I have decided to post a weekly blog article on how my trades went last week (12 till 16 July 2o10).

Trading style: Currency day trading

Risk Reward level: 1:2   (2o pips risk / 40 pips reward)

Max risk per trade: Max 5% of account per trade.

Last week I traded 82 lots on the eur/usd pair, I got a result of a mere 200 dollar profit. 56 trades were negative and the rest positive trades. It was a crazy week for me, it seemed that I couldn’t hit the positive side of a trade. After having 24 losing trades in a row, I paused and reevaluated. I was shorting the eur/usd almost all of the time, but the eur/usd pair wouldn’t drop. It seemed the Euro troubles were gone… and the Euro was heading towards a new high.

I changed my risk reward level to 1:1 20 pips risk / 20 pips profit, this was more a scalping style now than a currency day trading style. I kept on doing so and scalped my way towards a small profit, thanks to the change of style I could salvage this ”very bad” currency day trading week and end it with a small profit instead of a HUGE loss.

For me it was a very bad week altogether, looking back I just couldn’t get myself on the positive side of the trades. I think this was because I convinced myself the euro would drop. This interfered with my logic and approach towards reading the charts. I kept on diving into the fundamentals instead of relying more on the technical analysis.

This shows that it doesn’t matter how experienced you are as a currency day trader, scalper or swing trader. If you lose your focus things can go bad really fast.

Stop and smell the roses <– reevaluate what you are doing.

May 5th 2010,

Investors have decided that the Greek bail-out package is about as credible as Bernie Madoff’s business model, and that while the $US147 billion being pumped into the country might keep the game going for a bit longer, in the longer-run the numbers just don’t add up.

The hopelessness of the situation is made even more apparent after the violent protests that erupted in Athens overnight, which resulted in three people being killed during demonstrations.

There’s now a growing consensus that a major restructuring of Greek debt – where lenders are forced to take a haircut and write off some of their loans to the country – is pretty much inevitable.

Citigroup’s chief economist, Willem Buiter, takes this argument one step further. He argues that Sunday’s decision was not so much about “rescuing” Greece, as about escorting the country to a safe house so it can undergo the massive debt restructuring exercise.

In a note out overnight, Buiter, who was a member of the Bank of England’s Monetary Policy Committee before joining Citi, said that the eurozone has already made the decision to restructure Greece’s debt.

He says the decision to restructure Greek debt, and to force lenders to take losses on their loans “became unavoidable when the euro area decided not to lend to Greece at something close to the risk-free rate, but at 300 or 400 basis points over the swap rate.”

But if a decision on a Greek debt restructuring has already been made, what’s the point of giving the country a $US147 billion bailout package?

Buiter argues that there’s a huge political advantage to delaying the Greek debt restructure, because it makes it less likely that the French and German governments will have to pump capital into their banks.

Greece only gets the bailout package if it implements brutal spending cuts and tax increases. If Greece meets these conditions, the country will be running a primary budget surplus in 2013, even though the Greek government’s debt will have climbed to a whopping 150 per cent of GDP.

The official eurozone plan at that point is that Greece will be able to wean itself off eurozone and IMF funding. Instead, the country will go to the market and borrow money at an interest rate of 5 per cent.

But Buiter points out the problems in this thinking. Even if Greece is able to borrow at an interest rate of 5 per cent in 2013, the country would still be faced with a crippling interest rate bill. Greece would be doomed to perpetual stagnation as each year 7 per cent of total GDP would go towards paying interest on its debt. It is, he says, “disingenuous” to say that Greece’s debt levels will have stabilised at that point.

But, of course, that’s not really the plan. Instead the idea is to get Greece into a position where the country’s tax revenues cover government spending, and the country doesn’t need to borrow money to cover the day-to-day spending of its government.

Greece will then be in a position where it has a huge debt, but no primary deficit – which Buiter points out is “the exact circumstances that makes a default individually rational for the debtor”.

When Greece’s bailout package runs out at the end of 2012, there’s no way the country will be able to borrow at reasonable interest rates, because markets will be worrying that Greece will take the default option. So that would mean that the EU-IMF bailout package would have to be rolled over.

