Market Commentary by FXCC - The Eurozone Crisis – a Comedy of Errors

Despite the circuitous nature of the current macro economic events it’s becoming extremely difficult to keep up with the shape shifting events. For example, it’s not uncommon for commentators get confused as to who does what in this Comedy Of Errors Shakespearean farce. Whilst Trichet is about to exit stage left and take the bow and applause on the final curtain of his tenure, up steps Barroso to continue with the narrative. Meanwhile the ‘troika plot’ thickens, the G20 roll into town and the IMF..well the IMF continues to be the IMF.

Ultimately, in the finale of Comedy Of Errors, the Duke (Solinus) pardons Egeon for entering the city, Antipholus of Syracuse begins to court Luciana for marriage and Emelia holds a feast to rejoice the family’s reunion. The G20 solution feast can’t come quickly enough. As to whether or not that celebratory feast will be held this weekend, the weekend of the 23rd, or November 3rd is anyone’s guess given there may be other meetings held in between.

You have to wonder if each time there’s a small ripple of disquiet in “the markets” Christine Lagarde doesn’t send out a group text and e-mail; “we need another meeting scheduled guys, just let Bloomberg and Reuters know, that’ll soothe the markets for another week. Sorry if that takes the scheduled meetings right up to Christmas and ruins your holiday plans at Klosters…’ang on, wait a minute, if we have a meeting at Klosters we can prove that even when we have our ski-ing break, on most exclusive slopes there are, we’re still hard at it..genius, I so deserved this job..”

The thought does occur what if this series of meetings is simply a continual series of meetings for years to come? That this damage limitation exercise, to keep the patient alive whilst in a deep coma, is the only solution? You have to wonder if some party will eventually break ranks and ‘fess up that the Eurozone needs circa €2-3 trillion to avoid the dominoes of the sovereign debt crisis from toppling, anything else is quite simply puff and air, there has to come a stage when “the markets” aren’t fooled by the hollow rhetoric.

As the G20, the E.U. Ministers, the IMF, (overlapping with the troika), meet to thrash out ‘the plan’ Spain gets a credit downgrade from Standard & Poor’s. This meeting in Paris is the prelude to another meeting of the G20 due to take place on October 23rd before another meeting in Cannes in early November. European shares and the euro were steady on Friday as hopes of progress towards a solution to the euro zone’s debt crisis tempered the potential for a knee-jerk reaction to the credit rating downgrade for Spain. There was a time when a downgrade such as this, for one of Europe’s major economies, would have sent markets spiralling, particularly given many economists and commentators have continually pointed to Spain and Italy being the real problems in the Eurozone vis a vis direct comparisons with Greece.

IMF Managing Director Christine Lagarde told member countries last month that the IMF’s current $390 billion funding level may not suffice to meet all loan requests should the global economy worsen. The IMF are likely to continually repeat that plea during the succession of meetings over the next three weeks. However, it may prove to be increasingly difficult, if not impossible, for Japan, China, Russia and other BRICS nations to agree to contribute. A move to bolster the IMF’s firepower would be similar to a G-20 decision in April 2009 to triple the fund’s resources as part of a plan to pull the world out of recession. But certain countries may take a more isolationist stance towards what could be perceived as a sickness in the western banking system that could be contained by the west’s investors taking the sixty percent maximum ‘haircuts’ suggested.

The main Asian markets fell in overnight, early morning trade, the Nikkei closed down 0.85%, the Hang Seng closed down 1.35% and the CSI closed down 0.33%. The main European market indices are up in morning trade; the STOXX is up 0.57%, the FTSE is up 0.73%, the CAC 0.64% and the DAX up 1.01%. The SPX index future is currently up 0.7%. The euro is heading for its largest weekly gain versus the dollar since January as the G20 finance ministers start their two-day meeting. The currency is headed for its first five-day advance in seven weeks against the yen.

