Market Commentary by FXCC - Default Is Not A Get Out Of Capitalism Free Card

Default Is Not A Get Out Of Capitalism Free Card, But There’s Always The Sun

The first time I went to Greece was to a small island called Lefkas, back then the small village of Vasiliki was at the time (late 80′s) termed “the windsurfing capital of Europe”. It was a cheap holiday, the accommodation was basic, but hey, it still can be on certain Greek isles, it’s all part of the charm. A charm I can testify is still there..

The last time I visited Greece was in 2010 on the island of Kos with my family, although the prices were somewhat different from the previous time we’d visited, back in 2006. The kids had noticed something, everything was dearer and no one was shopping..

A lot of evenings were spent strolling through the ancient streets after a meal out and the kids would spot souvenirs, even they’d noticed the escalation in price of the homogenous souvenirs typically decorated with the words; Kos, Crete, Rhodes, Santorini, Kefalonia or Zante..(yes we have done a bit of a Greek Odyssey over the years). But the crucial aspect in 2010 is that it ‘felt’ as if something had changed, the ‘mood’ of the people had shifted.

This was beyond the normal feeling that they must get tired of tourists, trivia and small talk, having built their way of life and livelihood from tourism if it failed so did they. They appeared nervous, stressed. Small things; there was less meat on the kebabs, the starters had less salad, flat Coke (with too much ice) was being passed off far too often and the feta cheese portions were tiny and had a processed taste and texture.

Even the Giros kebabs were costing far more money for a lot less, the locals appeared to be scraping the barrels and had entered a downward spiral of having no alternative, inflation had been unleashed and had ravaged their economy..

A stand out moment for me (that something had gone very wrong) actually came the previous year, 2009, in Crete when I asked how much it was to hire a jet ski? For 15 mins the price was now €50 euros, in previous years on other islands (and Crete) it’d been €25-30 for half an hour. These jet skis lay unused for most of the time when we had a beach day.

A few days later I got into a conversation with a lady who collected the money from the sun beds, she was English, had married a local and had been there ten years. Whilst she chuckled at the lack of business ‘smarts’ of her friends, “why not lower the price and get more business?” she explained that in some ways they were stuck.

Fuel costs had doubled, insurance had gone up two hundred percent, their rental/permits costs had ballooned so they had to price where they perceived the break even point to be, what was the point in running at a loss potentially risking the equipment from damage and depreciation? No, they just had to sit, hope and wait for customers, using the lament of many a shop keeper, they had to wait for “things to ‘pick up’ “..

I mused on the fact that this was the sharp end of capitalism now shaping the economy of these islands; fuel costs, insurance costs, compliance costs, tourists feeling the pinch back home, inflation that had brought ‘good’ asset inflation, (Grannie’s old pile of bricks sold to a dumb doing up property tourist for €100,000 Euros) had latent and lingering unforeseen consequences.. It’s certainly moved on a long way in twenty years since the pound exchange rate gave you untold spending power on your holiday.

The resentment the locals displayed towards the tourists was palpable during our last two visits, many Greek youths like their smartphones, like their scooters, like the new Peugeots bought on credit, like having their own two bed, air con, new build on the edge of town..and they need the tourist pound, dollar and euro to pay for it, “we lay on this entertainment for you, the least you can do is empty your pockets..”

Despite the recent optimism that the fiscal compact, combined with the EMSF and a debt forgiveness by private bondholders in the new revised swap deal, will repair Greece the threat of a default cannot be ruled out. To revive the insular tourist dependent economies on, for example, the popular islands will take more than austerity. In fact ‘austerical’ measures will simply kill off any hope of growth or repair, which inevitably brings to the forefront the potential human cost a collapse of the Greek economy would have, over and above the phenomena as a ‘ledger entry’.

‘The sun will still rise the next day’ is the simplistic statement that’s often used in relation to the Greeks and a potential meltdown by way of default. “So what, go back to the Drachma”..If only it was that simple and sadly for Greece they never were in a position to ‘do an Iceland’…

In a disorderly default the entire Greek banking system would collapse. They’d have to put the army on the streets. There would be riots. In default Greece could be out of the EU, out of the EZ, out of the credit markets. A new drachma would be subject to hyperinflation and be worthless. How would Greece import the fuel, food and medicines it needs, how would it feed twelve million people?

Tourism currently stands at approx. 17% of GDP, but with social unrest and power cuts would they still keep coming? What could Greece sell to the world to make money? Agriculture has been run down (thanks to eu policies in some regards) and is now only circa 4% of GDP. Greece would need to increase production immediately, that’s a lot of olive oil to sell and feta cheese, even processed, isn’t to everyone’s taste..

There is little or no manufacturing in Greece and very little industry. Industry could be developed, but not without credit. Default is not a “get out of capitalism free card”. Greece is at serious risk of becoming a land full of peasant farmworkers, under a military dictatorship, with rampant poverty and inflation. But hey, the sun will still shine…

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/default-is-not-a-get-out-of-capitalism-free-card/

Market Commentary by FXCC - How To Fiscal Your Compact, Or Compact Your Fiscal..Or Something

Twenty five European countries have finally endorsed the fiscal pact. They’ve agreed to enshrine balanced budget legislation into their national law, with annual structural deficits capped at 0.5% of GDP. Transgressors face penalties of 0.1% of GDP, with fines being added to Europe’s bailout fund, the European Stability Mechanism (ESM). The UK and the Czech Republic have (so far) declined to sign. The UK having further marginalised itself from the decision making were Europe is concerned.

A new Treaty on Stability, Coordination and Governance (SCG) will come into force once it’s been passed by the parliaments of at least 12 countries out of the 17 who use the euro. Euro area leaders have also confirmed that they’ll reassess whether the ESM, and its conceptual predecessor the European Financial Stability Facility (EFSF), has sufficient capital to act as a firewall, the ESM will come into force in July 2012.

EU leaders have also agreed to a new drive in order to stimulate growth and create employment particularly for young people. Unused development funds will be used to create jobs. They also vowed to help small and medium enterprises access to credit, and to use the Single Market as a key driver for Europe’s economic growth.

Germany’s unemployment rate has fallen to a new post-unification low. But in Italy, the unemployment rate has hit its highest level in at least eight years. Data released this morning highlights the importance of youth job creation, the number of people out of work in Germany fell to a seasonally adjusted 34,000 to 2.85 million in January, a 20-year low cutting the German unemployment rate to 6.7%. Italy’s unemployment rate has risen to 8.9%, the highest since national statistics body Istat began tracking the data in January 2004.

Leaders opposed the suggestion that a ‘commissioner’ should be installed in Greece to oversee its budget decisions. French president Nicolas Sarkozy warned that this would be undemocratic, as “the recovery process in Greece can only be enacted by the Greeks themselves.”

Eurozone countries will be barred from receiving financial help from the European Stability Mechanism if they don’t endorse the fiscal compact, encouraging leaders to sign up quickly.

Market Overview
The Stoxx Europe 600 Index added 0.6 percent as of 8:04 a.m. in London, bringing its January rally to 3.9 percent. Standard & Poor’s 500 Index futures rose 0.3 percent. The euro rose 0.2 percent, while the dollar fell against most of its 16 major counterparts. Oil gained 0.7 percent as copper and gold climbed.

Oil increased to $99.46 a barrel. Japan is the world’s third-largest crude consumer. Spot gold advanced 0.6 percent to $1,740 an ounce. The metal has climbed 11 percent this month, the best advance since August. Silver added 0.7 percent to $33.748 an ounce, bringing its January gain to 21 percent.

The euro strengthened to $1.3164. Euro-area unemployment probably rose to 10.4 percent in December, the highest since 1998, from 10.3 percent the previous month, according to the median estimate of economists surveyed by Bloomberg. The European Union statistics office releases the full data later today.

Market snapshot at 10:00 am GMT (UK time)

Asian and Pacific markets experienced mostly modest gains in the early morning session. The Nikkei closed up 0.11%, the Hang Seng closed up 1.14% and the CSI closed up 0.14%, the ASX 200 closed down 0.24%. European bourse indices are mostly positive due to the renewed optimism concerning the fiscal pact and Germany’s post unification low unemployment figures. The STOXX 50 is up 0.95%, the FTSE up 0.55%, the CAC is up 1.1% and the DAX is up 0.97%. The MIB is up 1.59%. The SPX equity index future is up 0.44%. ICE Brent crude is up $0.81 a barrel and Comex gold is up $10.55 an ounce.

The euro gained 0.3 percent to $1.3181 at 8:40 a.m London time after falling 0.6 percent yesterday, the biggest decline since Jan. 13th. The shared currency climbed 0.2 percent to 100.51 yen. The dollar dropped 0.1 percent to 76.26 yen after sliding to 76.18 yen, the weakest level since Oct. 31.

The euro is headed for its first monthly advance versus the dollar and the yen since October. The shared currency has appreciated 1.7 percent versus the greenback, and risen 0.8 percent against the yen.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/how-to-fiscal-your-compact-or-compact-your-fiscal-or-something/

Forex Trading Article by FXCC: 39% Of Forex Traders Are Profitable

I hope you’re OK reader, after all that must have come as quite a shock. Now you’ve picked yourself up the floor, after reading the article title, which is a fact (well kinda), we’ll dwell on the subject at hand; why do so many lose at trading forex and what are the adjustments so many have to make in order to be in that top forty percent of winners?

OK, before we go any further let’s firstly deal with the 39% of winning traders quote. The fact comes as courtesy of forexmagnates in their redux lite version of a report covering the profitability and performance of USA based forex brokers. The leading figure was 39.1% client profitability from a broker who had circa 24,000 active accounts. There’s also other interesting snippets of information that are worth noting before we move on.



There was a steep fall in the number of accounts and activity levels in 2011 whilst the percentages of profitable traders increased. This could suggest a couple of interesting points, firstly are we collectively getting better at what we do? Or (and it’s not mutually exclusive) have a lot of ‘amateurs’ left the arena, gone back to the day job, leaving the numbers to be enhanced by the superior or more proficient traders? More importantly the number of brokers has shrunk, only the fittest of traders aided by most regulatory compliant firms will thrive.