That leads Buiter to suspect that a restructuring Greece’s debt is likely to be made next year.

Of course, there is a strong logic to restructuring the debt immediately, because the sooner it’s done, the smaller the losses will be.

Buiter estimates that if the debt were restructured today, lenders would probably have had 30 per cent of the value of their debt wiped out. The problem is that this would have left the French and German commercial banks staring at huge write-offs. And there would have been huge embarrassment in Paris and Berlin if French and German governments were forced to step in and recapitalise their banks.

So Buiter says the plan must be to give the banks time to build up their capital reserves, or to shift some of their Greek exposure from their balance sheets onto the government’s balance sheet.

If Buiter is right, the banks will probably come through the Greek debt crisis in fine shape. It’ll be the German and French taxpayers who pick up the brunt of the losses.

by Karen Maley

Business Spectator

May 5th 2010,

Can the International Monetary Fund afford it if the rest of Europe’s ring of fire (Portugal, Spain and Italy, in descending order of crisis) starts to crumble? My back-of-an-envelope calculations don’t look good.

Here’s the logic. The IMF currently determines how much it can lend to a country based on the “quota” that country provides towards the IMF’s own funding. The quota is usually more or less proportional to the size of that country’s economy, though the quotas haven’t been updated for a while so are a little out of date (but let’s not get bogged down with that now).

The IMF is currently lending Greece €30bn (about $39bn) towards the combined EU-IMF bail-out package for the troubled nation. This is just under 32 times its quota. It is, for what it’s worth (a lot), the biggest IMF bailout in the Fund’s 65 year history. The previous record was held by Korea which borrowed 20 times its quota in 1998.

Anyway, for the sake of illustration, let’s imagine you might need a similiar-sized bail-out of Portugal. That would cost $41bn (to be completely precise, that’s 27.4bn SDRs – the Special Drawing Right being the internal currency term used at the IMF). A similarly-proportioned bail-out of Spain would cost $144bn. And for Italy, the figure would (gulp) be $333.1bn.

Can the IMF afford anything like this combined half trillion dollar bail-out? Simple answer: no. The Fund currently has an emergency pot of only $355.2bn. And though there are more funds on the way from the US, there questions over whether the available funds would ever reach this total. And bigger questions over whether the Fund’s members would approve the deal.

Moreover, what if Britain needed a similar-sized bail-out? In that case (again, 31.6 times quota), the eventual cost to the Fund would be a stonking $506bn.

All disturbing numbers. And while some would point out, rightly, that it is inappropriate to compare the Greek bail-out in proportion to what might face other countries (for instance Italy really isn’t in quite the same place yet), it is also worth reminding that of course the IMF segment only accounts for one-third of the Greek emergency loan. At the IMF itself, I am told, no-one is particularly worried about the Fund’s capacity to deal with the problems in Southern Europe. But then I seem to remember similar statements well before Greece’s implosion.

Whatever way you look at it, the numbers seem to point out that, as far as the IMF is concerned, Europe’s straggling southern states really are too big to save.

PS Keep an eye open on Sunday for the IMF’s board meeting, at which it is due to sign off the Greek loan. It has never before turned down a loan put to it by its officials, but then the loan proposals have never been thisbig.

By Edmund Conway

Currency Day Trading

May 3, 2010

BRUSSELS – European governments and the International Monetary Fund have committed to pull Greece back from the brink of default, agreeing on €110 billion in emergency loans on the condition Athens make painful budget cuts and tax increases.

The rescue is aimed at keeping Greece from defaulting on its debts and preventing its financial crisis from infecting other indebted countries just as Europe is struggling out of recession.

After chiding Athens for years of mismanagement and cheating on their budget reporting, the IMF and Greece’s 15 partners that share the euro currency rewarded Prime Minister George Papandreou for tough measures including cuts in civil servant’s pay.

“I have done and will do everything so the country does not go bankrupt,” Papandreou told a nation which now faces years of painful belt-tightening after years of overspending.

