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Daily Archives: October 16th, 2013

Hollywood; The drama surrounding the debt ceiling limit

The Americans are so into the theatrics, they just love Hollywood, they love to create a Wow factor at the 23rd hour 59th minute………good or bad.

I believe the debt ceiling limit will be raised again, why?  Simply because it was raised twice before during the past 14 months; from US$14Tn to US$15Tn to US$16.9Tn.  However, as responsible people in positions of power and responsibility, they just can’t simply raise it without giving the impression to the public and the world that they have grieved over finding a solution and ‘cracking their heads’, and finally, they have no choice but to resort to raising the limit again.

The basic government revenue model is flawed as the inflows is less than the outflows with each passing year.  The government does not have any proactive revenues, all their revenue stream is the traditional passive; taxes and duties.  Until they solve the basic revenue and expense model, the deficit will never be reduced, unless, there cutbacks in the outflows.

Today, the US credit rating is not in question so far, though both Fitch and Moodys have changed their view to ‘negative watch’ but still ‘AAA’.  If the US doesn’t increase the debt ceiling limit, by the end of November when a huge sum of monies is required to pay for the coupon on the outstanding treasuries held by governments and central banks around the world, will not be honored.  This will have a tsunami effect across global financial markets.  Can the US really afford this to happen, let’s not forget that the backlash to the US will be greater than the pain caused by the US to the rest of the world.  Can the US afford to have a credit rating downgrade?  I do not believe so, the US will defend its AAA rating with its life.  Let’s not forget that Japan and China has majority stake in all outstanding treasuries around the world.  If they dump the treasuries, what will happen to the US?

The American people have been living off credit and borrowed monies for the past two decades, if there are going to be casualties, they can only blame themselves.  I mean the US government is the biggest culprit of living beyond their means and running deficit for the past 10 years.

However, because the the huge uncertainty, it is nearly impossible to work out a strategic potential trade.  Coming up with a risk adjusted trade idea based on fundamentals and or technicals is a better bet than betting on the whims and fancies of politicians……..we are guaranteed to lose………and lose big time.

Thoughts; GBPUSD

The daily chart shows a double bottom or a ‘W’, one leg in March and the other leg in July, affirming that for the near term, the bottom is well supported at about 1.4875.  Recent top at 1.6225.

gbpusd daily chart 16 oct

The 4 hourly chart is trending sideways just above the 200 day MA of 1.5942 and currently trading below the cloud.  Bollinger bands are squeezed indicating a possible breakout.

gbpusd 4 hourly chart 16 oct

The technicals tend to indicate a potential softening in the GBP, however, all bets are off the table because of the US crisis and the debt ceiling deadline tomorrow.

Making a calculated risk trade based on fundamentals or technicals is fine, as there is rationality and logic involved in the process, whether we win or lose will depend on how good our analysis was.

However, betting against politicians is always a losing proposition.  Politicians cannot be trusted and are double headed snakes.  Nonetheless, like Hollywood, the Americans love the melodramatic and I believe they will some relief to the financial markets when they announce a positive outcome at the 23rd hour 59th minute………….they usually do, just check back on the two previous times when they increased the debt ceiling limit within the past 14 months.

Thoughts; EURUSD

In the daily chart, recent highs in the EUR was at 1.3645 in February this year and the lows was in July at 1.27790 and the 200 day moving average at 1.3142.

Bollinger bands are squeezing into a bottleneck…………ready to burst…………and then again………..burst up or burst down??

Looking at the 4H chart, the signs are more compelling that the EUR may be at the start of another down trend, towards the low established in early September of 1.3110.

eurusd 4 hourly chart 16 oct

 

Could possibly be a good option trade, but I am just not comfortable with the US crisis and the debt ceiling deadline on Thursday.  I really don’t want to lose bullets buying options only to give it up because the markets went crazy.

eurusd daily 16 oct

Thoughts; Gold maybe on the way down to last low of $1,198

I was just studying the 4H and Daily charts on gold, and everything from; Ichimoku to fast and slow stochastic is showing me that there is possibly more weakness in the gold with chance of moving back to the last low of $1,198.

Then, again what’s happening in the US may whack everything out the window.