Anne's Forex Blog

Pivot: 1.293
Our preference: Long positions above 1.293 with targets @ 1.3075 & 1.315 in extension.
Alternative scenario: Below 1.293 look for further downside with 1.287 & 1.2815 as targets.
Comments: the pair has broken above its ST flag and is challenging its LT bullish channel upper boundary, the RSI is still well directed.

Wednesday, March 11, 2009

The coming ‘Great Recession’

Comment by WONG CHUN WAI

The Government has thrown a RM60bil lifeline for the country to try and prevent it from slipping into a recession. But with the world economic climate looking more gloomy than ever, there are concerns that it may not be able to halt the downward trend.

IT was already 9.30pm when Datuk Seri Najib Tun Razak walked into his home.

He had missed dinner with the editors he had invited for the briefing on the RM60bil mini-budget to stimulate the economy.

The Deputy Prime Minister appeared drained. His wife, Datin Seri Rosmah Mansor, asked if he had eaten.

Just some noodles, he said, adding that he had been with Prime Minister Datuk Seri Abdullah Ahmad Badawi since 3pm to go through the economic package.

As he began giving the editors a scenario of the doom-laden global economy, some of his listeners looked stunned. As he picked on the keropok on the table, it became obvious that some of those at the table had failed to see the dark clouds before the financial tsunami that is now approaching Malaysian shores.

There is no escaping the storm in an inter-connected globalised economy.

With many countries going bankrupt and their financial institutions collapsed, American billionaire Warren Buffet gave the most appropriate description — the American economy has fallen off a cliff. The US economy will eventually recover although a rebound could rekindle inflation worse than that experienced in the late 70s, he said.

He regarded the US economy as close to the worst-case scenario and added that the economy can’t turn around on a dime.

In short, it is already in free-fall and no one is sure when it will hit the ground but the US has certainly dragged the rest of the world down with it.

The grim fact is that the Malaysian exports would slump drastically with lower prices for key commodities, including palm oil and crude oil and a sharp drop in demand for electronic and electrical products.

Our foreign direct investments would be reduced by at least 50% while our stock market has already taken a beating, even before the financial crisis.

Manufacturing, particularly in the electronics sector, has already been badly affected and retrenchments have begun.

As the World Bank revised the global growth rate to 0.5%, Malaysia, like the rest of the world, has made changes to its own forecasts, expecting growth this year, even with the stimulus package, to be between -1% and +1%.

The fall has become faster than what has been expected. If we avoid the recession this year, it will be only narrowly.

Now, the International Monetary Fund expects that the global economy will contract this year, with its managing director Dominique Strauss-Kahn calling the crisis a “Great Recession”.

The fact is that a recession would have been inevitable had this economic package not come into place. The RM60bil is to stop the slide but even with the money, many see the situation as touch and go.

Singapore, for example, has already declared itself in a recession with possibly a 10% contraction. That’s how bad it could be.

But unlike the Singaporeans, Thais, Japanese, Chinese and South Koreans, we have taken a rather complacent attitude towards the economic crisis. It has not helped that some leaders kept giving assurances that Malaysia would be spared, which only provided false hope.

This is not about politics. Many European leaders have come clean by declaring they have no idea how to respond to the problem because this is unprecedented, with Chinese Premier Wen Jiabao declaring that this is the most difficult year of the century.

Besides calling their people to be resilient and to face up to the challenges, many European leaders have said that their stimulus package would at best buy them time and ease the difficulties.

Najib must be saluted for being honest about the prospects ahead. It will be gloom and doom.

But the bright side, whatever little there is, in Malaysia is that liquidity is still strong in Malaysia with excess funds of over RM250bil in circulation.

The savings by Malaysians have been good and the prudent practices inculcated have helped. The highly regulated practices in our banking industry, which had been frowned upon in the past, have turned out to be of help.

The immediate concern will be on how fast the funds are disbursed to the relevant sectors so jobs can be created and the spillover effects felt by Malaysians.

There is no room for wastage and leakage. There will be little patience for any act of impropriety and incompetency with the financial tsunami fast approaching.

Tuesday, March 10, 2009

Bernanke says regulatory overhaul needed

WASHINGTON – The nation's financial regulatory system must be overhauled to strengthen oversight of banks, mutual funds and large financial institutions whose collapse would put the entire economy in peril, Federal Reserve Chairman Ben Bernanke said Tuesday.