France, Greece’s most sympathetic partner, agreed there was no other choice. ”It’s a very harsh plan because there was a lot of laxity,” Finance Minister Christine Lagarde said. But even Germany, long the fiercest critic of Greece’s boundless spending, saw the need to back a euro-partner in such dire need – if only to keep the shared currency out of more trouble.

The crisis is already threatening other eurozone countries with huge financial problems, including Portugal and Spain. ”It is not an easy decision but there is no alternative,” German Finance Minister Wolfgang Schaeuble said after the eurozone finance ministers approved the package in an emergency meeting in Brussels. Lagarde also insisted that “everyone has an interest in Greece being stable and trusted.”

The plan will still need approval by some countries’ parliaments. But the eurogroup head, Luxembourg’s Jean-Claude Juncker, said Greece will get the first funds by May 19, when Athens has €8.5 billion worth of a 10-year bond maturing.

Next Friday, the government leaders of the eurozone will convene in Brussels for an extraordinary summit to wrap up the rescue package and look at ways to avoid it in the future. The new Greek measures include cuts in civil servants’ salaries and pensions, and tax increases, including for tobacco and alcohol, that aim to cut the deficit to below 3 per cent of gross domestic product by 2014 from 13.6 per cent now.

by NzHerald

currency day trading

Nouriel Roubini, the New York University professor who predicted the US recession more than a year before its start in December 2007, says rising sovereign debt from the US to Japan and Greece will ultimately lead to higher inflation or government defaults.

“While today markets are worried about Greece, Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems,” Roubini said yesterday during a discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California.

Increasing tax revenue won’t be enough to save the day. Roubini’s remarks underscore statements by officials such as Dominique Strauss-Kahn, managing director of the International Monetary Fund, that the global economy still faces risks. Credit-rating cuts on Greece, Portugal and Spain in the past few days are spurring investors’ concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package.

“The thing I worry about is the buildup of sovereign debt,” Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel.

If the issue isn’t addressed, nations will either fail to meet obligations or experience higher inflation as officials “monetise” their debts, or print money to tackle the shortfalls.

Michael Milken, founder of the Milken Institute, said the US had the ability to continue selling private and public debt because its markets remained liquid.

“I would say it is individual leadership’s fault if they are not taking advantage of today’s markets,” Milken, the junk-bond billionaire turned philanthropist, said on the panel.

Almost US$1 trillion ($1.4 trillion) of worldwide equity value was erased on Wednesday on concern that rising public debt will spur defaults, derailing the global economy, data compiled by Bloomberg show.

German Chancellor Angela Merkel and the IMF pledged to step up efforts to overcome the Greek fiscal crisis, after bonds and stocks plunged across Europe in the past week.

“The bond vigilantes are walking out in Greece, Spain, Portugal, the UK and Iceland,” said Roubini, a former senior economist for the White House Council of Economic Advisers, adviser to the US Treasury Department and IMF consultant.

“Eventually, the fiscal problems of the US will also come to the fore,” he said.

“The risk of something serious happening in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets.

Roubini, chairman and co-founder of Roubini Global Economics in New York, said the US probably would need a combination of increased tax revenue and lower government spending, while Europe needed to curb spending.

Roubini, known as Dr Doom, predicted a bubble in US housing prices during an interview with Bloomberg News in October 2005, months before the market peaked, and said in August 2006 that he expected a “painful” recession.

Yesterday he said the US had invested too heavily in housing.

- BLOOMBERG

By Gabrielle Coppola and Vivien Lou Chen

Deficit hawks are trying to use the “euro-mess” to support their case for austerity. But that’s not the real lesson of the European crisis:

Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. … Oops…, right now it does seem to have been a bad idea for exactly the reasons the skeptics cited. And as for whether it will last — suddenly, that’s looking like an open question.

To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.

The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. … And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.

Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro … turned into a trap.

What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.

But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates… Now…, however, the only way to reduce Greek relative costs is through … deflation. …

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

Hence the crisis. … All this is exactly what the euro-skeptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.

So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway… This would open the door to euro exit.

So is the euro itself in danger? In a word, yes. If European leaders don’t start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.

Meanwhile, what are the lessons for the rest of us?

The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro,… governments … denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.

by Paul Krugman, NY Times

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