Number of forex accounts held with US forex brokers drops by more than 11,000 to all time low of 97,206
Clients’ profitability is up 6.4% on average, second consecutive quarter that profitability is improvin

The US retail forex industry is now showing obvious signs of slow down, the number of non-discretionary retail forex accounts held with US based reporting brokers down to record 97,206, the lowest count reported since Q3 2010 when first such report was released. The extreme regulatory climate has made it extremely difficult for American brokers to attract new clients. However, out of the top ten forex clients listed the lowest recorded level of profitability was circa 32%.

It’s fascinating how many of us would receive a paradigm lightening bolt to our pre-conceptions when hit with the kind of figure that led this article. I’m not alone in taking ‘at face value’ some of the data and assumptions that come our way as forex traders. Instinctively I ‘knew’ that the unsubstantiated figure often hurled around trading forums; that only 10% of traders are profitable, was nonsense.

Having enquired at director level and read a comprehensive investors intelligence report, the reasonable figure for success was estimated at 20%, double the previous assumption, but 39% certainly took many by surprise the first time it was published, even more so that the top ten USA brokers have clients enjoying a 32% success rate. There is, however, a caveat, my twenty percent figure includes spread betters who could in theory be skewing the data due to being much worse traders (en masse) than pure play forex traders, a theory worth examining at a later date.

A question often raised by these type of success stats is “are a tiny percentage of successful traders distorting these figures?” But generally percentages, averages and the distribution of random data doesn’t work like that, and we should already know this being traders. If circa 40% of trades are profitable then the figure for the percentage of actual traders being profitable will be fairly close to that number.

In the first paragraph we posed the question why are so many traders unprofitable? Well armed with this new information I wonder if that assumption shouldn’t be examined in more detail. Firstly, out of the circa 97,000 live accounts held in the USA roughly one third are profitable, now not all of these account holders will be full time dedicated sole occupation forex traders, some accounts would be used as ‘punting’ accounts, folk who bet as opposed to trade (and we can save the obvious cerebral discussion on the difference for another time).

It’s impossible to gauge that breakdown of actual numbers of profitable traders from the information and data, but a figure above 50% would be a fairly safe bet and let’s just take our logic a stage further; in order to be full time, (for some time), the vast majority would have to be profitable, otherwise they’d simply give up the job. Is t it interesting now much further and further away from this fantasy 10% figure we get the more we analyse a small piece of hard (audited) data.

Here’s my own take on a more human level so to speak; I refuse to accept that anyone who has gone through my pain barriers over the past five years or so, who has gone to the extremes of discovery I realised was compulsory in order to become a consistently profitable forex trader, wouldn’t ultimately be successful and by successful I’d suggest a metric of taking a regular and reasonable salary or investment return of the forex market. And as I’ve stated on numerous occasions unless you attack our ‘forex challenge’ full time you’ll never ‘kick off the shoes’ and trade part time in a laid back fashion, that’s a luxury that only comes from experience.

Back to the question posed in the initial paragraph; “why do so many lose at trading forex and what are the adjustments so many have to make in order to be in that top forty percent of winners?” I’ll leave you with six reasons and please feel free to join in on the blog with your own suggestions or additions. Now I’m not about to ‘eulogise’ on the reasons and of provide solutions, it’s a straightforward list and there’s no riddle, the answers are there, the solution evident.

But firstly a recap, if close on forty percent of traders are successful then success as a profitable forex trader may be more in reach than you’d first envisaged. And that one figure, far higher than most would have anticipated, should be heralded as encouragement for fledgling traders.

Six Reasons For Failure

Low start up capital
Failure to manage risk
Greed
Indecision – doubting the plan
Trying to pick tops or bottoms
Refusing to be accept losses


Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/39-of-forex-traders-are-profitable/

Daily Market Roundup by FXCC - January 31 am 2012

Are U.S. Consumers All Done With Shopping?

U.S. consumer spending collapsed in December, signalling slower consumption early in 2012. The figure was the weakest reading on spending since June 2011, the Commerce Department released on Monday, following two weak gains in October and November. Spending (adjusted for inflation) dipped 0.1 percent last month after edging up 0.1 percent in November. The fear must now exist that the January and February figures will fall far snort of expectation.

USA Banks Tighten Credit To Europe’s Firms
More than two-thirds of banks in a Fed survey of said they’d tightened credit to European financial firms in January, adding to the continent’s severe banking crisis. The survey, published on Monday, found U.S. banks taking business from their beleaguered European competitors. Policymakers worry that freezing up bank lending in Europe could affect the United States, threatening a fragile economic recovery.

Permanent Eurozone Rescue Fund Edging Closer
European leaders agreed on a permanent rescue fund for the euro zone on Monday, 25 out of 27 EU states backing the German-inspired pact for stricter budget discipline. The summit focused on a strategy to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle their mountains of debt.

EU Council President Herman Van Rompuy said a deal is needed this week in order for it to be finalised in time to avert a Greek default in mid-March when it faces significant bond repayments.

The leaders have agreed that a 500-billion-euro European Stability Mechanism will enter into force in July, a year earlier than planned. Europe is already under pressure from the United States, China, the International Monetary Fund and some member states to increase the size of the financial firewall.

Greece Swap Deal Edges Closer
Negotiations between Greece and bondholders over restructuring the 200 billion euros of debt made progress over the weekend, but were not concluded before the summit. Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Athens, pledged at a summit last October.

Germany caused outrage in Greece by proposing Brussels takes control of Greek public finances to ensure it meets fiscal targets. Greek Finance Minister Evangelos Venizelos said that to make his country choose between national dignity and financial assistance ignored the lessons of history. Merkel has played down the controversy, saying EU leaders had agreed in October that Greece was a special case that required more European help and supervision to implement reforms and achieve its fiscal targets.

Combine ESM with EFSF?
The ESM was meant to replace the European Financial Stability Facility, a temporary fund that has been used to bail out Ireland and Portugal, pressure is mounting to combine the resources of the two funds to create a super-firewall of 750 billion euros. The IMF says if Europe puts up more of its own money, the action will convince others to give more resources to the IMF, boosting its crisis-fighting abilities and improving market sentiment.

Market Overview
The yen strengthened versus all of its major counterparts as concern increased that Greek bailout negotiations will hinder efforts to resolve the financial crisis, boosting demand for haven assets. The yen appreciated 1 percent to 100.34 per euro at 5 p.m. in New York and touched 99.99, the lowest level since Jan. 23. The Japanese currency strengthened 0.5 percent to 76.35 per dollar, reaching 76.22. It touched 75.35 yen Oct. 31, a post World War II low. The euro declined 0.1 percent to 1.20528 Swiss francs after sliding to 1.20405, the weakest since Sept. 19.

Indices, Oil and Gold
Stocks slid on Monday due to worries that Greek and Portuguese debts could weigh on regional and global growth, hopes the U.S. economy can decouple from European issues helped U.S. equities close off the day’s lows.

In the United States, the Dow Jones industrial average dropped 6.74 points, or 0.05 percent, to 12,653.72. The Standard & Poor’s 500 Index dropped 3.31 points, or 0.25 percent, to 1,313.02. The Nasdaq Composite Index dropped 4.61 points, or 0.16 percent, to 2,811.94. The STOXX Europe 600 banking index fell 3.1 percent, French banks were hit after President Nicolas Sarkozy’s restated plan for a financial transaction tax, with an August target date, heated up the debate on more stringent legislation in the country.

Brent crude oil futures extended losses as supply disruption fears eased after the Iranian parliament postponed a debate about halting crude exports to the European Union. In London, ICE Brent crude for March delivery settled at $110.75 a barrel, dropping 71 cents. In New York, U.S. March crude fell 78 cents to settle at $98.78 a barrel, after trading from $98.43 to $100.05.

Gold hit a high of $1,739 an ounce at one point, the highest level since December 8, then edged down to $1,729 an ounce.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/january-31-am-2012/

Market Commentary by FXCC - Does Iceland’s Recovery Make Them The Real Poster Boy For The Financial Crash?

Ssshhh..whisper it quietly but that austerity “stuff” just isn’t working. You’d never have guessed it but only now, as for example Spain reverses into negative ‘growth’ and 51.5% of its young adults are unemployed, are the great and good of the IMF, the E.U., the ECB and the World Bank beginning to question the ‘wisdom’ of austerity.

That’s right, an economic puzzle, that even high school children studying economics could figure out wouldn’t work, isn’t working. Cut millions of jobs, cut public spending and people either can’t spend or won’t spend (due to deep seated fears of financial insecurity) and the economies laden with ‘austerical’ dogma, delivered with such religious zeal by an army of technocratic apparatchiks, find reverse gear. A deep recession is now back on the radar for the Eurozone even if the ‘small’ matter of Greece is supposedly solved this week.

Yep, we never saw that coming did we? Sprinkle anti growth dogma, like throwing weed-killer on a healthy lawn in summer time, and the result might be contraction. The real concern is that the banking and political elite did “see it coming” they knew exactly what’d happen to the economies and ergo the welfare of the citizens of the PIIGS if these austerical measures were introduced, but they followed through as their remit was to save the system, their system, irrespective of the price the majority would ultimately have to pay for generations to come.

Despite the constant hand wringing and prophecies of doom by our political leaders back in 2008-2009 there were other ways to repair the monetary system without redress to the methods western govts preferred. Let’s not forget that Asia still refers to the potential collapse in 2008-2009 as the “western banking crisis”. And as many of us were at pains to point out in 2009-2009 avoiding a great recession then could have unforeseen consequences in the form of a greater depression later on..

Evidence of an alternative is and was Iceland. There’s been a virtual black out of news regarding how well Iceland has recovered and in such spectacular fashion given the relative short short space of time which has passed. Whilst Iceland’s decision makers’ didn’t completely give the global banking system the finger, (they did accept an IMF bailout in millions as opposed to billions) they took the blows and have recovered. Their banks and more importantly the shareholders who took the risk, were to all intents and purposes wiped out.

Iceland did not bale out their banks and they’re experiencing growth of 3% (and no austerity measures whatsoever), this is ten times the current ‘growth’ level of Spain. Now as Iceland was, (as we were led to believe at the time) the country in the biggest mess, surely their recovery, in such a short period of time, proves that bailing out banks; transferring the debt to tax payers and calling it sovereign debt and imposing austerity measures, is in fact economic suicide.