"We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components," Bernanke said in a speech to the Council on Foreign Relations.

In his most extensive remarks on the subject, Bernanke built upon previous suggestions to bolster mutual funds and a program that insures bank deposits — and repeated his call for Congress to create a system to cushion fallout from the failure of a big financial institution.

The Fed chief's remarks come as the Obama administration and Congress are starting to crafting their overhaul strategies. For the administration, critical work on that front will be carried out among global finance officials this weekend in London. That will help set the stage for a meeting of leaders from the world's 20 major economic powers in April.

Revamping the U.S. financial rule book — a patchwork that dates to the Civil War — is a complex task. Congress, the administration and the Fed are involved because they want to strengthen the system to prevent a repeat of the financial crisis — the worst since the 1930s_ that has plunged the U.S. and many other countries' economies into recession.

Bernanke said the U.S. recession could end this year only if the government is successful in getting financial markets to operate more normally again. The recession, now in its second year and already the longest in a quarter-century, has turned out to be more severe than the Fed had anticipated, he acknowledged in fielding questions after his speech.

To guide the regulatory overhaul, Bernanke laid out four key elements. One is for Congress to enact legislation so the failure of a huge financial institution can be handled in an orderly way — similar to how bank failures are handled by the Federal Deposit Insurance Corp. — to minimize fallout to the financial system and to the national economy.

Moreover, such "too big to fail" companies must be subject to more rigorous supervision to prevent them from taking excessive risk, Bernanke said. The Fed is trying to identify "best practices" that can help companies detect trouble spots and best manage their risks.

The government over the past year has been forced to rescue major financial companies so interwoven with other players and the global financial system that their collapse would put the entire economy in danger. The bailouts of insurance giant American International Group Inc., Citigroup Inc., Bank of America Corp., and mortgage finance companies Fannie Mae and Freddie Mac have put billions of taxpayers' dollars at risk and angered the American public.

"Government rescues of too-big-to fail firms can be costly to taxpayers, as we have seen recently," Bernanke said. "Indeed in the present crisis, the too-big-to-fail issue has emerged as an enormous problem."

Bernanke also said the nation's financial plumbing — the infrastructure and policies that govern financial transactions_ must be strengthened to ensure that it will perform under stress.

Policymakers should consider ways to bolster money market mutual funds that are susceptible to runs by investors, he said. One approach would be to impose tighter restrictions on the financial instruments that money markets can invest in. Another idea is to develop a limited system of insurance for funds that seek to maintain a stable net asset value.

In addition, Bernanke called for a review of regulatory policies and accounting rules to make sure they don't "overly magnify the ups and downs in the financial system and the economy." For instance, he suggested that a larger financial buffer to support the FDIC's insurance program for bank deposits be built up during good economic times so that it could be drawn down when conditions worsen.

Finally, the government should consider creating an authority specifically responsible for monitoring financial risks and protecting the country from crises like the current one. Some in Congress — and the previous Bush administration — have proposed that the Fed take on this role of super financial cop.

As a lender of last resort to troubled financial companies, the Fed already has a major role in trying to put out financial fires.

"Effectively identifying and addressing systemic risks would seem to require the involvement of the Federal Reserve in some capacity, even if not in the lead role," Bernanke said.

Wednesday, March 04, 2009

Trades of the Day

Traders choose strategies that are most "aligned" with their personalities, not the other way around. Trading currencies is like trading "probabilities". That's why I have come to love using pivot points as my main technical tool. Pivot trading is a clear-cut methodology. Either I am right or I am out. As simple as that.

Wednesday, February 25, 2009

EUR/USD intraday: under pressure

Pivot: 1.2825
Our preference: Short positions below 1.2825 with targets @ 1.272 & 1.266 in extension.
Alternative scenario: Above 1.2825 look for further upside with 1.288 & 1.295 as targets.
Comments: the pair has struck against its resistance and should face a further weakness as the RSI is bearish.

Monday, February 23, 2009

There's Something About Pivot Point

The core tenet of pivot trading is if the price opens above the pivot then the bias is for long trades only. If the price opens below the pivot then the bias is for short trades. We look to buy at support levels and sell at resistance levels bla bla bla. I find pivot to be very powerful as a stand-alone instrument in trading without relying on any other technical indicators. I love using it for its pure "objectivity and accuracy". More on this later, but as for now, pivot rocks..!!