1 Dock Street

Stamford, CT 06902
www.farostrading.com
www.twitter.com/FarosTradingLLC

FAROS TRADING | Current Trade Ideas

10/03/2010

Faros Trading LLC, is the premier full service provider of institutional foreign exchange execution services for hedge funds and institutional investors. Our
24 Hour trading desk offers a broad array of tools to aid customers with their foreign exchange needs. Faros Trading LLC serves as your partner in
navigating the FX waters.

Current Trade Ideas Analysis:

th
As we move into the 4 quarter of 2010, we want to spend some time going over our current trade ideas, and look back at those that
we suggested in June. In June 2010 we suggested our clients buy the EUR/USD, with a target of 1.3684. At the time we were seen as
extreme outliers, as every bank in the Bloomberg Survey was looking for the EUR/USD to end the third quarter below 1.25. In fact the
mean back then was 1.22, and the median 1.20. Our reasoning centered on the fact that China had re-started ‘flexibility’. We noted
that there was an extreme causal relationship between USD/CNY and the USD Index. As China lets the CNY strengthen it has to but
less USD in the market (USD demand falls) and it then has to buy EUR/USD, GBP/USD, JPY/USD and other currencies to even out its
reserve basket. At the time we were the only people in FX that were fixated on this issue, and who saw currency intervention and
reserves management as the theme going forward. Today this is talked about more openly. This was not the case in June. Our
analysis proved correct. On the last day of September 2010 the EUR/USD did indeed trade to a high of 1.3684. Our ‘spot-on’
prediction was picked up by Bloomberg and can be seen in the link below:

http://finance.yahoo.com/video/marketnews-19148628/big-moves-in-currency-markets-linked-to-spain-fed-news-video-22228017

Over the course of the past three months we have identified a number of themes based on the information we have gathered
through our day-to-day activities. (1) Reserve managers are increasingly seeking alpha, and are now investing in higher yielding
currency products in Latin America and Asia. (2) If a Central Bank is physically intervening then this is a currency we want to own. (3)
Central Banks have been and will continue to shift their reserves from a predominantly USD focus to a more equally weighted USD
and EUR weighting, in part due to warnings from China that it is the prudent thing to do; but also because if our analysis is correct,
the IMF will reweight the SDR to an equal weighting of USD and EUR, from the current overweighted USD exposure. We will see the
new weightings by the end of 2010, but we know Central Banks are already anticipating this move. (4) Our view on the USD has been
given an extra boost of acceleration from the US Federal Reserve, as it has embarked on QE-Lite and is about to embark on QE3. The
US no longer calls for a ‘strong dollar’, but rather a ‘strong Yuan’, and our analysis tells us a strong Yuan flows through to a weaker
USD.

Given these themes we have suggested to our clients that they sell the USD/Index and sell the USD against a GDP-weighted basket of
Latin America and Asia. We have also suggested they buy synthetic SDR’s based on the current IMF weightings. Each of these
strategies is profiting well. We also suggested our clients buy AUD/JPY and EUR/MXN. Both of these are showing similar profitability.
st
On Friday October 1 2010, we stated that we expect the EUR/USD will move at least another 10% higher over the course of the next
three months. While this may sound extreme it has to be noted that this would leave the EUR/USD essentially unchanged on the
year. Momentum continues to move in our direction, and with interest rates as low as they are in the US and further QE in the wings,
the wind is definitely behind our backs. We doubt the move will prove to be without its risks, yet with China now stating this
weekend what we had stated earlier in September; that they are, and have been, actively buying Greek and Spanish debt, we feel the
peripheral European fears are overblown and now have a stop/loss. Increased focus will now fall on US states and their financial
conditions. We prefer to steer our clients towards countries that have acknowledged they are sick and are now taking their medicine,
as opposed to countries that have acknowledged they are sick yet prefer to put off a fix until a later date. We feel the US is taking the
second approach.

Our list of current trade ideas and their returns-to-date are found below:

1
1 Dock Street
Stamford, CT 06902
www.farostrading.com
www.twitter.com/FarosTradingLLC

FAROS TRADING | Current Trade Ideas

Current Trade Ideas

Trade: Short $/LATAM basket. Short a GDP-weighted index of Brazil, Mexico, Peru, Chile, Columbia.
Entry Level: 1.0000
Last Price: 0.9834
Entry Date: 9/14/2010
Return: +1.70%
Target level/time frame: 0.92 in 12 months.
Reassessment level: 4% trailing s/l. Current s/l = 1.02270

Trade: Long AUDJPY

Entry Level: 77.60
Last Price: 81.04
Entry Date: 9/14/2010
Return: +4.43%
Target level/time frame: 85.00 in 4 weeks
Reassessment level: 3% trailing stop loss. Current reassement level: 78.60

Trade: Long EURMXN

Entry Level: 16.4800
Last Price: 17.30
Entry Date: 8/26/2010
Return: +4.98%
Target level/time frame: 19.00 in 12 months
Reassessment level: 16.12 s/l

Trade: Short $/Asia. Short a GDP-weighted index of Indonesia, Korea, Singapore, Taiwan, Thailand.
Entry Level: 1.0000
Last Price: 0.9710
Entry Date: 8/19/2010
Return: +2.99%
Target level/time frame: 0.80 in 1 year.
Reassessment level: 5% trailing s/l. Current reassessment level: 1.0196

Trade: Short DXY (Dollar Index)

Entry Level 1: 86.00
Last Price: 78.08
Entry Date 1: 6/21/2010
Return: +10.14%
Target level/time frame: 64.50 in 2 years
Reassessment Level: 5% trailing s/l. Current reassessment level: 82.00

Trade: Long SDR – Special Drawing Rights (Synthetic)

Entry Level: 1.4736
Last Price: 1.5587
Entry Date: 6/21/2010
Return: +5.77%
Target level/time frame: 1.76 in 1 year
Reassessment level: 3% trailing s/l. Current reassessment level: 1.5120

Trade: Short NZDJPY

Entry Level: 60.20
Last Price: 62.35
Entry Date: 8/16/2010

2
1 Dock Street
Stamford, CT 06902
www.farostrading.com
www.twitter.com/FarosTradingLLC

FAROS TRADING | Current Trade Ideas

Return: -3.50% STOPPED OUT 09/14 (BOJ intervention)

Target level/time frame: 50.00, 6-12 months.
Reassessment level: 3.5% trailing s/l. Current reassessment level: 62.35

© Copyright 2010, Faros Trading, LLC. All rights reserved. Faros Trading LLC is a full service FX execution desk. Faros Trading LLC does not have its own dedicated research team nor
does it make explicit currency forecasts. However, Faros Trading LLC will comment on market themes and trends, highlighting those that the firm believes present the best opportunities in
the form of trade ideas. Faros Trading LLC cannot be responsible for any gains or losses taken by firms or individuals who initiate trades that are the same or similar to those discussed by
Faros Trading LLCThis message is intended solely for the individual(s) named, and may contain confidential or privileged information of Faros Trading, LLC. Any unauthorized review,
dissemination, distribution or copying is strictly prohibited. If you have received this message in error, please notify the sender immediately and permanently delete both the message and
any attachments. We do not waive confidentiality by mistransmission. This communication is not investment advice, an offer, or solicitation of any offer to buy or sell any security,
investment or other product.