It’s certainly worth taking time out to consider the plight of Iceland versus that of Spain, Greece, Ireland, Italy and Portugal..oh and France. What follows is a brief history of the crisis and the opinion of luminaries such as Joseph Sitglitz which you can watch below: “The lessons from Iceland’s Economic crisis”, “Iceland’s crisis and recovery”

Iceland’s Crisis
The 2008–2009 Icelandic financial crisis was a major ongoing economic and political crisis in Iceland that involved the collapse of all three of the country’s major commercial banks following their difficulties in refinancing their short-term debt and a run on deposits in the United Kingdom. Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history.

The financial crisis in Iceland had serious consequences for the Icelandic economy. The national currency fell sharply in value, foreign currency transactions were virtually suspended for weeks, and the market capitalisation of the Icelandic stock exchange dropped by more than 90%. As a result of the crisis, Iceland underwent a severe recession; the nation’s gross domestic product decreased by 5.5% in real terms in the first six months of 2009. The full cost of the crisis cannot yet be determined, but already it estimates suggest that it exceeds 75% of the country’s 2007 GDP. Outside Iceland, more than half a million depositors (far more than the entire population of Iceland) found their bank accounts frozen amid a diplomatic argument over deposit insurance. German bank BayernLB faced losses of up to €1.5 billion and had to seek help from the German federal government. The government of the Isle of Man paid out half of its reserves, equivalent to 7.5% of the island’s GDP, in deposit insurance.

Iceland’s financial position has steadily improved since the crash. The economic contraction and rise in unemployment appear to have been arrested by late 2010 and with growth underway in mid 2011. Three main factors have been important in this regard…

Firstly the emergency legislation passed by the Icelandic parliament in October 2008 which served to minimise the impact of the financial crisis on the country. The Financial Supervisory Authority of Iceland used the emergency legislation to take over the domestic operations of the three largest banks. The much larger foreign operations of the banks went into receivership.

A second important factor was the success of the IMF Stand-By-Arrangement in the country since November 2008. The SBA includes three pillars. The first pillar a program of medium term fiscal consolidation, involving painful austerity measures and significant tax hikes. The result has been that central government debts have been stabilised at around 80–90 percent of GDP. A second pillar is the resurrection of a viable but sharply downsized domestic banking system. A third pillar is the enactment of capital controls and the work to gradually lift these to restore normal financial linkages with the outside world. An important result of the emergency legislation and the SBA is that the country has not been seriously affected by the European sovereign debt crisis from 2010.

Despite a contentious debate with Britain and the Netherlands over the question of a state guarantee on the Icesave deposits of Landsbanki in these countries, credit default swaps on Icelandic sovereign debt have steadily declined from over 1000 points prior to the crash in 2008 to around 200 points in June 2011. The fact that the assets of the failed Landsbanki branches are now estimated to cover most of the depositor claims has had an influence to ease concerns over the situation.

Finally, the third major factor behind the resolution of the financial crisis was the decision by the government of Iceland to apply for membership in the EU in July 2009. One sign of the success was revealed as the Icelandic government successfully raised 1$ billion with a bond issue on 9 June 2011. This development indicates that international investors have given the government and the new banking system, with two of the three biggest banks now in foreign hands, a clean bill of health.

Joseph Stiglitz – “The lessons from Iceland’s Economic crisis”

www.youtube.com/watch?v=HaZQSmsWj1g

Market Commentary by FXCC - SHIBOR, Will This Be The Acronym Of The Decade For FX Traders?

There’s widespread industrial action in Belgium today as unions call a strike to mark today’s summit meeting. The general strike, Brussels’ first action in almost two decades, forced the authorities to shut the country’s rail network leaving many trams and buses without drivers. Some international flights have been cancelled, while some bulk cargo terminals have been shuttered at the port of Antwerp.

Portuguese borrowing costs have hit all-time highs this morning, as fears grow that it will need a second bailout. The yield (interest rate) on Portugal’s 10-year bonds is approaching 16%, this is twice the level which is regarded as being sustainable.

Data released this morning showed that Spanish GDP fell by 0.3% in the last three months of 2011, compared with the pervious quarter. That’s the first contraction in eight years.

EU leaders are predicted to sign off on a permanent rescue fund for the euro zone at a summit on Monday and are expected to agree a balanced budget rule in national legislation, with unresolved problems in Greece casting a shadow on the discussions.

The summit, which is the 17th in two years as the EU battles to resolve its sovereign debt problems, is supposed to focus on creating jobs and growth, with leaders looking to shift the narrative away from politically unpopular budget austerity.

SHIBOR
China wants to transform Shanghai into an international financial centre on par with the likes of New York and London by 2020. That goal was set in 2009 by the State Council and analysts have taken it as a broad deadline for liberalising the currency.

China intends to establish Shanghai as the global centre for yuan trading, clearing and pricing over the next three years as part of wider plans to make the commercial hub an international financial centre by 2020. Currency traders interpret the statement partly as a message from Beijing that the yuan’s movements, increasingly been influenced by the offshore market over the past few months, should be decided by the government.

The plan also aims to make the government-backed Shanghai Interbank Offered Rate (Shibor) the benchmark for yuan credit everywhere and targeting to more than double the annual non-forex financial market trading volume to 1,000 trillion yuan by 2015.

China has taken a series of measures over the past two years to invigorate the offshore yuan market in Hong Kong as part of a longer-term plan to promote the use of the yuan overseas and make it a fully-convertible and international reserve currency along with the U.S. dollar.

Earlier this month, Britain said it was teaming up with its former colony to secure London a top spot as an offshore trading centre for the yuan.

Market Overview
European stocks dropped and the euro weakened before regional leaders meet to discuss the debt crisis and Italy sells bonds. Chinese shares sank in the first day of trading after the Lunar New Year holiday.

The Stoxx 600 Index slumped 0.6 percent as of 8:20 a.m. in London, paring its gain for the month for 3.8 percent. Standard & Poor’s 500 Index futures retreated 0.5 percent. The euro slid 0.4 percent, snapping a five-day advance against the dollar. Australia’s dollar fell 0.9 percent, weakening against all of its 16 major peers. Treasury five-year yields extended declines to a record low of 0.7299 percent. Copper tumbled 1.5 percent.

The euro weakened after climbing 2.2 percent versus the dollar last week. Italy sells debt maturing in 2016, 2017, 2021 and 2022 today, after the country was downgraded by Fitch Ratings last week. The common currency lost 0.4 percent to 100.95 yen.

New Zealand’s currency fell 0.7 percent to 81.92 U.S. cents, ending its six-day advance, the longest since March. Central bank Governor Alan Bollard won’t seek another five years when his current term ends Sept. 25, the Reserve Bank of New Zealand said in an e-mailed statement today.

Copper for delivery in three months dropped 1.5 percent to $8,395 a metric ton on the London Metal Exchange. Nickel, zinc and aluminium lost at least 1.4 percent. Crude oil for March delivery fell 0.7 percent to $98.84 a barrel on the New York Mercantile Exchange.

Market snapshot as of 10:30 am GMT ( UK time)

Asian and Pacific markets mainly finished in the red in the overnight and early morning session. The Nikkei closed down 0.54%, the Hang Seng closed down 1.66% and the CSI 300 closed down 1.73%. European bourse indices have had a negative morning. The STOXX 50 is down 0.9%, the FTSE is down 0.62%, the CAC down 0.97% and the DAX down 0.8%. The IBEX is down 1.28%, Spanish GDP figures of -0.3% affecting the domestic equity market, this index is down circa 20% year on year but at 8545 has recovered substantially from the lows of 7640 in September. ICE brent crude is down $0.52 a barrel whilst Comex gold is down $13.2 an ounce.

The euro fell 0.7 percent to $1.3133 at 10:04 a.m. London time, after rising 2.2 percent last week. The common currency fell 0.6 percent to 100.76 yen. It dropped 0.2 percent to 1.2053 Swiss francs after sliding to 1.2052, the weakest level since Sept. 20. The dollar was little changed at 76.69 yen.

Daily Market Roundup by FXCC - January 30 am 2012

“I’ve Never Been As Scared As I Am About The World” – Donald Tsang CEO of Hong Kong.

The French government looks set to revise downwards its estimate for 2012 economic growth in an upcoming revision to its budget bill. Sources told reporters following a televised interview with President Nicolas Sarkozy that the government envisages cuts to spending, an austerity drive, as opposed to further tax rises, in order to make up for the shortfall. Sarkozy’s conservative government had pencilled in a GDP (gross domestic product) growth of 1.0 percent this year.

Greece Resolution On The Radar
Crushed by over 350 billion euros of debt and running out of cash rapidly, Greece is scrambling to appease the “troika” of its official lenders; the European Commission, European Central Bank and International Monetary Fund and finally fix a deal with private creditors simultaneously. Greece needs to organise a deal with creditors over the next couple of days in order to unlock and access its next aid package in order to avoid a chaotic and disorderly default.

Under the swap deal, private creditors would take a 50 percent cut in the nominal value of their Greek holdings in exchange for cash and new bonds longer term bonds. Their actual losses are expected to be much higher depending on the coupon, (the interest rate), involved. Estimates suggest that the total loss would be circa 70%.

Both sides have confirmed that the proposed deal is along the lines of a proposal made by Jean-Claude Juncker, the chairman of euro zone finance ministers, suggesting creditors had accepted his demand for a coupon of less than 4 percent, perhaps 3.5%. That would result in actual losses of close to 70 percent for creditors on their holdings. Sources close to the negotiations on Sunday confirmed that a deal was loosely in place with a coupon below 4 percent, however, any final agreement could not be clinched until euro zone finance ministers sign it off, effectively ratifying it.

Germany Shoots Warning Shots Across Greece’s Bow
German Economy Minister Philipp Roesler has called for Athens to surrender control of its budget policy to outside institutions if it cannot implement the reforms required under the euro zone rescue package. This suggests that even if the troika and private creditors agree an overall debt rescue/swap deal doubts still exist as to the long term viability of Greece to pay even with such austere cuts in place and 70% of the current debt wiped out.

In Berlin, Economy Minister Roesler became the first German cabinet member to endorse openly a proposal for Greece to surrender budget control. Roesler, who is also vice chancellor, told Bild newspaper, according to advance extracts of an interview to be published on Monday.

We need more leadership and monitoring when it comes to implementing the reform course. If the Greeks aren’t able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU.

