JULY - SEPTEMBER 2012
TRADER MAGAZINE
UST I M I D
R E B O U N D
in defense ofV O L AT I L EE U R O Angela Merkel
WILLIAM
GANN
BIOG
RAPHY
HOW FAR WILL GERMANY GO TO KEEP EUROPE TOGETHER? WHAT SHOULD EU MEMBERS BE PREPARED TO DO TO SAVE THE EUROZONE?
T R E N D T R A D I N GSTRATEGIES
FXCONTENTs
IN DEFENSE OF ANGELA MERKELHow far will Germany go to keep Europe together? What should EU members be prepared to do to save the Eurozone?
34
THE UNITED STATES’ TIMID REBOUND
The stability of the US economy and the impact of the European debt crisis. 09
WILLIAM GANNBiography of a legendary analyst, also called a prophet and mathematical seer.
FX TRADER MAGAZINE July - September 2012 3
05 EDITOR’S NOTE
FUNDAMENTAL ANALYSIS:53 Volatile Euro: Risk remains, hinting at possible surprises in store
TECHNICAL ANALYSIS:20 Trend Trading Strategies using trends-identity repetition and trend recognition patterns
TOP TRADERS:44 Interview with Tim Rea
FX MANAGERS: 29 Interview with Ron DiRusso, FX Concepts
COACHING:49 Trading is not a game of perfect:
7 steps to overcoming perfectionist tendencies
TRADING STRATEGY:71 It is just a matter of time: why a prudent trader might occasionally lose money but should never lose time
FOCUS:24 The Concept of Price Formation in Stock and Forex Markets
SERVER SIDE: 82 Forex VPS: What is a VPS? The pros and cons of using a VPS for forex trading
BOOK REVIEW:75 Inside the Currency Market – by Brian Twomey
BOOK EXCERPT: 77 The Quarters Theory – by Ilian Yotov
TECHNICAL ANALYSIS: 86 Currency Outlook: Major US Dollar RatesMajor Cross RatesEmerging MarketsAsian Far Eastern RatesFeatured pairs AUD/USD, EUR/GBP, EUR/PLN, NZD/USD
INTERNATIONAL DATA:90 FX Spot Monitor91 Central Bank Rates92 Economica Data - FX Poll93 Markets View
94 ECONOMIC CALENDAR
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“Hope is the worst of all evils, because it prolongs man’s torments.”
Friedrich Nietzsche
IN DEFENSE OF ANGELA MERKELand in response to The economist’s June 9th cover story
“People only accept change in necessity and see necessity only in crisis.”
Jean Monnet
How far will Germany go to keep Europe together?
FX MACRO ECONOMICS
34 FX TRADER MAGAZINE July - September 2012
FXMACRO ECONOMICS
From The Economist’s cover-story on June 9th:
“It is now up to Europe’s politicians to deal finally and firmly with the euro. If they come up with a credible solution, it does not guarantee a smooth ride for the world economy; but not coming up with a solution guarantees an economic tragedy. To an astonishing degree, the fate of the world economy depends on Germany’s chancellor, Angela Merkel.”[…]
“Outside Germany, a consensus has developed on what Mrs. Merkel must do to preserve the single currency. It includes shifting from austerity to a far greater focus on economic growth; complementing the single currency with a banking union (with euro-wide deposit insurance, bank oversight and joint means for the recapitalization or resolution of failing banks); and embracing a limited form of debt mutualisation to create a joint safe asset and allow peripheral economies the room gradually to reduce their debt burdens. This is the refrain from Washington, Beijing, London and indeed most of the capitals of the euro zone.”
From the Anglo-Saxon (Keynesian) community, the question which most needs an answer is quite clear: how far will Germany go to keep Europe together? The economist Rudiger Dornbusch observed that in economics, crises take longer to come to a head than you think they will, and then they happen faster than you thought they could. By the time you read this, something substantial (after the Greek
elections and the EU summit) may already have happened. But whether or not that has happened, or soon will, one thing is certain in the perception of the world outside Europe: since the beginning of the crisis, Germany has had the power to save the monetary union if it wanted to. Even, “the union’s disintegration would be an optional catastrophe” (Foreign Affairs).
The demands being made to the German government spring from a sincere desire to avoid a rerun of the 1930s, when economic disaster provoked political catastrophe (see Niall Ferguson and Nouriel Roubini in the Financial Times “Germany is failing to learn the lessons of the 1930s”, 9 June 2012). To be honest I think such a vision is too simplistic. While these requests may make economic sense, they are politically unrealistic, even potentially dangerous. Consider just one of the proposals on the shopping list: a Europe-wide bank deposit insurance scheme. As a senior Dutch politician who shares the German view, puts it: “We cannot push
through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67.” From the Dutch and German point of view, it is unfair for their citizens to underwrite the banks of countries using their own money to pay social benefits that are more generous than those on offer in Germany or the Netherlands.
Recently an FT article from Martin Wolf (“The riddle of German self-interest – May 30th”) has received a quite resentful answer from a senior officer of the German treasury department. The exchange (actually just Martin Wolf ’s comments to the response) can be read on the FT blog. I think it could be of interest to quote part of the German Ministry of Finance’s answer to get a better feel of the German government point of view.
“Sir Martin Wolf voices a fundamental critique of the European fiscal and economic policy strategy in the context of the current debt crisis. He argues that the “eurozone is now on a journey towards break--up that Germany shows little will to alter” given its many “neins” to anything that would break the “doom loop”. Mr. Wolf ’s solution for the current problems is risk transfer via eurobonds (of some sort), and demand stimulation via cheaper money and less fiscal consolidation in Germany. But the public and markets have been led to believe in short-¬term measures for far too long. And they know there is too much moral hazard already. Eurobonds would only make it worse and the healthier countries − mainly Germany and France − cannot even afford them.
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