UK economy 'faces crisis' warns former IMF economist

Source : BBC News UK

The UK should be seen in the same category of countries as Greece and Spain, who are facing severe debt problems, a leading economist has said.

Ex-IMF chief economist Simon Johnson, also described the G7 group of leading economies as "fundamentally useless".

His comments to the BBC came as G7 finance ministers discussed the growing crisis in some Eurozone nations.

Treasury sources said all three major credit-rating agencies had reaffirmed the UK's triple A credit status.

One of the major concerns about a country having large budget deficits is that it cannot spend sufficiently to boost its economy.

Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.

"It is right that borrowing has been allowed to rise so that the government has been able to protect the economy from the global downturn," a Treasury spokesman said.

"But, supporting the economy through to recovery goes hand-in-hand with steps to rebuild fiscal strength once recovery is firmly established.

"That is why the government has set out a clear plan to halve the deficit over the next four years, while protecting the frontline services that people depend on." Read more on BBC News

GBP/USD Update 2/Feb/10

The current major trend for the GBP/USD is still bearish. However the high volume in yesterday's daily bullish candle could given a signal that the bearish run could come into halt or other scenario where it could send back the pair into the 1.6100 region.

GBP/USD Daily Chart

Yesterday's low was 1.5849 which is in the support zone of a lower flag trendline. If the support at 1.5850 is still holding and the pair is moving above 1.5885 which is the Weekly Support 1, then we will likely to see the pair to continue further up with 1.6015 will be the first resistance to break.

Buying the pair now will need extra cautious as the major trend is still bearish and at the current time 5.00 p.m. (GMT +8) the pair is looking to make a recovery from yesterday's run up. A re-test of yesterday's low will violate previous day daily candle bullish signal.

GBP/USD 4H Chart

Currently I am still holding a buy from 1.5875 and added another at 1.5901. Target profit will be slightly below the major resistance of 1.6100 at 1.6075. However I will consider to cut it short at 1.6015 if the situation is not encouraging.

-Fareed

Buying GBP/USD

I think there is opportunity for me to buy from the deep at the current price. Below is the details of the trade:

Date : February 1st
Time : 10.40 A.M. (GMT +8)
Buy at : 1.5942
Stop Loss : Tight at 20 pips (1%)
Take profit : Currently set at 1.6015 (3.22%)

GBP/USD 1H Chart

This will be my first trade of the day and I expect to take the loss if the price going further down and will still looking to buy at range of 1.5870/90. There would be much greater support in that range as it was the previous up swing low and also where a lower trendline of a bullish trend lies. Breaking both support, I will reanalyze and consider for selling position.

GBP/USD 4H Chart

I will later post the outcome of the trade. Have a nice day!




*Update 1

Pending order for Sell Limit set at 1.6045 which is roughly the daily Pivot with tight tight Stop Loss of 25 pips (1%) and target profit at 1.5890 at 155 pips (6.8%).



*Update 2

Initial stop loss at 1.5922 was lowered to 1.5902 (2%) which is below the daily support 1. Another buy order was added at 1.5921 with stop loss at 1.5902 (0.3%). No further buy position will be added instead look for opportunity to sell after retracement if both buy position being taken out.



*Update 3

Stop loss has been hit. Cannot avoid by taking loss. However still looking for buy opportunity as price has reached the daily lower triangle and there is also a major support which holding the current bear run.


*Update 4

Enter buy position at 1.5875 with tight stop loss at 20 pips (1%). Current target will be looking for the price to re-test resistance at 1.6015 (140 pips @ 6.5%). Further drop will be looking for a pullback to 1.5850 to enter sell.

GBP/USD 4H Chart

-Fareed

Trading 101 : Is Demo Account Necessary?

I still remember the early days when I was in Forex trading. I was practicing on demo account for almost 3 months and it's absolutely fabulous. The results was outstanding I can say. Then the ego cloud has covered my conscious clear mind. Not even a week on live trading I blew it. That was the time when a demo account hero turn to zero in live trading. I bet that a lot of traders out there has been through it. It's only a matter of pride not to admit it that we were once a demo account hero.