Iran Turns Tables On EU And Threatens To Turn Off The Oil Tap
In a remark suggesting Iran would fight sanctions with sanctions, Iran’s oil minister has stated that the Islamic state would soon stop exporting crude to “some” countries.

“Soon we will cut exporting oil to some countries, Iranian oil has its own market, even if we cut our exports to Europe,” the state news agency IRNA quoted Qasemi.

Iranian lawmakers debate a bill on Sunday that could cut off oil supplies to the EU in days, in a move calculated to hit ailing European economies before the EU-wide ban on took effect. Iranian officials say sanctions have had no impact on the country.

Another lawmaker, Mohammad Karim Abedi, said the bill would oblige the government to cut Iran’s oil supplies to the European Union for five to 15 years, the semi-official Fars news agency reported.

The EU accounted for 25 percent of Iranian crude oil sales in the third quarter of 2011, analysts believe that the global oil market will not be severely disrupted if Iran’s parliament votes for the bill that would turn off the oil tap for Europe.

Davos Jamboree Draws To A Close
Global finance chiefs have ended their luxury stay in Davos, near to the super elite’s skiing hideaway of Klosters. They exited the stage warning no economy is safe from Europe’s debt crisis, adding urgency to their calls for its governments to deliver a swift resolution.

Chief Executive Donald Tsang says efforts to deal with the two-year-old European debt crisis have fallen short of what is required. Speaking at the World Economic Forum in Davos, he underlined the seriousness of the situation. At the forefront of concerns are debt write-down talks in Greece.

Donald Tsang, Hong Kong’s chief executive, said yesterday in Davos, Switzerland;

Nobody’s immune. You need decisive action. You need to inspire confidence. I’ve never been as scared as I am about the world. Two months ago in Greece you could make do with a 20 percent haircut, now even 50 percent is not easy. Maybe 70 percent is needed, so do it quickly

Brief Market Overview For Sunday Evening
The euro has failed to extend last week’s advance versus the dollar in early trading before European Union leaders meet in Brussels today (Monday) to discuss the region’s debt crisis.

The yen has maintained a two-day gain versus the 17-nation euro. Italy prepares to sell bonds for the first time today since its credit grade was downgraded by Fitch Ratings on Friday evening. Fitch cut the credit ratings of Italy, Spain and three other euro-area countries on Jan. 27, a lack financing flexibility and firepower in the face of the regional debt crisis being the reasoning.

Italy, the Eurozone’s third-largest economy, was cut two levels to A- from A+. Spain was lowered two grades, to A from AA-. Ratings on Belgium, Slovenia and Cyprus were also reduced, while Ireland’s was maintained.

Demand for the euro was evident amid speculation that Greece and its private-sector creditors will reach an agreement on a debt swap this week. The euro traded at $1.3213 as of 8:40 a.m. in Tokyo from $1.3220 on Jan. 27 in New York. It strengthened 2.2 percent versus the dollar last week. The common currency was little changed at 101.40 yen, following a 0.1 percent drop on Jan. 27. The dollar fetched 76.74 yen from 76.70.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/january-30-am-2012/

Market Commentary by FXCC - Has Canada Gone Loonie?

Has Canada Gone Loonie, Are They Seriously Considering Replacing All Their Paper Currency With Plastic?

There are many viral marketing campaigns on the web, most crash and burn. Others, such as the one my colleagues at FXCC towers are about to unleash, have a real point of difference, I won’t spoil the surprise as we’ll give you a heads up when it goes live. But when I read yesterday that Canada was considering replacing all of its paper currency with plastic by 2013 I did wonder where the punchline was and when would it arrive, was this a new crisp viral marketing campaign? Yeah, that’s it, a play on the word “loonie”, nice one…

Surely the story couldn’t be true, whilst we’ve moved onwards and upwards over centuries to stop trading in goats and groats, replacing paper currency with plastic is surely a step far? Besides which, had Canada checked with America? I’d be checking my borders right now if I were a Canadian, countries have been invaded and occupied for indirectly threatening the status quo and reserve status of USA dollar and they have oil in Canada too, lots of it. It’s a bit difficult to reach, buried deep in those tar sands, but nevertheless they have huge reserves, some studies suggesting second only to Saudi..

The Bank of Canada actually announced that it planned to replace the nation’s paper currency with plastic bills in November 2011, they’ve since started by circulating $100 dollar bills, but now their intention is to replace all their paper money with recyclable polymer bills by 2013.

Apparently the new polymer notes are designed to make counterfeiting Canadian money more difficult, with translucent windows and raised ink. Each bill will have a see-through maple leaf on one side and a larger, transparent section on the other that will contain colour-shifting images. Whilst they can be folded, they won’t crease and will always retain their original shape.

Mark Carney, the Governor of the Bank of Canada;

The Bank is combining innovative technologies from around the world with Canadian ingenuity to create a unique series of bank notes that is more secure, economic and better for the environment.

Polymer money has been adopted in many countries and the plastic bills have proven to be more economic, hygienic and effective in reducing the rate of counterfeiting. In Australia, the notes have reduced the amount of efforts and funds that are dedicated to combating counterfeiting operations, and made the validation of currency 82 percent more efficient than with paper notes, according to PolymerNotes.org.

In 2001, Canada began to see a dramatic increase in the amount of counterfeit bills and by 2004, officials found approximately 470 counterfeit notes per million bills in circulation, which Governor Carney states is a record high. By far the coolest (and arguably hardest feature to replicate) is the maple leaf window. With a light source coming in from the other side, if you raise the window close to your eye you see hidden numbers that correspond to the value of the bill. The new bills will last more than twice as long as their paper counterparts, but will cost about twice as much to produce.

The $100 bill was released in November 2011. In March 2012, the Bank will issue the polymer $50 bill. This note will focus on the influence of the northern frontier of Canada’s culture and will have a new portrait of Prime Minister William Lyon Mackenzie King, who served two terms in the mid-1900′s.

By the end of 2013, The Bank of Canada states that it will issue polymer $20, $10 and $5 bills. The $20 will be dedicated to Canadian involvement in world conflicts and feature Queen Elizabeth II. The Queen is currently the constitutional monarch of Canada, the United Kingdom, Australia, the Bahamas and 12 other sovereign states.

Sir John A. Macdonald, the first Canadian Prime Minister, will grace the $10, along with “The Canadian,” a transcontinental train that travels on what was once the longest railway in the world.

Canada’s contributions to the international space program will be recognised on the $5, and they will share the space with Sir Wilfrid Laurier. Laurier served as Prime Minister from 1896 to 1911 and was the first French-speaking Canadian leader.

Polymer researcher Stane Straus;

The tropical climate is a challenging environment for banknotes, especially because of high humidity and high temperatures. This causes paper notes to absorb moisture, thus becoming dirty and limp quickly. Polymer notes, on the other hand, do not absorb moisture. You could say that polymer notes beat paper notes in terms of cleanliness and durability in all climates, but this particular advantage of polymer notes stands out even more in tropical climates.

Stane Straus also sings the praises of polymer, from an environmental point of view, compared with traditional paper banknotes. Many of these are actually made of cotton, US paper bills are 75% cotton, which take large amounts of pesticides and water to produce.

The key points

Polymer notes last more than twice as long as paper notes, and cost less to produce over their lifetime, but they also have some disadvantages
They used to be harder to counterfeit than paper notes, though paper notes have now caught up
Disadvantages include being unfold-able and more slippery
Central bankers are conservative and risk averse – and are waiting to see whether their counterparts in other countries embrace plastic first

Today, 23 countries use polymer banknotes, but only six have converted all denominations into plastic.

Stane Straus;

Central banks are very conservative institutions. People making the decision to convert to polymer – partially or fully – are taking a personal risk. Many central banks are simply waiting until others convert and then they will follow.

Perhaps the so called conservatism (with a small ‘c’) of the largest central banks actually masks another wider doubt were the dollar, euro, sterling and yen is concerned. The overall psychological and numerical debasement of a currency at the wrong time could have huge impact on it’s perception as a store of value. It could be sometime before we see the FED, the BoE, BOJ and ECB follow Canada’s example, especially when all four countries’ currencies appear to be locked into a death match spiral free-fall.

FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/has-canada-gone-loonie/

Market Commentary by FXCC - A Whale Stranded Upon The Coast Of Europe

Edmund Burke, a British statesman and philosopher who lived from 1729-1797, once described Spain as “a whale stranded upon the coast of Europe”. That quote seems apt on the morning that desperately poor Spanish unemployment figures have been published.

Spain already has the highest unemployment level in the EU, where youth unemployment is close to 50%. The number of people out of work has finally risen above 5 million, but Spain hasn’t sneaked over the wire, or reached this psychological number in a ‘photo finish’ it’s smashed through it. An extra 400,000 have found themselves unemployed since the third quarter of 2011. The National Statistics Institute said 5.3 million people, or 22.8% adults, were out of work at the end of December, up from 4.9 million in the third quarter. the fact that 50% of young Spanish adults are unemployed is an incredibly disappointing figure that should generate far more discussion in the wider media.

Spain’s adherence to its imposed (and partly self imposed) austerity measures may be a canary in the mine for technocrats and decision makers, the belief that slashing costs and imposing austerity measures works is deeply flawed. Whilst it may potentially ring fence the asset wealth of an elite few the human misery it inflicts, on those whose only individual collective ‘sin’ was to take on board a slight increase of debt, is not a price worth paying. The Spanish are suffering and some ‘big questions’ need asking with regards to the wisdom of the imposition of austerity measures as a one dimensional supposed ‘solution’.

Austerity kills potential growth, not only due to the cuts, but the psychological blow delivered towards the masses confidence causes an unforeseen consequence. For example, retail, on which Europe is as reliant as the USA (70% of the economy is consumerism driven) is hit hard due to the austerity measures. The economy of the austerity state inevitably enters into a downward spiral. Whilst not uncontrollable this pattern can have severe repercussions on the potential for any economic recovery.

Portugal
The concerns over Portugal’s financial health were re-visited this week as Portugal’s bond yields rose steadily, to all-time recent highs, despite the issuance of 2.5 billion euros of short-term treasury bills last week at slightly lower yields. The country’s 10-year yields have risen to circa 15 percent. Five-year credit default swap prices implied the market was pricing in a 66.8 percent chance of a Portuguese default.

