Subprime Economic Crisis Aftershakes, Now in Dubai - Do Not Trust the Media!
It is several months that the media emphasize that the economic crisis is ended and the world economy is improving. On the other hand, all the well-known and experienced economists were used to say that this was not true and the crisis would be continued and it had not showed its impact on several countries yet. Dubai economic crisis proved that the economists have been true and we are yet at the middle of crisis (if not at the beginning) and we should expect to feel more economic crisis aftershakes in future.Did the media know this or they didn’t? They did know this definitely, but the fact is that they hide the truth and try to deceive people. Why do they do this?
Everybody knows that the world economy and big and important markets like stock, Forex and real estate are all dependent on invertors psychology. When “greed” becomes the dominant emotion, investors buy and the price goes up and when “fear” captures the investors hearts, they sell and the price goes down. Since the beginning of the economic crisis, many governments and also the media have been trying to hide the truth, not to let the investors know the depth and the acuteness of the crisis, to slow down crisis progress and the prices’ depreciation. Among all countries and governments, it was only the US government that has been relatively honest with US people and also the world, but European countries and countries like Dubai tried to hide their problems as much as they could.
The real estate crisis was started from two years ago in Dubai, but they kept on borrowing more and more money until now that they have stopped repayments on $59 billion of debt, including a $3.5 billion Nakheel bond due 14 Dec. Thousands of investors have become bankrupt because of the dramatic decreasing of the real estate price in Dubai.
Is there any lesson for us to learn from these events?
The first and the most important lesson is that an investor has to be smart. A good investor does not buy or sell something or does not hold something that he has bought, just because the other investors or even the media and governments say it is good to buy, sell or hold. If the price of something is going up, it does not mean that it will keep on going up forever and if it is going down, it does not mean that it will turn around and recover, just because the media and governments say it will do that. A good investor knows what he should look at and to whom he should trust.
When an economic crisis happens, governments and also media that are mainly controlled by governments or governors who are also big investors, try to hide the truth because of two reasons. A crisis is the result of governors mistakes and ignorance and so it has to be hidden. Additionally, people should be informed when the big investors have already sold their shares. People see that prices are going down, but they think it is normal and they will turn around. People like to be deceived by good news that makes them hopeful. Someone who has invested millions of dollars, does not like to hear that the price is going to go down, because this fact destroys all his dreams. But he will find out finally when it is too late. This is exactly the current condition on Dubai. A house that was used to be $7 million dollar 3 years ago, can not be sold for $500,000 now.
Trading and investment is not easy if you do not know how to do it and if you just follow something that others say. The hardest part is that investors like to hear the good news and ignore that bad ones. They like to make a fake hope and hold their positions and finally get out with big losses. A smart trader is someone who listens to the others, but he is experienced and knowledgeable enough to make his own decisions. He takes the position on time and gets out because it is time to get out, not because he has made enough profit or has lost all he had. He does not look at the money he is making. He looks at the facts and signals. Emotions have no room in trading. People lose because they decide based on their emotions.
What Can Be Trusted Over This Market?
The answer is “price chart signals”. They show us the entry and exit points if we learn how to analyze them properly. In case, we make a mistake or the price chart shows a false signal, our stop loss takes care of our money and we will not lose all we have. What else you want for trading?
Anyway!
The new monthly candlestick is just opened. Lets see if it can give us an overview of the Forex market on December.
EUR-USD Monthly Chart:
November candlestick closed slightly above the broken support line (please read my analysis on November 1st and see where and how this support line is plotted). Additionally, November candlestick also closed above the November pivot level. As you know, monthly pivot level is the average of the high, close and low prices of the last month. November candlestick is closed above this level. It means it is highly possible that December to be a bullish month too. Of course, Forex market is used to go down and test the pivot level and then go up. So we may see some bearish movements but then it is expected that the bullish movement to be continued. EUR-USD monthly pivot should work as a support level during the next month.
GBP-USD Monthly Chart:
Unlike EUR-USD, GBP-USD November candlestick closed below the pivot level and so the 1.6526 level will act as a resistance level during December. Additionally, it also closed below the Bollinger Middle Band. It may go up a little to test the 1.6526 and also the Bollinger Middle Band and then it goes down.
