o denial

Restructurethe Eurozone?

From the time it erupted in 2009, the Eurozone debt

crisis has paralysed equity and debt markets and little

proress has been made towards a resolution - leavin

investors, the reions leaders and their citizens in a state

o limbo. Yet what is at stake is not just the uture o the

sinle market, but the entire world economy. The reionis the planets second biest economic powerhouse.

The Euro is also the second reserve currency lobally.

It may seem unpalatable, but to correct the imbalances

the monetary union has created, an upheaval o the

system may be the only option, Steen Jakobsen arues.

A greek exit may sound like a rihtenin scenario,

but prooundly restructurin the Eurozone may be

less painul than the slow death o Japanisation

with defation, massive scal decits, and neative

real-rates. Here Saxos chie economist considers the

dierent outcomes or the Euro debt crisis and whatto consider when tradin the sinle currency.

C Northcote Parkinson


11/22

The Dollar& the Fed

John Hardy

CHAPTER III

QE wont breakthe buck

HEAD OF FX STRATEGY

John J. Hardy is Head o F X Stratey or Saxo Bank. A raduate o the University o Texas at Austin, John

started at Saxo Bank in 2002. As author o the popular FX Update and FX Monthly columns on Tradinfoor.com, John has developed an ex tensive ollowin amon Saxo Banks clients, the press and sales traders.

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12/22

OR DEBTMONETISATION?

2008

2009

2010

2011

2012

2013

2.25 2.242.43

2.922.82

QE1 QE2 QE3

$ tn

Federal Reserves Balance sheet [annual average in $ trillions]

Yield on US 10-year Treasuries

$100 billion in government-sponsoredenterprises + up to $500 billion inmortgage-backed securities.

$600 bn $600 bn $40 bn / month +

The Fed's balance sheet has almost tripled since 2008. At the same time,government borrowing costs have hit new lows.

$15.58 trillion

OIL EXPORTERS BRAZIL

CARIBBEAN TAIWAN SWITZERLAND

RUSSIA

BELGIUM

LUXEMBOURG

SINGAPORE

IRELAND NORWAY

FRANCE

GERMANY

THAILAND

UK

HONG KONG

JAPAN

CHINA

7.3%

6.9%

OTHERS

12.1%

OTHER INTRAGOVERNMENTAL HOLDINGS 13.1%OTHER NON INTRAGOVERNMENTAL HOLDINGS

26%

US SOCIAL SECURITY FEDERAL RESERVE HOLDINGS

10.7%17.2%

1.7%

1.2%

0.9%

0.9% 0.8%

0.6% 0.4%

0.4% 0.3%

0.4%

0.5%0.9%

1%

1%

1.5%

1.5%

Official holders of US Debt

DOMEST

FOREIGN

The Federal Reserve is the second single largest holder of US debt after the US Social SecurFund and thus holds more US debt than China, the third largest holder of US debt.

0.95

4.07

2.05

3.843.36

1.921.62

$40 billion a month in mortgage-backedsecurities + reinvestment of principal =increase of longer-term assets by about$85 billion a month.

$600 billion in longer-term Treasurysecurities purchased by June 2011.

The DOLLAR & The feD share the ebook




13/22

However, despite the late 2012 launch

o an open-ended QE3, the reenback

will not et much weaker, arues John

Hardy, Head o FX Stratey at Saxo

Capital Markets. Here we look at how

the balance o positives outweih

neatives or the Dollar, and why the

US currency may rise despite the

Feds best eorts to kill it with QE.

QE1 QE2 QE3

NOVEMBER 2008

MARCH 2009

NOVEMBER 2010

JUNE 2011

TODAY

?

QE wont break the buckThe Federal Reserves aggressive quantitative

easing programme (QE) since the onseto the fnancial crisis in 2008 has been thechie driver in weakening the US Dollar.


14/22

YuanDiplomacy

Nick Beecroft

CHAPTER IV

The supertankero Renminbi appreciationcan change direction

Senior Market Analyst

Nick Beecrot has over 30 years o international tradin experience within the nancial industry. Nick publishes comments and

analysis on lobal macro-economic and political developments and their implications or the nancial markets, with a special ocuson Forex, g7 interest rates and bond markets, includin in-depth examination o Central Bank thinkin and tactics.

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15/22

SOURCES:

US Census Bureau (2012) / IMF (2011) / Bloomberg (201

51

3,240

BILATERAL TRADE IMBALANCE

BEGGAR THY NEIGHBOUR

$bn FOREIGN CURRENCY RESERVES$10 bn

CURRENT ACCOUNT BALANCE

CHINA VS USA ($ Million)

2005 2006 2007 2008 2009 2010 2011

- 200

- 300

- 400

- 500

- 600

- 700

- 800

- 900

- 100

0

100

200

200

300

400

0.12

0.12

0.13

0.13

0.14

0.14

0.15

0.15

0.16

YUAN / DOLLAR EXCHANGE RAT

CHINA IMPORTS

$273,121BnUS EXPORTS

$69,999Bn

yuan diplomacy share the ebook




16/22B th th t d th PBOC h t t d th t th

But where, and what, will it lead to?Nick Beecrot, Chairman o Saxo Capital

Markets Ltd, explains that the reputation

o the Chinese as a cautious and wise

nation may be deserved. Traders who

expect the redback to become the

worlds new reserve currency soon should

take notice o the old Chinese proverb:

Man who waits or roast duck to fy into

mouth must wait very, very lon time.