The reason I wrote these articles which include some of my experience is that lately, I noticed a pattern among my friends and most new traders in public forum discussing about how well their performance on their demo account trading but then failed to lift up to the hype of the demo results into live trading. When I heard or read about it, the first reaction was a big smile. Not a smile in a sarcastic way, but more to like "Ahaa...I've been through it and I know why." kind of smile. When they asked why did I smile, I would simply say " My friend, you are trying to drive a real racing car but with the experience from Gran Turismo of PS 3. Be realistic!". The point is, demo account is not a training platform for any traders. In my opinion, demo account trading is much more suitable for testing purposes.

In my opinion and I bet that most traders who has been through this sort of experience will agree with me that demo account is not more that a platform for us to getting to know the Forex market and just another tool to test our trading strategies. The real experience and the final tweak will come from the live trading itself before we get into real live trading. It means that after we get to know the Forex market and also the functions or facilities provided by the broker and thorough testing with the trading method through the demo account, we should move on and put our method, ability, skills and mental strength using a live account but with limited funds in it.

I always told my friends and others who asked my opinion about getting started in Forex trading that they only need not more than $1200 to $1500 as capital. That will include the learning cost which eventually it can turn up to no cost at all if they really understand the meaning of trading and investment. Please understand that the money is not payable to me but instead it is their trading capital. My advice is that they should put $1000 aside as their real live trading capital while $200 to $500 will be the live training capital.

What they should do first is learn all the basic about Forex, get to know and understand how the Forex market works and do some testing with their trading strategies on a demo account first. This could take as long as they like until they are confident and feel suitably prepared for a real challenge in Forex trading.

So, now the first part of Forex trading challenge will be how to implement and work our way within our limitation. The first rule of the challenge is, ONCE YOU BLOW IT, YOU'RE DONE. I always remind my friends that once they blow the live training account, they should really take a deep consideration whether or not to continue in Forex trading. The reason is simple. If you cannot work within your limited budget, what makes you think you can handle a bigger budget?

Working with limited budget as training could also train ourselves to be more discipline. It can help us to come up with a workable strategies so that we can last in Forex trading. With a demo account, if anything happen then we can just reset it by create a new account. However try do it to a live account. How much and how long you can stand by keep on topping up you account if the trade goes bad? Unless you are super duper rich, then it is fine. But if you are into Forex because for an improvement on your financial part, then you will likely making yourself look like a fool.

"Small fund means small profits." I would say that a little bit of bull in it. There will always be a way for us to maximize our profits with a limited budget. We are the one who should make the decision in trading and why not taking the first step by picking up the right risk to reward ratio for our trade. Maybe the profits could not match with a bigger account profits, but in term of percentage gain, it could be more or less the same or even bigger. After all, why should we question the profits now? This is just for training purposes remember? The most important value which we must take into account with live training account is how to manage our small funds using a specific strategy, discipline ourselves from over-trading and most importantly is to value each cent we earn from it.

Even $0.01 is a profit and I will take it if that is the best I can get. Believe me, if during a live training $0.01 profit is not good enough, just imagine how greedy you can get with a real live trading account. Sometimes greedy is good, but the "greedy" which I meant was it can expose ourselves to further negative circumstances which can destruct all the confidence, learning experience and most importantly is the profits which we should have taken.

We may take all the time we need with the live training account as long we didn't blow it. My recommendation will be around 1 to 3 months the max depending on our performance. In the end of the day this method will improve our mental strength and also our trading strategies. After all those 2 are the core element in successful trading. When we feel the confidence is flowing, backed with a steady performance and mentally prepared, then we can take a further step forward by topping up the training account to go into real live trading with the extra $1000 or more depending on how much we can afford.

So, is demo account necessary? I would still say it is necessary for us to try the demo account for learning purposes and also to familiar ourselves with the features or any extras the broker is offering. We could also use the demo account to test our trading system and also strategies. However, when it comes to training, it is recommended that we try to put aside a small fund from our initial capital so that we can learn and experience what is live trading all about.


-Fareed

New Updates

I was away for the past several months but I am still into Forex trading. Since that I am now available, I will continue to post new updates into the blog and will focus more in Forex education, trading and psychology.

Durable Goods Orders in U.S. Probably Fell on Auto Shutdowns

By Bob Willis

July 29 (Bloomberg) -- Orders for U.S. durable goods probably fell in June for the first time in three months, reflecting auto-plant shutdowns, economists said before a report today.