The economic data releases that could affect the afternoon session sentiment include the following;

13:30 US – Import Price Index September
13:30 US – Advanced Retail Sales September
14:55 US – Michigan Consumer Sentiment October
15:00 US – Business Inventories August

A Bloomberg survey shows a median expected change of -0.4% (month on month) for import prices which remains unchanged from the previous figure. Year on year this was expected to be 12.4% compared with the previous released figure of 13.0%. Economists surveyed by Bloomberg yielded a median forecast of 60.3 for the Michigan sentiment, compared with the previous release of 59.4.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/the-eurozone-crisis-a-comedy-of-errors/

Thirty Eight Steps on the Snakes and Ladders of Trading Success

When you take the first steps onto the trading ladder you could be forgiven for believing it’s a very straight forward process; open an account>trade>make money>learn>make a few mistakes>trade>make money>learn>make a few mistakes…one thing most traders can agree on is that trading is not what we expected it would be at the outset of our journey.

Unfortunately for the vast majority learning how to become proficient and profitable is not a straightforward journey. The blind alleys, the crossroads, the forks in the road, the red lights, the roadworks, the speed traps..there are many appropriate metaphors and analogies we can use to describe the events on the roadmap of self discovery, events we have to re-navigate in certain instances.

This list describing our shared journey and experience is a recently re-discovered gem. Honestly appraising where you are on the list can be a sobering experience. Undoubtedly as you read on you’ll recognise milestones you’ve passed, or are approaching. The gap between fourteen and fifteen is perhaps the most prescient point as it represents the time when most traders simply give up. The journey is never streamlined, you may not complete it in an orderly fashion, you may ‘jump’ certain milestones.

It takes more than; blind faith in your own ability, determination, or never say die attitude to progress beyond this potentially terminal fork in the road. Intuitively you must recognise whether or not you have developed and matured as an individual, mentally and psychologically the improvement should be self evident, if not perhaps time out from trading is the best course of action.

To become proficient and profitable at trading could take up to two years of full time dedication, trading part time this time limit could easily be doubled. Therefore taking a break from trading at an opportune time, whilst continuing to research, is a good course of action in order to recover your own personal equilibrium.

Once again this list should remind us that simply having a strategy to mechanical execute time after time represents only a small part of the complexities involved in order to become consistently profitable, sound money management and a strong psyche arguably rank higher. The fact that the steps from fifteen onwards concentrate more on this aspect of psyche and discipline illustrate what’s required when the trader is in recovery mode and his or her mind is finally fully focused.
38 Steps to Becoming a Forex Trader

1. We accumulate information – buying books, going to seminars and researching.

2. We begin to trade with our ‘new’ knowledge.

3. We consistently ‘donate’ and then realise we may need more knowledge or information.

4. We accumulate more information.

5. We switch the commodities we are currently following.

6. We go back into the market and trade with our ‘updated’ knowledge.

7. We get ‘beat up’ again and begin to lose some of our confidence. Fear starts setting in.

8. We start to listen to ‘outside news’ and to other traders.

9. We go back into the market and continue to ‘donate’.

10. We switch commodities again.

11. We search for more information.

12. We go back into the market and start to see a little progress.

13. We get ‘over-confident’ and the market humbles us.

14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.

MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED

15. We get serious and start concentrating on learning a ‘real’ methodology.

16. We trade our methodology with some success, but realise that something is missing.

17. We begin to understand the need for having rules to apply our methodology.

18. We take a sabbatical from trading to develop and research our trading rules.

19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.

20. We add, subtract and modify rules as we see a need to be more proficient with our rules.

21. We feel we are very close to crossing that threshold of successful trading.

22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.

23. We continue to trade and become more proficient with our methodology and our rules.

24. As we trade we still have a tendency to violate our rules and our results are still erratic.

25. We know we are close.

26. We go back and research our rules.

27. We build the confidence in our rules and go back into the market and trade.

28. Our trading results are getting better, but we are still hesitating in executing our rules.

29. We now see the importance of following our rules as we see the results of our trades when we don’t follow the rules.

30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.

31. We continue to trade and the market teaches us more and more about ourselves.

32. We master our methodology and our trading rules.

33. We begin to consistently make money.

34. We get a little over-confident and the market humbles us.

35. We continue to learn our lessons.

36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account

continues to grow as we increase our contract size.

37. We are making more money than we ever dreamed possible.

38. We go on with our lives and accomplish many of the goals we had always dreamed of.

Source: FX Central Clearing Ltd. (FXCC BLOG).
http://blog.fxcc.com/thirty-eight-steps-on-the-snakes-and-ladders-of-trading-success/