Internationalisationo the Renminbi:a step-by-step strategy

Gradually allowing the Renminbi to becomean internationally-traded currency is the

long, tricky journey the Peoples Banko China (PBOC) has embarked on.

Fi t t t t th t th t i i t d i


17/22

CurrencyWars

Rakesh Shah

CHAPTER V

Is there a fnancialtime bomb hiding inthe FX market?

HEAD OF FX ACADEMY AT SAXO CAPITAL MARKETS UK

Rakesh has over 17 years experience in leveraed tradin in London and New York, havin worked or several lobal investment

banks. In January 2012, Rakesh joined Saxo Capital Markets as Head o FX Academy where he brins his unique expertise in pramatic

tradin strateies to Saxos customers. He requently presents seminars aimed at hih requency proessional traders.

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18/22

SOURCE:BLOOMBERG10/12

91.1

86.3

82.4

0.0959

0.4393

0.6045

93.4

0.474

8

0.0097

99.70.157

0.493

0.075

0.0853

0.0697

0.5578

94.7

87.

0.1289

88.6

80.9

2008 2009 2010 2011 20122007

YUAN / DOLLAR DOLLAR INDEX(BoE Calculated Effective Exchange Rates)

EURO INDEX(BoE Calculated Effective Exchange Rates)

MEXICAN PESO / DOLLAR BRAZILIAN REAL / DOLLAR

BANXICO

CENTRALBANK

PBOC

FED

ECB

BACEN

4.5%

0.25%

0.75%

6%

INTERESTRATE (%)

7.25%

IS MONETARY EASING

A HOSTILE ACT?

currency wars share the ebook




19/22

Wars play their part in history, shapin and chanin the landscape or enerations to come.Financial markets are no exception. The 21st century has created a lobal economy where hyper

liquidity allows the transer o nancial assets rom one zone to another on an unprecedented

scale. Superpowers fex muscles or the control o these assets throuh the settin o interest

rates, loan and debt areements to manae current account surpluses. In this context a classic

currency war is brewin, spurred by devaluation and infation, the danerous by-products o a

near-zero interest rate environment. Is there a nancial time bomb hidin in the orein exchane

market? Rakesh Shah, FX trader and head o Saxo FX academy raises this hypothesis.

The Battle Scene

The primary tools or htin currency wars are interest

rates, with most countries eaerly anticipatin moves

rom the United States and the Eurozone. Lowerin

interest rates can have an unwanted side eect o lettin

infation rise. Even the worlds juernaut, China, has runinto challenes with sustainin rowth without lettin

infation run wild. Some countries have advantaes.

Brazil is an example. The countrys bankin system was

not hit as hard durin the subprime lendin scandals.

This combined with the rise in commodity prices, led to

hiher rowth rates, allowin Brazil to be somewhat

more fexible with economic policies. Based on this, i

commodity demand slows down, we will have to redrawth ti l b l d i ti

A classic currencywar is brewing

00:00


20/22

10 Rules orpractical trading

strategiesRakesh Shah

CHAPTER VI

Trading the markets,ollowing the trendsand managing the risk

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21/22

Nothin beats market experience. Why? The

markets are dynamic, each day presents a new set

o opportunities and every situation needs to be

evaluated in the perspective o the bier picture within

which it sits. E.. EUR/USD can be tradin at 1.30 on

Monday and on Wednesday at the same key support

or resistance level. Dont be ooled into thinkin that

the trade dynamics on both days will be the same.

I you are a discretionary trader, you will need to adjust

your tradin analysis to take into account all the new

data, economic actors and related instrument prices (e..

other cross currencies in the case o the Euro). Map out

all the outcomes rom iven situations to allow you to

execute aster. Keep an eye on the tradin calendar; this

is one o the most useul tools or the experienced trader.

I you are a systematic trader, then you will still need to

check (i.e. have lters) that ensure the risk, exit taretsand volatility still match your stratey. get busy analysin

and usin demo account or tradin new ideas as soon

as is possible to build up your tradin experience.

FX Trader and Head o Saxo Academy Rakesh Shah looks at strateies and the practicality o tradin the currency markets.Rakeshs 10 Rules or practical tradin application:

Trading the markets, ollowingthe trends and managing the risks

1. AUTOMATING FILTERS FOR HIGHERQUALITY STRATEGY COMPOSITION


22/22

CONTACTS DISCLAIMER

This material has been provided or inormation and

educational purposes only and should not considered

as an oer (or solicitation o an oer) to buy or

sell any currency, product or nancial instrument,

to make any investment, or to participate in any

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or warranty, and assumes no liability, or the accuracy

or completeness o the inormation provided herein.

In providin this material SCML, or any aliated company

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