Up until June 29^th C450 had been steadily climbing to +3% for the month of June. The months of April and May had previously sunk the dollar to oversold conditions, and so June saw the dollar steadily regain its strength from their lows and form upward trends that the C450 strategies up until June 29th were profiting from. C450 had formed many positions going short EUROS and short GBPUSD. 

However, though technically the dollar should have continued its upward climb, it fell sharply June 29th after the negative dollar interpretation following the comments of the FOMC (Federal Open Market Committee). On June 29, 2006, FOMC announced a quarter rate hike, which was expected (and good for the dollar), but what was not so expected was the Fed Chairman (Bernanke) would drop the following sentence: "further policy firming may yet be needed to address inflation risks.' Many analysts believed from that small statement that the fed were signaling a pause in rate tightening at its next policy meeting in Aug, and this pause in rate tightening is interpreted as ant-dollar. In seconds after the comment, the dollar fell more than 100 points. The euro was at $1.2527 (heading down) before the announcement, and was at 1.2660 after the announcement.

 
Consequently, because of the sharp fall the dollar after the news announcement, all our open short EURUSD and short GBPUSD hit their trailing stops or money management stops. We were up approximately +3% up for June, and seconds later we were -4.5% for June, losing 7.5% in seconds over one announcement.

 
That is the diagnosis of what occurred. The investor interpretations following an FOMC news announcement can sometimes knock the market in unpredictable directions. As it happened, we were on the wrong side of this interpretation, even though the odds were in our favor for the market to resume its dollar trend. I say the odds were in our favor because there could have been three outcomes from the FED announcement: 1) the FED says something that is interpreted as favorable to the dollar (we make an additional 10% in a short period); 2) the FED says nothing at all (market drifts down as it had been doing and we make an 5-10% over the following days in the direction of the preceding trend; or 3) the FED says something that is interpreted as unfavorable to the dollar (we lose 7% in a short period). We were covered for 66% of the possible interpretation, but in hindsight we did not gauge the Murphy risk of the latter outcome.

 
We are very confident in the system as a whole, but we as investors in our own system do not like 7% drops in equity over such risk-laden news announcements. Therefore, in order to protect ourselves in the future, we are analyzing alternative ways of mitigating losses in the future such as closing out 50% of open positions if we feel we have an excess of open positions entering into the FOMC meeting, such as we had on June 29th. If we had closed 50% of our excess open positions on June 29th, we would have kept our losses to a marginal 3% intraday, while still holding 50% of the remaining positions in case the market had resumed the direction of the trend preceding the announcement (to potentially make 5% additional profit with 50% less positions had the market resumed its dollar trend). For the most part, we are "laissez-fair" (hands off) regarding the operation of our system, for its strategies know better than any of us about the underlying trends of the market. However, in extreme circumstances, such as the FOMC news announcement when we judge our positions to be highly leveraged to one side, we believe that is prudent going forward to offload a certain percentage of our excess open positions to minimize our risk exposure while locking in potential profits from current open positions.  

 
This is our diagnosis of the loss that occurred on the afternoon of June 29, and our solution to it going forward.  We have full faith in potential of our trading systems over the long haul and confident they will quickly recover from the June 29^th drop in a short time.