The main issue for Portugal, the third euro zone country to seek a bailout after Greece and Ireland, is does it have enough time to restructure its economy as it enacts harsh austerity and faces the worst recession in decades. Any hope of growth under such austerity terms are surely tenuous.

2012 will be the toughest of the three-year bailout for Portugal as the deep spending cuts, including the elimination at a stroke of two months of pay for civil servants and across-the-board tax hikes, could cause a 3 percent economic contraction after a 1.6 percent slump in 2011. The Portuguese government pledged to cut the budget deficit to meet the goals set by the bailout, it only met the goals in 2011 due to a much criticised and one-off transfer of the banks’ pension funds to the state.

Under the terms of the austere bailout, Portugal also had to agree to introducing sweeping reforms, including that of the highly rigid labor market, agreement was reached on this last week with unions.

Greece
The highly respected European Union Economic and Monetary Affairs Commissioner Olli Rehn has this morning stated that the authorities are “very close” to reaching an agreement on a private-sector involvement in Greece this month.

Rehn said in a press conference at the World Economic Forum in Davos, Switzerland, today;

The next three days will be very crucial for the future in three years. In other words, We’re just about to close a deal on private sector involvement between the Greek government and the private-sector community. Preferably still in January rather than February. We need to have a sustainable solution for Greece. PSI won’t be applied to any other country of the euro zone. An agreement may come if not today, then over the weekend.

Market Overview
Ten year U.S. Treasury note yields climbed three basis points, Standard & Poor’s 500 Index futures has risen circa 0.2 percent. The Stoxx 600 Index added 0.1 percent after falling 0.5 percent. The Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments climbed 7.5 basis points to 330 basis points. Oil gained 0.7 percent to $100.37 a barrel.

The yen rose against all 16 most-traded peers, appreciating 0.6 percent against the euro. The euro was little changed at $1.3097, on course for a second weekly gain. The yen has strengthened the most in a month versus the dollar whilst the cost of insuring government debt has risen as bondholders resumed talks with Greece. The yen has appreciated by as much as 0.7 percent versus the dollar before trading 0.6 percent higher at 10:15 a.m. in London.

Market snapshot at 10:40 am GMT (UK time)

In the overnight/early morning Asia/Pacific session the Nikkei index closed down 0.09%, the Hang Seng closed up 0.31% whilst the ASX 200 closed up 0.4%. European bourse indices have enjoyed mixed fortunes in the morning session, the STOXX 50 is flat the FTSE is down marginally by 0.13%, the CAC down 0.03%, the DAX is up 0.32%. The SPX equity index future is currently down 0.58%, Brent crude is up $0.55 a barrel whilst Comex gold is down $2.8 per ounce.

The euro strengthened versus the dollar as borrowing costs fell at a sale of Italian bills. The 17-nation currency has appreciated 0.2 percent to $1.3140 at 10:15 a.m. London time. Italy auctioned 182-day bills at a yield of 1.969 percent, down from 3.251 percent at a sale of similar maturity securities on Dec. 28.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.3 percent, falling for the third straight day.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/a-whale-stranded-upon-the-coast-of-europe/

Forex Trading Article by FXCC: So What Kind Of Person Makes A Success Of Forex Trading?

If you regularly browse and or contribute in forex trading forums you’ll quickly realise that traders come in all shapes and sizes, from all ‘walks of life and from all corners of the planet. Many have brilliant illuminating stories to tell and pasts to recount (and on occasion recant) as to how they came to arrive at a point in time were they’re either recognised as, or have given themselves the title of, “forex trader..”

If you ask either forex brokers or spread betting firms what the breakdown of their losing clients is they’ll suggest at best it’s twenty percent winners. As an aside one director of a spread betting firm when I recently asked him what; “the breakdown of his customers was” replied with dry humour, “oh we have at least one or two a day that have a serious breakdown”..

It’s far more difficult to establish what backgrounds successful traders had, what jobs, professions, qualifications led them to seeking out retail forex trading as a profession than what the percentage of winners versus losing trades is. If looking for a common factor it’s very difficult to quantify. Our pre-conceptions lead us to believe that someone in the banking industry, an accountant, an engineer or a maths genius would have the ability to fashion an edge and carve out a career in retail forex trading. However this could prove to be wide of the mark.

I recall an engineer who tried to master what he had outwardly perceived to be the ‘science’ of forex trading, he eventually give up having decided that his analytical skills were not suited to the industry.

He reached the rapid conclusion that having an analytical/logical background, was in fact a liability to trading. The first thing that analytical/scientific types will do is look at a FX chart and assume there must be some mathematical formula driving price action. That mindset inevitably leads to a path searching for the “holy grail” formula that encompasses every possible scenario that may occur on a chart, a search that can continue indefinitely.

Analytical types look at a chart and become convinced that correlation is everything, that there has to be a science underpinning the whole process, a consistency, a mathematical constant. Technical types focus on logic and exactness and in trading the process is never exact or logical, other than with hindsight. Resistance and support zones may or may not be reached ‘right on the dot’ and there are times when doing what appears to be totally illogical; buying when everyone else is selling, may result in banking pips.

However, the engineer did have words of encouragement and by his own admission came close to the tipping point of moving into profitability, unfortunately it appeared that it had come to late. He’d expended enough time, energy and money and had to “go back to the ‘day job”. He would actively encourage analytic types to attempt to trade once they’d discovered and begun to accept the unorthodox and at times random nature of the markets.

He’d also remind fellow traders, that it’s probably analytical types and traders that are responsible for developing the trading platforms that we use and take for granted. The incredibly complex formulas that are required to drive the software that makes platforms work were developed by analytical types.

I recall a mentor stating that in his experience, the three best occupations leading to success into trading were the Military, Pilots and Musicians.

If former full-time musicians relate to the charts because they move like music they’re likely to be in for a huge let-down, it’d be impossible to compose a tune as random as the days when the FED announces a round of quantitative easing. Similarly believing that the disciplined approach to learning to trade is the same as the approach to learning an instrument is equally misplaced other than accepting that to become perhaps a grade eight piano player can take a decade. The charts are not a long, continuous jazz improvisation, no amount of improvising can lead the markets from one climax to the next in a fairly predictable manner, with an occasional twist.

Perhaps it’s best to come at the question of what type of person makes it as a trader from a different angle by extending the word person to personality and ask what ‘hirers’ look for in potential traders. I recall a conversation from the horses mouth so to speak, a retired banker responsible for a team of equity traders;

I ignored background when hiring traders. I cared more about how sharp they appeared, whether their personality traits allow them to be sustainable, responsible, disciplined, prepared, agile, focused. In truth the only activity that will ever teach someone how to trade is trading itself. Some backgrounds will be more useful than others, such as poker, but in the end it’s the natural ability and personality of the person that makes a good trader, not their background or qualifications.

He also ignores education;

The current hierarchical work and social system isn’t conducive to a trader’s mindset, it’s set up to produce conforming worker bees. A uni graduate is barely more likely to become a profitable trader than someone from an outlier random background. I imagine uni grads on average are slightly more intelligent, but the correlation between educational attainment levels and intelligence isn’t nearly as strong as our culture would have you believe. Our educational system can indirectly limit our potential given how we’re forced to conform.

There’s a story about the great Muhammad Ali that has stuck in my mind for years, as a Father of three I often relate it to my children. My Daughter’s at uni in the UK and my eldest Son is doing his A levels, both are doing part time bar and kitchen jobs as their first experience of work.

The exact quote is difficult to pin down but asked what he’d have done had he not been a boxer Ali said it doesn’t matter what he’d have done as he’d have been the greatest. He’d point at garbage trucks on the streets of America and say if he’d been a bin man he’d have worked hard to be the best bin man there was. I use this ‘Ali’ tale for my children to emphasis that whatever job, whatever industry you find yourself in you can always take pride in being professional and doing the job in the right way and to the best of your abilities. Approach every job (and task within that job) with the right attitude and right frame of mind. Hard work and dedication will overcome most obstacles.

These next two quotes, which are literal, perhaps indicate and illustrate what type of personality traits are required to make it as a successful self employed trader far more than education qualifications, background or previous profession;

Only a man who knows what it is like to be defeated can reach down to the bottom of his soul and come up with the extra ounce of power it takes to win when the match is even.

Champions aren’t made in gyms. Champions are made from something they have deep inside them – a desire, a dream, a vision. They have to have the skill and the will. But the will must be stronger than the skill.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/so-what-kind-of-person-makes-a-success-of-forex-trading/

Daily Market Roundup by FXCC - January 27 am 2012

The USA Raises Its Debt Ceiling To $16.4 Trillion As It Burns Through Over $1 Trillion Inside 6 Months

As the Dow index reached a level in the afternoon/evening session not seen since post 2008 a less optimistic economic figure and barometer was reached. The USA government ‘process’ agreed to raise its debt ceiling.

The U.S. Senate failed to reject a bid to stop the debt ceiling hike on Thursday evening. The US now has $16.4 trillion in debt ‘capacity’ as of Friday. Approximately $100 billion was plundered from federal pension schemes over the past month in order to meet obligations and avoid a default, or further downgrade by the ratings agencies. The US will have circa $15.4 trillion in debt on Monday, a spend of circa $1.1 trillion since August. How long will the remaining circa $1.2-1.3 trillion in debt capacity last? At $125 billion/month it’s unlikely, on the current projections, that the ceiling raise will be enough to carry the USA past the November deadline without another massive debt ceiling debate and debacle.

How the policy makers and shapers will sell a burn rate of $2.4 trillion to the public, so close to their Presidential election, will be fascinating to observe. Whilst market commentators remain convinced that USA inflation is under control it’s becoming increasingly difficult to calculate and postulate how the USA can get begin to get ‘ahead of the curve’ and rein in what appears to be an out of control forest fire of debt.

The promise of cut backs, in order to control the public debt, was part of the legislation that permitted the original debt ceiling to be raised back in August 2011. If the USA burns through circa $2.4 trillion inside a calendar year then the cut backs are either not deep enough or wide ranging enough or alternatively the blunt policy is deeply flawed..

Greece Agreement
After weeks of wrangling over the coupon, (interest rate), Greece must pay on new bonds it will swap for existing debt, attention has shifted to whether or not the ECB and other public creditors will follow private bondholders in taking on board some of the losses.