Bookings for goods meant to last several years dropped 0.6 percent after rising 1.8 percent in May, according to the median estimate of 72 economists surveyed by Bloomberg News. Excluding transportation equipment, orders were probably unchanged after also rising the prior month.

Factories at General Motors Co. and Chrysler Group LLC were closed for at least part of the month, worsening the slump in bookings for autos and parts. Elsewhere, Caterpillar Inc. is among companies seeing steadier demand as government stimulus plans here and abroad start to kick in, indicating an economic recovery is in sight.

“Orders have stabilized,” Harm Bandholz, an economist at UniCredit Global Research in New York. “This fits in with the bottoming in the economy. We will see a rebound in production in the second half” of 2009.

The Commerce Department’s report on orders is due in Washington at 8:30 a.m. Estimates ranged from a drop of 2 percent to a 2 percent gain.

General Motors didn’t exit bankruptcy until July 10 when the former General Motors Corp. sold most of its assets to the new General Motors Co. Chrysler Group was formed with the sale of a majority of its predecessor’s assets June 10 to a group led by Italy’s Fiat SpA.

Auto Shutdowns

Both companies shut plants during the restructuring to save cash and trim stockpiles that soared when sales plunged late last year.

The inventory drawdown in manufacturing is setting the stage for future growth. Stockpiles fell at an $87 billion annual rate in the first quarter, the biggest drop on record, according to figures from Commerce.

The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. That follows a projected 1.5 percent decline in the second quarter and a 5.5 percent rate of contraction in the first three months of 2009.

“The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Federal Reserve Chairman Ben S. Bernanke told Congress last week.

Better Earnings

Caterpillar, the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts’ highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.

“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” Chief Executive Officer Jim Owens said in a statement July 21. “Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”

Caterpillar shares have risen 17 percent in New York trading since it posted its earnings. The Standard & Poor’s 500 Index has gained 44 percent since reaching a 12-year low on March 9, on signs the economy is improving.

Source: Bloomberg

Currency-Trading Revival May Take Years After Slide

By Lukanyo Mnyanda

July 28 (Bloomberg) -- Currency-trading volumes may take years to recover after a plunge in risk appetite sparked by the global financial crisis drove away hedge funds and speculators, according to foreign-exchange analysts.

Daily trading in London dropped 25 percent in April from a year earlier, with volumes in North America slumping 26 percent, according to surveys released yesterday by the Bank of England and Federal Reserve Bank of New York. Trade in Tokyo slid 16 percent, data compiled by the Foreign Exchange Market Committee in Tokyo showed.

The collapse of Lehman Brothers Holdings Inc. in September sent markets into a tailspin, prompting a flight from higher- yielding assets into currencies considered a refuge such as the dollar and the yen. While risk appetite is reviving on speculation the worst of the recession is over, a return to pre- crisis volumes won’t happen soon, said Geoff Kendrick at UBS AG.

“It’s probably going to be a multi-year adjustment process,” said Kendrick, a strategist in London at the bank, the world’s second-biggest currency trader, according to Euromoney Institutional Investor Plc. “Hedge funds have been impacted the most.”

The drop in London trading was “largely accounted” for by a 28 percent decline in spot trading, the Bank of England said.

U.K. Trading

The dollar was the most heavily traded currency with an 84 percent share of U.K. turnover in April, according to the Bank of England survey. The euro’s share declined to 45 percent from 48.6 in October, while the pound’s proportion was unchanged at 18.7 percent. As two currencies are involved in the transactions, the sum of the proportions totals 200 percent, the bank said.

Foreign-exchange trading rose to $3.2 trillion a day on average in the three years prior to the Bank for International Settlements’ September 2007 triennial survey.

Lower volumes in foreign-exchange markets contributed to bigger price swings as liquidity dropped, according to Ulrich Leuchtmann, head of foreign-exchange research in Frankfurt at Commerzbank AG, Germany’s second-biggest lender.

Currency trading may be reviving, said Satoru Ogasawara, a foreign-exchange analyst and economist at Credit Suisse Group AG, the largest Swiss bank by market value.

