Market Direction

The origin of the Group of Eight was an invitation from French President Valery Giscard d’Estaing in 1975 to six of the major World War Two combatants to meet at Rambouillet in France. Leaders from West Germany, Great Britain, Italy, the United States, Japan and France attended that first meeting. The impetus to the summit, if not the sole topic, was the first post war economic challenge to the west, the 1973 OPEC oil embargo. In 1976 Canada was invited to join and the group stayed at seven until 1997 when Russia formally became a member.

Although formed a generation after the end of the Second World War, the G-7 represented the dominant nations of the defining event of 20th century history. As with the United Nations for international politics, the G-7 was an attempt to secure the victory of the western economic model. For the first 30 years after the war the only antagonist for the western capitalists had been the political and military threat of the Communists led by the Soviet Union. Until the oil embargo there had not been a serious economic challenge to Western Europe, the United States and Japan.

Why relate this history? The nations of the Second World War consensus that have dominated the world for 60 years are close to bankrupt. Their foreign bankers are now calling the shots; those who pay decide the future.

The abandonment of the climate change issue at the G-8 meeting is an example. Though the global warming agenda is a major part of the domestic political positions of President Obama, Chancellor Merkel, Prime Minister Brown and President Sarkozy the issue was removed from G-8 consideration because China, India and others would not go along. This is perhaps a foretaste of what will happen on every topic in which China and the other BRIC (Brazil, Russia, India, and China) countries have an interest.

China, Russia and India have been very public with their concerns for the long term value of the US Dollar and critical of the effect of American deficit spending. In April, China’s holding of US Treasuries fell for the first time in eleven months. The amount was small, $4 billion and partially offset by a small gain in Hong Kong. But in the charged atmosphere of today’s international economics and in light of US funding needs, the drop was widely noted. From April 2008 until March 2009 the Chinese Government had been steadily acquiring Treasuries; its holding had increased from $502.0 to $767.9, a jump of 53%.

China has also moved to increase the supply and demand for the yuan as an alternative to the dollar by starting limited trade settlement in its currency. On July 6th some firms in five Chinese cities were allowed to begin settling transactions in yuan with companies from Hong Kong, Macau and the ASEAN countries. Non-Chinese banks will be able to obtain yuan from mainland institutions to finance trade.

The Peoples Bank of China (PBOC) has also formulated currency swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. The PBOC will render yuan to their central banks as needed to pay for imports if these countries are short of the currency.

These moves by the Chinese authorities will not establish the yuan as an international reserve currency. But they will shift some of the trade demand for dollars to yuan. Offered the choice what Asian trading partner of China would not want to remove the volatile and increasingly questioned dollar from their financial equation? The logic is simple and efficient. Why hold reserves in dollars for your China trade and bear the currency risk? Yuan reserves reduce the need for dollars and reduce dollar currency risk.

China has emerged as the engine of growth in Asia and Asian countries are looking to China for the health of their own economies. If yuan settlement becomes the policy of the Chinese Government what trading partner will want to go against Beijing’s wishes and opt for dollar settlement? Considering the size of China’s foreign trade the potential drop in dollar demand could be substantial.

Until now it has been in China's interest to keep the yuan undervalued for trade competition. Since last summer China has effectively re-pegged the yuan to the dollar after three years of gradual appreciation. But that is likely to be a temporary expedient. If China is serious about using the yuan in trade and in permitting outside players, non Chinese players, to hold and store value in yuan, an essential component of a reserve currency, what better way than to resume a gradual appreciation of the currency? For an exporter in Vietnam or Thailand or even Australia, Japan or New Zealand would not an appreciating yuan be a far better option for your China trade capital than the dollar?

Chinese national interest will determine Beijing’s economic policy. But the time is fast approaching when safeguarding her economic development will be far better served by a strong and convertible currency than by a weak yuan priced for export. A strong dollar has been one of Washington’s most effective foreign policy tools for more than 50 years; that fact is not unknown in the Chinese capital.



Joseph Trevisani

The Psychological Utility of Technical Analysis. Market Direction

Technical analysis is sometimes studied as if it contains a grain of secret knowledge or portrays an intrinsic truth about currency movements. Often it is said that a specific chart formation will produce a specific price movement.

Technical analysis does nothing of the sort. A chart is a reflection of past prices, nothing more. In itself a graph cannot predict future price movements. A currency does not trade up of down because of a formation on a chart. It moves because market participants make basic assumptions about future price behavior based on the record of past price action. A charted history of price action is the cumulative story of thousands of trading decisions; it is a record of the past behavior of thousands of individual traders.