A day after the International Monetary Fund chief Christine Lagarde said the ECB may need to accept losses on its Greek holdings, the European Union’s top economic official also warned more public money will be needed to make up a shortfall in the country’s second bailout. The ECB had previously ruled out taking voluntary losses on its Greek bond holdings but is now debating how it would handle any forced losses and whether to explore legal options to avoid such a hit.

Economic and Monetary Affairs Commissioner Olli Rehn told Reuters that euro zone governments and EU institutions would need to make up the difference so that Greece’s public debt can be reduced to close to 120 percent of annual output by 2020.

Oli Rehn;

In fact, we’re quite close to a deal between the Greek government and the private sector community. I would expect it will be concluded in the coming days, preferably still in January, not February. We are preparing a package which will pave the way for a sustainable solution for Greece, and in that package, yes, on the basis of the revised debt sustainability analysis, there is likely to be some increased need of official sector funding, but not anything dramatic.

A debt deal must be clinched a month before 14.5 billion euros of bond redemptions fall due on March 20th, in just over three weeks. If a deal is not reached by then, Greece could sink into an uncontrolled default, triggering a banking crisis spreading contagion throughout the euro zone, although the ECB’s creation of nearly half a trillion euros of three-year money lent at 1% for the banks in December has to a large degree tempered that fear.

Market Overview
U.S. stocks fell, reversing the earlier rally that had seen the Dow Jones Industrial Average rise towards the highest level witnessed since 2008. Bank shares tumbled whilst a report showed that sales of new homes declined.

The S&P 500 lost 0.6 percent to 1,318.43 at 4 p.m. New York time, reversing a gain of as much as 0.6 percent. The Dow fell 22.33 points, or 0.2 percent, to 12,734.63, after earlier rising to the highest level on a closing basis since May 2008.

The S&P 500 has risen 4.8 percent so far this year, poised for the best January since it gained 6.1 percent during the first month of 1997, according to data compiled by Bloomberg.

The S&P 500’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback.

The Chicago Board Options Exchange Volatility Index, the gauge known as the VIX, fell below 20 for the first time since July on Jan. 19. The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg showed. The VIX is the benchmark gauge of S&P 500 options prices.

European stocks advanced, on average European indices have climbing 20 percent from their September lows entering a bull market, or secular bear market rally. The Stoxx Europe 600 Index added 1.1 percent to 257.86.

Source: FX Central Cleaing Ltd, (FXCC BLOG)
http://blog.fxcc.com/january-27-am-2012/

Daily Market Commentary by FXCC - If Helicopter Ben Flies Again We Needn’t Fear Hyper Inflation

Many economists and market commentators fear that the US and other countries with large budget deficits (in their own floating rate currency) face hyperinflation if they; “continue to print their way out of the current problem”. Many also fear that in the example of the USA “Helicopter Ben” has pumped so much “money” into the system and the economy that extremely high inflation, if not the phenomena of hyperinflation, will be the inevitable result.

The Weimar republic reference is the usual, arguably intellectually lazy, stereo typical vision that’s suggested; the natives of a country suffering Zimbabwe levels of interest and using the paper money to stoke fires, were fruit is a more stable currency than paper. But does this theory really hold water?

Helicopter Ben
Ben Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis.

He served as Chairman of President George W. Bush’s Council of Economic Advisers before President Bush appointed him to be Chairman of the United States Federal Reserve on February 1, 2006. Bernanke was confirmed for a second term as Chairman on January 28, 2010, after being nominated by President Barack Obama.

Bernanke is fascinated by the economic and political causes of the Great Depression, on which he’s had published numerous academic journal articles. Before Bernanke’s work, the dominant monetarist theory of the Great Depression was Milton Friedman’s view that it had been largely caused by the Federal Reserve’s having reduced the money supply. In a speech on Milton Friedman’s ninetieth birthday (November 8, 2002), Bernanke said, “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, Friedman's coauthor]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

Bernanke has cited Milton Friedman and Anna Schwartz in his decision to lower interest rates to zero. Anna Schwartz however is highly critical of Bernanke and wrote an opinion piece in the New York Times advising Obama against his reappointment to Chair of Federal Reserve. In her opinion Bernanke appeared less focused on the role of the Federal Reserve, and more on the role of private banks and financial institutions.

Bernanke believed that the financial disruptions of 1930–33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand, identifying an effect he called “the financial accelerator”. When faced with a mild downturn, banks are likely to significantly cut back lending and other risky ventures. This further hurts the economy, creating a vicious cycle and potentially turning a mild recession into a major depression.

In 2002, following coverage of concerns about deflation in the business news, Bernanke gave a speech about the topic. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. He said “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” (He referred to a statement made by Milton Friedman about using a “helicopter drop” of money into the economy to fight deflation.)

Bernanke’s critics have since referred to him as “Helicopter Ben” or to his “helicopter printing press.” In a footnote to his speech, Bernanke noted that “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”

For example, while Greenspan publicly supported President Clinton’s deficit reduction plan and the Bush tax cuts, Bernanke, when questioned about taxation policy, said that it was none of his business, his exclusive remit being monetary policy, and said that fiscal policy and wider society related issues were what politicians were for and got elected for.

Bernanke favours reducing the U.S. budget deficit, particularly by reforming the Social Security and Medicare entitlement programs. During a speech delivered on April 7, 2010, he warned that the U.S. must soon develop a “credible” plan to address the pending funding crisis faced by “entitlement programs such as Social Security and Medicare” or “in the longer run we will have neither financial stability nor healthy economic growth.”

Bernanke said that formulation of such a plan would help the economy now, even if actual implementation of the plan might have to wait until the economic outlook improves. Bernanke also pointed out that deficit reduction will necessarily consist of either raising taxes, cutting entitlement payments and other government spending, or some combination of both.

Hyperinflation, is it a hot air balloon theory that needs popping?
In the aftermath of the financial collapse of 2008, the US government spent, lent, or guaranteed up to $29 trillion to save Wall Street. The record increase in bank reserves was created as the Fed lent reserves, purchased toxic waste assets, and bought Treasuries from banks.

Most of this occurred during QE1 and QE2, as the Fed pursued a “quantity target” (increasing reserves) rather than simply a “price target” (low interest rate) to stimulate the economy. It didn’t work. Now QE3 seems inevitable but the jury is still out on whether or not, in simplistic terms, QE ‘works. However, by any chosen metric the banks have a couple of trillion dollar reserves they don’t need.

The ‘hyper-inflationistas’ worry is that if banks lend out those reserves, borrowers will pump up the economy causing inflation. Banks can lend a multiple of the reserves, fractional reserve banking, rather than lending $2 trillion, they could lend $20 trillion+ adding trillions to the USA GDP of circa $15 trillion, beyond the capacity to actually produce goods and services. All that would be added to the Federal government’s record budget deficit and borrowing. In short a debt-fuelled spending bubble would be the result, leading to the USA becoming the next Zimbabwe or Weimar republic.

However, that scenario and theory is critically flawed. Banks don’t lend reserves, there is no balance sheet operation that allows banks to lend reserves to anyone except to another bank that has an account at the Fed. The reason is quite simple: reserves are an entry on the balance sheet of the Fed. When a bank lends reserves, the Fed debits that bank’s account and credits another bank’s account. Banks lend their own IOUs, banks create demand deposits when they make loans; they do not lend reserves.

Reserves can, however, disappear if and when banks buy Treasuries from the Fed or from the Treasury, “paying for Treasuries” using reserves. Except for cash withdrawals or purchases of Treasuries, reserves stay locked up at the Fed.

The belief in hyperinflation relies on the contention that banks are willing to increase lending when they hold demand deposits as opposed to time deposits, they lend neither. They use reserves (demand deposits) for clearing with other banks, and for such day to day activities as ATM withdrawals. But Treasuries (“time deposits”) serve just equally well, banks can borrow reserves from other banks or the Fed, using Treasuries as collateral or other assets.

Banks don’t need reserves or Treasuries to lend, they lend their own IOUs. If they need reserves for clearing, or to meet required reserve ratios, they borrow them from other banks or from the Fed (discount window), or they sell assets to obtain them.

No inflation pressure on the horizon
Other than the speculative boom in commodities there are no significant inflation pressures in the USA economy. Up to twenty million Americans are looking for jobs, unemployment will be a permanent scar on the USA economy for years. At the current rate of very weak “recovery” the USA will not get back to the employment levels of January 2008 before 2017-2020 assuming that recovery doesn’t de-rail.

Recent data for the US shows a “double-dip” recession could be underway. A resumption of the financial crisis looks inevitable. Where are all those borrowers who are willing and just as importantly able to borrow the $2 trillion or $20 trillion to cause rampant inflation? The US private sector has ramped up their meagre net savings, they’re not borrowing, or spending their shrinking income. They’re behaving rationally by tightening their belts and paying off personal and corporate debt, therefore the prospects for inflation have not been smaller in living memory.

The prospect of hyper-inflation is about as close to zero as you could get, it’s as close to a bet that Bernanke will keep rates at ZIRP, (his zero interest rate policy) until 2014, which he stated yesterday as being as sure as a cheque you could take to the bank..that’d be a fractional reserve bank in control of its ‘fiat’ currency.

Forex Trading Article by FXCC: You Are What You Eat And You Only Eat As Well As You Trade

There are numerous times when life and trading dovetail, the phrase; “you are what you eat”, could equally be applied to trading, I’ve often mused on the concept that as retail traders we “only eat as well as we trade”. There are plenty of other examples were we observe trading and life mixing, sport is one constantly reoccurring theme when measured vis a vis its similarity to trading. We’re not getting into trippy, spooky fibonacci territory here, but sometimes the obvious similarities with sport, particularly at highest level, are quite revealing and overlooked..

For example, a tennis player needs to win 6-4 to win the set, three times this (if male) in order to win the match. Now on reflection, in the ‘record books’ that could look like a straightforward win and match, however, if you watch or play the game you’ll know that the match could be won by as low as three games versus serve, those against serve winning games may only have been won by two points. Therefore the winning margin, the 60/40 ratio that many of us strive for in our forex trading career, is in fact a very tenuous success rate. The ‘range’ (between success and failure) is as tight in sport and life as it can be on our chart waiting for cable to break out.