“Trade is gradually improving, which should be very supportive of the foreign-exchange market,” said Ogasawara in Tokyo. “The worst period is over and the decline in volume in foreign-exchange trading has hit bottom.”

Source: Bloomberg

Yen Weakens After Federal Reserve Signals Recession Is Easing

By Bo Nielsen and Ron Harui

June 25 (Bloomberg) -- The yen fell the most in three weeks against the euro after the Federal Reserve signaled yesterday the recession is easing, damping demand for the Japanese currency as a refuge in favor of higher-yielding assets.

The yen also declined against the Australian dollar and Brazil’s real after a government report showed Japanese investors bought more securities abroad than they sold for a seventh week. The Swiss franc fell for a second day against the dollar and the euro on speculation the nation’s central bank stepped up sales of the currency to keep it from strengthening.

“The Fed’s statement was soothing for risk appetite,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “The knee-jerk reaction will be to buy risk.”

The yen weakened 0.8 percent to 134.32 per euro as of 7:27 a.m. in New York, after falling to 134.82 in its biggest decline since June 1. It depreciated 0.8 percent to 96.43 per dollar. Japan’s currency slid 0.6 percent to 76.68 versus Australia’s dollar and weakened 1 percent to 49.0107 per real. The dollar traded at $1.3933 per euro, from $1.3930.

The Federal Open Market Committee said yesterday it doesn’t plan to increase purchase of bonds as part of its quantitative easing strategy and “the pace of economic contraction is slowing,” providing more evidence the U.S. slump is easing.

“The Fed sounded a slightly more hawkish note than expected,” analysts led by David Woo, London-based global head of currency strategy at Barclays Capital, wrote in a research note today. “The FOMC statement led to dollar gains. The move has only unwound the weakness seen the day before, so there may be some further upside in the short term.”

read more...

Swiss Franc Weakens on Speculation SNB Is Stepping Up Sales

By Gavin Finch

June 25 (Bloomberg) -- The Swiss franc weakened for a second day against the euro and the dollar on speculation the nation’s central bank stepped up sales of its currency to stem gains that are hindering exports.

The franc slid as much as 0.5 percent versus the euro and 0.3 percent compared with the dollar. Swiss National bank Chairman Jean-Pierre Roth said on June 18 policy makers are determined to “stop a further appreciation of the franc.” Nicolas Haymoz, a bank spokesman, declined to comment on whether the bank acted in foreign-exchange markets today.

The franc slid to 1.5327 per euro as of 12:38 p.m., from 1.5294 yesterday, and dropped to 1.0991 per dollar, from 1.0979. Currency traders said the SNB entered the market twice yesterday, driving the franc 1.8 percent lower against the euro and 2.9 percent down versus the dollar.

“If you look at the move in the franc, it’s a certainty that the SNB was back in the market,” Patrick Liniger, a currency trader in Lucerne at Luzerner Kantonalbank.

Source: BLOOMBERG

U.K. Pound Declines Against Dollar, Euro as Stock Market Falls

By Matthew Brown

June 25 (Bloomberg) -- The pound dropped against the dollar and the euro as stock markets declined and central bank Governor Mervyn King said the U.K. economic recovery will be slow.

The British currency also fell versus the Swiss franc and the Australian dollar as the FTSE 100 Index of U.K. shares slipped as much as 0.6 percent. The U.K.’s path out of recession may be a “long, hard slog,” the Bank of England’s King told lawmakers in London late yesterday.

“The market’s positioned long sterling and lower equities provide a good excuse to take some profit,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “The pound hasn’t performed since Mervyn King spoke yesterday.”

The pound fell 0.4 percent to $1.6336 as of 10:05 a.m. in London, and weakened 0.8 percent to 85.57 pence per euro. The British currency fell 0.9 percent to 1.7853 Swiss francs and dropped 0.8 percent to 2.0433 Australian dollars.

U.K. two-year gilts advanced, pushing the yield down one basis points to 1.14 percent. The 4.25 percent security due March 2011 climbed 0.02, or 20 pence per 1,000-pound ($1,364) face amount, to 105.21.

The 10-year gilt yield climbed one basis point to 3.72 percent. Bond yields move inversely to prices.

source: BLOOMBERG