Price information is meaningful only because trader’s decisions give it predictive power. A simple proof of the limited forward intelligence of historical price action is the well attested notion that fundamental developments always trump technical analysis. If the Federal Reserve raises rates unexpectedly or the Chinese Government announces it will no longer buy US Treasuries there is no chart formation that has ever existed that will prevent the dollar from rocketing up in the first instance or plummeting in the second.

Technical analysis does not produce price movement. I state the obvious because in the endless attribution of trading cause and effect to ‘the market’ it is easy to lose sight of the actual composition of the market--thousands of individual decision makers. The translation mechanism for technical analysis runs from the information contained in a chart, through the assessment of that information by market participants to the trading behavior of those market participants.

Another way to approach this idea is to ask, just who is the ‘market’ and what is it trying to accomplish every day. It is likely that over 90% of the $3.2 trillion daily volume in the FX market is speculative. That means that everyone in the market from the hedge fund trader with $1 billion under management, to the euro trader on the Deutsche Bank interbank desk to the retail trader in her study, is trying to do exactly the same thing, take home daily trading profits.

Interestingly, the overall worldwide foreign exchange trading volume in 2007, the year of the last survey, increased almost 50% from the prior survey in 2004 of $1.9 trillion daily. The counterparty reporting segment to which retail foreign exchange belongs boosted its share of turnover to 40% from 33% according to Bank for International Settlements in Basel (BIS, 2007) which conducts the tri-annual survey.

To return to my previous point, if every market participant is attempting to do the same thing, namely wring trading profits from the day’s activities, how do they all go about it?

The first thing every trader does, in New York, Tokyo, London and in every land in between is to pull up charts and look for trading opportunities. Every trader looking for profit is judging the same charts. Everyone sees the same price history, and everyone identifies the same potentially profitable chart formations. And, in the absence of other factors, the majority of traders will come to the same trading conclusion based on the observed chart formations.

If euro has been in an up channel for two weeks and is approaching the bottom of the channel most traders looking for an opportunity in euro will bet on the continuance of the up trend and the maintenance of the channel. They will place buy orders just above the floor of the channel. And much of the time the charts will have been proven correct, the euro will indeed bounce from the floor of the channel. But it bounces not because, for instance, the ECB is expected to raise rates at some future date, but because of the fit between the goals, information and assumptions of the market’s traders.

Traders need profits, all charts contain the same information and all traders operate with similar assumptions about market behavior based on chart formations. If enough traders place their buy orders above the bottom of the channel it becomes likely that the euro will bounce off the floor of the channel and continue the upward channel formation, barring external events of course.

There is powerful self-fulfilling logic in technical analysis, it works, because everyone trading believes it will work and makes their trading decisions accordingly. For a retail trader this knowledge is the most accessible and effective trading strategy that exists.



Joseph Trevisani

Dajjal Baby (Please be carefull)

Thanks to Mazaahir-ul-Uloom

I have received this email numerous times, many know this is NOT dajjal and its merely a poor baby born with medical condition and deformed developments.

Below is a more official answer to this

The ahadith relating to physical features and appearance of Dajjaal are quite clear. The baby shown on the email pictures cannot be Dajjaal because of the following reasons :

1. Dajjaal was present at least from the time of Nabi Sallallahu Alaihi Wasallam. A hadith exaplains the expererience of Tamim al-Daari Radhi Allahu Anhu where he saw Dajjaal chained on an island.
2. Dajjaal has been described in the ahadith as having two eyes. One of them will be blind and one will protrude like a grape.
3. The word “kaafir” will be seen on his forehead.

Medical doctors have further confirmed that the case of the baby, in question, with one eye is actually a physical deformity.

One should be particularly careful about circulating emails of this nature because they cause misconceptions and unnecessary confusion. As Muslims we believe completely in the words of the Prophet Sallallahu Alaihi Wasallam regarding the emergence of Dajjaal. Our faith in this should not hinge upon images or chain emails.

We should further prepare ourselves from falling prey to the deception of Dajjaal, if we live to see him, by following the prescriptions mentioned in the Quran and ahadith.

And Allah knows best.

Courtesy of : Madrasah Mazaahir al-Uloom. For all Shariah related queries contact Mufti Muhammad Abubakr Minty at almazaahir@gmail.com