The parallels between golf, life and trading are numerous, particularly when we consider the self-control, self discipline and percentage shots we have to play in order to get enjoy a decent round. How many players, at all levels of ability, can’t wait to hit off the first tee on a bright Summer’s day, then the second tee drive is as poor as the first and they find that they’re suddenly five shots down with sixteen holes left to play.

The mind begins to work against them and their confidence, they quickly do the sums thinking; “the best I’ll do today is salvage a poor round.” Or they could take the other view, the positive view that; “those holes are gone, it’s a sport that I love, I’ll simply get my swing right, get my head in the right place and take the shots according to my game-plan, it is what it is..”

The mirror image with trading would be that we’re a day trader, the first two trades have gone badly and we’re fifty pips down. On the basis that we generally only take six trades per day on an average day we now need a series of three wins and perhaps one break even to have a winning day, one more loss and it’s likely that the best we can do is break even. But we gather ourselves after our initial losses and we carry on trading the plan according to our pre-set rules. The set ups occurs and we take the trades knowing that, over a set period of trades, the positive expectancy we have developed, (our edge), will probably win through.

Football provides another key example, world class strikers have goals versus shots ratios at what, to all intents and purposes, looks very poor until you analyse the results closer. A world class striker may have ten shots in a game, but only score one goal. His shots on target versus goals scored ratio may be as low as 1:3. As traders the obvious parallel would be having that one big winner versus two small winners, six losses, but still coming out pip positive, not a simple concept to visualise even though it’s very probable, especially for trend traders.

There’s also another sport reference that’s useful to contemplate, this isn’t part of the psychology or self discipline/self management ethos and theme already discussed, it’s part of the “do less win more” trader philosophy. Football again provides perhaps the best example..

You don’t have to be a regular at sports betting to realise that this season the top teams in the top European leagues will win more games than they lose. Whether that’s Barcelona, Real Madrid, the two Milan teams, Bayern Munich or Manchester United. But let’s look in isolation at Manchester United. By their own stellar standards it’s not been a great season so far, they’ve failed to qualify for the next round of the European Champions League and they’re currently second in their respective league to their nearest City rivals.

The measurement and metric adopted for some time was that a championship winning team could only afford to lose 2-3 games a season to be in with a sporting chance of winning the league, indeed an Arsenal team surpassed this in 2003-2004 by remaining unbeaten in their league throughout the season. With three defeats already this season and just over half the season played, Manchester United have (theoretically) already used up their losing game ‘allowance’ and can afford no more slip ups.

However, the game has moved on over recent years, the league winners now generally go for the win more than in previous eras. The lure of three points as opposed to one for a draw has to a certain degree caused more of an accent on positive risk play.

Whilst we could once again draw parallels between this and trading there’s also another aspect worth considering. Imagine you’re a sports betting fan, rather than bet on the outcome of an individual game could you bet on your belief that (based on recent performances) Manchester United are going to win more games this season than they’ll lose..?

If for example there was support, resistance and a 200 moving average for their performance similar to our charting packages then United would in theory be above the 200 MA for the majority if not all of the season, so we’d surely bet every game that they’ll win. We could bet ‘clever’ and choose the best odds, and with modern day betting platforms you could bet on them winning every time they’re behind in a game as statistically, measured over a season, they’ll win more than they’ll lose.

Now we accept that our spreads on, for example, the loonie are an entirely different concept to the odds you’ll get in a football match, but surely the comparison holds true. If as a forex trader we only trade one security, the most liquid – EUR/USD and only ever go long each time our set up occurs above the 200 MA, or short below the 200 MA, then the likelihood is we’ll finish winners measured over our season, January to January.

Perhaps we should all trade with one eye on the length of our season, even committed day traders would perhaps do well to keep an eye on the bigger picture and trade with the trend. Similar to the big clubs, the best teams in the European leagues we know that, measured over a season, the probability is they’ll win more than they’ll lose. If we ‘place our bets’ above or below certain major trend lines, the euro winning or losing, then perhaps our pip gain would increase. We’ll never ‘do an Arsenal’ but doing a Manchester United, using increased predictability and probability to be on the winning side more often than not, is very achievable.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/you-are-what-you-eat-and-you-only-eat-as-well-as-you-trade/

Market Commentary by FXCC - Making An Offer They Can’t Refuse

The word “bankster” has been over used since the crash of 2008. In some respects, witnessing the unelected premiers of Greece and Italy turn the tables versus the banksters, is fascinating. To use the German word “schadenfreude” seems appropriate given Ms. Merkel was instrumental in encouraging both countries to put aside such petty trivial matters as democracy and install post haste ex Goldman Sachs bankers as the ultimate decision makers.

The fact that we now have the unedifying sight of the unelected technocratic leaders, playing a high stakes game of Texas hold ‘em over the future of the economics of Greece and Italy, should come as no surprise. In some respects the ex bankers, not that anyone really ever retires from that stratospheric level of high finance, should be negotiating from a position of strength, the debt swap should be done. The fact that it hasn’t and the talks continue to drag on suggests that a solution is being striven for to keep the banksters onside..once a bankster always a bankster, or as Michael Corleone said in the film the Godfather: ‘Just when I thought I was out… they pull me back in.’

With time running short ahead of the major bond redemption in March, private creditors/bondholders are now considering an average coupon of around 3.75 percent on bonds they will receive in exchange for their existing investments. The top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with government officials after bankers discussed the plan in Paris on Wednesday.

The interest rate on the new bonds has been the main stumbling block in the negotiations, with the IMF, Germany and other euro zone countries insisting it must be low enough to ensure that Greece’s debt will be back on a more sustainable track by 2020. The chairman of BNP Paribas, one of the banks on the committee leading talks for creditors, however, suggested on Wednesday that bondholders would not retreat from their position easily.

BNP Chairman Baudouin Prot;

The offer that is now on the table is the maximum acceptable for a voluntary deal. All the elements are now in place.

The Institute of International Finance, which Dallara heads, said Thursday’s discussions would be “informal” and aim to sort out all legal and technical issues quickly.

Helicopter Ben
In a speech in 2002, after the economic effects of the 911 tragedy took a temporary hold on the USA economy, Ben Bernanke discussed how the USA government could always avoid deflation by printing more dollars and referred to a statement made by Milton Friedman, a Nobel Prize winning economist, about using a helicopter drop of money to fight deflation. Since then, Bernanke has had the nickname of “Helicopter Ben.”

Bernanke, the Chairman of the Fed, always seems willing to take drastic steps to fight deflation. We now have a situation where the USA treasury ‘buys inflation’ by money printing due to their “avoid at all costs” fear of deflation.

The Federal Reserve has moved closer to firing up the helicopter for a new round of money-pumping after the central bank and its chairman Ben Bernanke highlighted a grim outlook for the U.S. economy. Bernanke on Wednesday opened the door for the Fed to return to buying securities in the months ahead to support a weak recovery and keep inflation from falling below its 2-percent target. In late 2008 the FED slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades. However, the recovery has been slow and the outlook issued by the Fed on Wednesday was very bleak. With core inflation now at 1.7 percent and Fed officials forecasting unemployment to stay above 8 percent this year, many analysts took Bernanke’s comments to mean QE3 is inevitable.

Market Overview
Equities have risen in the European bourses whilst commodities have climbed, U.S. Treasuries gained after the Federal Reserve signalled plans to maintain near-zero interest rates through 2014. Standard & Poor’s 500 Index futures rebounded whilst the dollar has weakened versus the majority of its major peers.

The Stoxx 600 Index had added 0.9 percent by 10:00 a.m. in London. S&P 500 futures had risen 0.3 percent, after losing 0.3 percent. The dollar depreciated 0.4 percent versus the yen. The cost of insuring European corporate debt fell to a five-month low. Copper jumped 2.2 percent to $8,565.50 a metric ton, the highest level witnessed since Sept. 19th. Natural gas gained 1.8 percent to $2.779 per million British thermal units, this is the fifth consecutive gain and the longest streak in a year coming shortly after many UK gas suppliers lowered their charges for their domestic customers.

The dollar fell to a five-week low versus the euro after the Federal Reserve extended its pledge to keep interest rates low until late 2014, this has reduced the appeal of the U.S. currency as a haven.

The greenback fell versus 13 of its 16 major peers. The euro declined from a one-month high against the yen before talks on a debt swap to reduce Greece’s deficit resume today. Australia’s dollar climbed to a 12-week high as Russian officials stated that it may start purchasing the nation’s currency.

Market snapshot at 10:40 am GMT (UK time)

The Nikkei closed down 0.39%, the Hang Seng closed up 1.63% whilst the ASX 200 closed up 1.12%. European bourse indices have enjoyed a significant rally in the morning session; the STOXX 50 is up 1.30%, the FTSE is up 1.09%, the CAC is up 1.13% and the DAX is up 1.39%. From a low of 13474 on September 12th 2011 the Italian index has made a strong recovery, up 1.63% on the day the MIB is at 16099.17. ICE Brent crude is up $1.20 a barrel, whilst Comex gold is up $16.70 an ounce at £1719.40. The SPX equity index future is currently priced up 0.4%.

Economic calendar events that may affect sentiment in the afternoon session

13:30 Durable goods orders USA
13:30 Ongoing jobless and new claim figures
13:30 New Home Sales USA

The prediction for durable goods orders is a rise of 2%. Jobs predictions suggest a fall in continuous claims down to 3423K from 3500K and new claims to fall from 370K to 342K.

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/making-an-offer-they-cant-refuse/

Daily Market Roundup by FXCC - January 26 am 2012

Is Chancellor Merkel “Softening Up” The Markets For An Event Far Bigger Than Greece’s Potential Disorderly Default?

Angela Merkel has finally ‘opened up’ by voicing doubts on Europe’s chances of saving Greece from financial meltdown and a disorderly sovereign default. She has confessed to at times conceding that Europe’s first multi-billion euro bailout, combined with the savage austerity measures witnessed in the PIIGS, is actually not ‘working’. This after a two-year crisis that has reached the nadir of bringing the single currency to the brink of unravelling and in the worst case scenario actual extinction.

This departure from the carefully choreographed script Ms Merkel has gone to exhaustion to create, especially over the past nine months, deserves far more attention and discussion in the mainstream media than it’s currently receiving..

Ms. Merkel;

“We haven’t overcome the crisis yet. Of course, there’s Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation.

“There would be no point in promising more and more money without tackling the causes of the crisis. Amid all the billions in financial assistance and rescue packages, we Germans also need to watch that we don’t run out of steam. After all, our capacities aren’t infinite, and over-stretching ourselves wouldn’t help us or the EU as a whole.

“We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU. If we make loads of promises about debt reduction and sound budgeting, those need to be things that can be enforced or brought to court in the future. The point of the fiscal compact, after all, is to make it possible to check on those commitments. That means giving our [European] institutions more monitoring rights and more bite.

“Shared liability is something we will only be able to contemplate once the EU has achieved much greater integration. It will not do as a means to resolve this crisis. That greater integration would involve the European court of justice enforcing controls for national budgets, for example, and much more besides. If we at some point have harmonised our financial and budgetary policy, that will be the time to try and find other forms of co-operation and shared liability.

“I am convinced that Great Britain wants to remain a member of the European Union. Of course, it’s never easy for 27 states to hold together. We need to find that balance with everyone time and again, including the United Kingdom wherever possible.

“My vision is one of political union because Europe needs to forge its own unique path. We need to become incrementally closer and closer, in all policy areas. Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government.

“And finally, the supreme court will be the European court of justice. That could be what Europe’s political union looks like in the future – some time in the future, as I say, and after a goodly number of interim stages.”

Greece
The chief negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials. Greece has insisted on a coupon of not more than 3.5 percent at the behest of its European partners who are in turn concerned that the debt swap will otherwise not do enough to rein in the country’s massive debt burden.

Without a deal, Greece would tumble into a “hard” default that risks setting off panic in the financial system and pulling bigger euro zone members like Italy and Spain closer to the brink, though the ECB has helped to assuage those fears by flooding the banking sector with nearly half a trillion euros lent over three-years at one percent interest.

USA
Federal Reserve Chairman Ben Bernanke said on Wednesday that the FED is ready to offer the economy additional stimulus, it announced it would likely keep interest rates near zero until at least late 2014. The Fed also took the step of adopting an inflation target, although Bernanke stressed that officials would be flexible about reining in price growth when unemployment was too high.

Market Overview
Oil rose after Federal Reserve officials said the U.S. benchmark interest rate will stay low until at least 2014 boosting fuel demand. Crude oil for March delivery rose 45 cents to settle at $99.40 a barrel on the New York Mercantile Exchange. Futures dropped to $97.53 early in the session. Prices are up 15 percent from a year earlier.

Brent oil for March settlement declined 22 cents to end the session at $109.81 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to March crude on the Nymex narrowed 67 cents to $10.41 a barrel at the close of trading. That’s down from a record high of $27.88 on Oct. 14th.

Gold futures surged to a six-week high after the Federal Reserve said it expects “exceptionally low” interest rates through at least late 2014. Gold futures for April delivery climbed 2.1 percent to close at $1,703 an ounce at 1:44 p.m. on the Comex in New York, the biggest gain since Jan. 3. In electronic trading after the settlement, the metal reached $1,716.10, the highest for a most- active contract since Dec. 12. The price topped the 50-day and 100-day moving averages. The metal closed above the 200-day moving average on Jan. 10.

The Standard & Poor’s 500 Index added 0.9 percent to close at 1,326.06 at 4 p.m. New York time, returning to the highest level since July. The Nasdaq-100 Index jumped to an almost 11-year high as Apple Inc. surged to a record after profits doubled. The Dow Jones Industrial Average reached the highest level since May. The dollar slid versus 14 of its 16 major peers, while natural gas and silver led commodities higher.

Economic calendar data releases that may affect market sentiment in the morning session

07:00 – GfK Consumer Confidence Survey
07:45 – 11:00 – CBI retail sales volume balance

The GfK survey in Germany is ranked as being of medium importance. The survey is conducted monthly by GfK, a market research organisation, on behalf of the EU commission. The survey results are based on more than 2000 consumer interviews about their personal spending patterns, inflationary expectations and opinion on economic outlook. The aggregate result is categorised by German social groups: students, high/medium/low income and the retired.

For the UK CBI numbers, based on surveyed retailers and wholesalers, numbers above 0 indicate a higher sales volume, below indicates lower. This survey is taken off 160 retail and wholesale companies, respondents rate their level of current sales volume. It’s a leading indicator of consumer spending as retailer and wholesaler sales are directly influenced by consumer buying levels.


Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/january-26-am-2012/

Market Commentary by FXCC - When You’re Born You Get A Ticket To The Freak Show

When You’re Born You Get A Ticket To The Freak Show. When You’re Born In America, You Get A Front Row Seat

“The real reason that we can’t have the Ten Commandments in a courthouse: You cannot post ‘Thou shalt not steal,’ ‘Thou shalt not commit adultery,’ and ‘Thou shalt not lie’ in a building full of lawyers, judges, and politicians. It creates a hostile work environment.” – George Carlin.

The state of the union address yesterday gave president Obama one more chance, before his ‘shoe-in’ re-election in November, to unfurl the star tattered banner and attempt to get the wider world to salute..

“Tax the rich until their pips squeak, let’s rein in Wall Street…”, whilst the carefully vetted and assembled crowd in the President’s heartland might have “whoop whooped!” had he used those exact words no doubt the less gullible would simply raise an eyebrow and sarcastically mumble “whoopee-doo..”. The less gullible include the representatives of the great USA public in Congress who politely stood, raising a reverential cheer when appropriate whilst no doubt checking the speech for every nuance that may affect their personal wealth.

However, the reality behind the rhetoric is that any change will be window dressing and opinion poll driven, no president will issue extreme policy so close to an impending election. Therefore the address was big on promise, underpinned by the usual polished delivery, but skinny on detail. There was a loose strategy outlined amongst the poorly executed hypnotic neuro linguistic programming (that was a spent force after his election in 2008), but no time table of execution.

But what can we honestly expect from a country that has blurred the lines between show business and politics to such an extent that the difference is unrecognisable? This is a country whose population, despite all the evidence to the contrary, still believes in the “American dream”. A country who looks at a millionaire (250 times over) and is prepared to vote for him to take the place of the latest incumbent in the White house. A candidate who is as blue blood, ‘moneyed royalty’ as they come.

In a country that collectively worships at the alter of the dollar, it’s hardly surprising that they look at the main Republican candidate Romney and think “that could be me”, after all it’s the American way, the American dream, it’s a “can do” society, unless you’re one of the estimated 57 million on food stamps that is, a number that is scheduled to rise to 75 million by 2013. That’s right, a country where up to 25% of its population is considered that poor it has to distribute food tokens to feed themselves, is considering electing a fabulously wealthy politician into the highest office.

Analysing the state of the union address and breaking it down into bite size statements versus the reality.

Soundbite;

We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.

Reality bites;

There has been plenty of chatter with regards to fairer taxing in the USA, the figure of 30% for the wealthiest has been ‘kite flown’ constantly. However, in the fourth year of his tenure (and by any measurement used) the rich in the USA have grown disproportionately wealthier since the 2008-2009 crisis as the poorest number levels in the USA has ballooned. If ever proof were required, that the rescue was built on the backs of those with the least to give, then there it is. The ‘Buffet tax’ is now aimed at multi millionaires who will have the finest lawyers and accountants on their payroll in order to legally (and within Obama’s “rules”) always find loopholes. Closing the loopholes and tax the super rich at fifty percent is not on the agenda.

Soundbite;

Let there be no doubt: America is determined to prevent Iran from getting a nuclear weapon, and I will take no options off the table to achieve that goal. But a peaceful resolution of this issue is still possible, and far better, and if Iran changes course and meets its obligations, it can rejoin the community of nations.

Reality bites;

The rhetoric has moved on remarkably, there is no evidence that Iran has intentions to have nuclear arms, the smugness and arrogance to take praise for the disastrous campaigns in Iraq and Afghanistan is truly breath taking in its dissonance. The implied physical threat aimed at Iran is equally nauseous. The failure to close the Guantanamo prison camp is one of many stains on Obama’s record. The circa $2 trillion paid by USA tax payers on those foreign crusades, which has enriched a select few involved in the twin axis of oil and the military industrial complex, has left a legacy whereby the USA is perilously close to a deeper recession. Despite the 2008-2009 crash the spend on military had increased exponentially.

Soundbite;

Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my administration to open more than 75% of our potential offshore oil and gas resources. Right now, American oil production is the highest that it’s been in eight years. That’s right — eight years. Not only that — last year, we relied less on foreign oil than in any of the past sixteen years.

Reality bites;

The USA economy is still importing circa 50% of it’s energy, Obama intends to create a wild west environment for fracking despite evidence that this untested practice for obtaining gas is deeply flawed and totally unsound. Offshore the devastation caused by gulf of Mexico oil spill was brushed over despite compelling evidence that in order to generate its ‘own’ energy the USA is taking more and more risks. There was no mention of the drilling ban that took place after the April disaster, a ban only lifted in October.

The USA economy is over 70% dependent on consumerism, the impact of innovation is over exaggerated, without the blunt and simplistic exercise of ‘shopping’ the USA economy would die a quick and painful death. Cheap imports, from their new ‘enemy’ China, have built and re-fashioned the modern USA, the banking and auto industry that was rescued with multi billion dollar bailouts will inevitably require further bailouts, QE 3 and a raising of the debt ceiling await.

Soundbite;

I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape.

Reality bites;

This desperation to rescue the housing market at all costs is a busted flush. Can this policy really be believed, the USA admin. is considering paying a sweetener for mortgage owners to stay in houses with negative equity, rather than the market find a true level? There is enough housing stock currently in limbo in the USA, repossessed/foreclosed but unoccupied could house the circa 1.5 ml homeless in the USA, however, the lenders would rather have millions of properties empty as opposed to taking the loss. The USA admin. would surely be better served letting go of the house price metric vanity measurement.

Soundbite;

If you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here.

Reality bites;

The irony that Apple is sitting on a cash pile that would make it the envy of a small country should not be lost in comparison with Obama’s statement. Apple sits on on a cash pile of circa $96 billion, by ranking this makes it the 58th largest economy on the planet, yet it chooses to pay overseas workers a pittance as opposed to employing USA workers on decent salaries.

It seems apt to finish (as we started) with a George Carlin quote;

“The reason they call it the American Dream is because you have to be asleep to believe it” – George Carlin..

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/when-youre-born-you-get-a-ticket-to-the-freak-show/