USD-CHF Monthly Chart:
USD-CHF November candlestick closed as a bearish candlestick. On its way to go down, it reacted to the 0.9929 support level - which is the lowest low from March 2008 - and went up. November candlestick also closed below the pivot level and so this level will work as a resistance. So December candlestick may go up to test the pivot level and then goes down to follow its main direction and forms its lower shadow (#1). It may also go down directly and test the 0.9929 level (#2). I expect it to break down the 0.9929 level and test the Bollinger Lower Band.
Further Reading:
- Forex Basics:
What Is Forex and How to Make Money with It?
Is Forex a Suitable Business for Everybody?
When You Will Be A Professional Forex Trader?
Currency Pairs Explained - Understanding the Currency Pairs in Forex Trading
Currency Pairs Correlation in Forex Market: Cross Currency Pairs
How to Choose the Best Currency pairs for Forex Trading
What Thomas Edison Can Teach You about Trading Forex!
A
Letter from God to Forex Traders!
Ten
Important Forex Trading Tips
- Money Management:
Money Management is a Critical Part of Forex Trading
Risk/Reward Ratio in Forex Trading
How to Make $53,000 per Month through Forex Trading
Where Is the Best Place for Stop Loss and Limit Orders?
When Should You Get Out of a Bad Position?
- Candlesticks:
The Language of Japanese CandleSticks - The Only Real Time Indicators
Doji Candlestick - Doji Star - How to Trade Using Doji Candlestick and Bollinger Bands
What Is Heikin-Ashi and How to Trade with It?
- Price Chart:
Forex Charts - How to Use Different Types of Charts in Forex Trading
Renko Chart - How to Trade Using Renko Charts
- Technical Analysis:
How to Use Technical Analysis in Forex and Stock Trading?
How to Trade Using Trendlines, Head and Shoulders, Triangles, Double Tops and Bottoms, Flags, Pennants, Wedges...
How to Use Moving Averages in Forex Trading
How to Use Pivot Points in Forex and Stock Trading?
How to Use Bollinger Bands in Forex and Stock Trading
How to Use MACD or Moving Average Convergence / Divergence in Forex and Stock Trading
How to Trade Forex During the News Time
- Fibonacci:
How To Use Fibonacci Numbers in Forex and Stock Trading
More About Using Fibonacci in Forex Trading
How the Forex Market Reacts to Fibonacci Levels
- Tools, Indicators and Templates to Download:
Download Heikin Ashi and Smoothed Heikin Ashi Indicator and Template for MetaTrader
Have All timeframes on One Single Chart in Your MetaTrader Platform (MT4)
Thanks Vahid.
Very informative as usual. Thanks again for your insight and your hard work.
Thank you too Dave
Hi Vahid, thanks quick easy and smart as usual.
My question is:
UsdChf acts as a we were looking at a UsdEur chart, meaning that EurUsd and UsdChf are higly correlated (I don’t know the percentage of the correlation though).
Due to this, from a TA point of view, once we have a look at EurUsd should not be this sufficient? We also would not invest in Eurusd and UsdChf contemporarely due to the correlation.
So maybe your point, in analyzing both Eur and Swiss is in order to look for the best entry in one or the other?
Thanks
Max
Hi Max,
Yes, you are right. EUR-USD and USD-CHF are strongly correlated. We usually trade one of them. However, they are correlated but they are not the same. It means sometimes you may see a signal with one of them and not with the other one. Also when you see a signal with one of them, it is good to check the other one and see if the reverse signal can be seen on it or not. Just as a confirmation.
Hi Vahid,
A good article, as usual.
Compared to the money the US, UK and Euroland are printing, $59 billion doesn’t seem that much.
There must be much larger sums of leveraged money involved in real estate in the US, UK and Euroland.
It looks like we are in for more ineteresting times.
Regards,
Kel.
It was not just the money they had in real estate. As soon as it was announced that Dubai has defaulted, all the Arabic stocks went down for about 8-10%. Investors sold suddenly. The money was not big, but its psychological impact affected the whole world.
We appreciate your insight tho have as yet not found any realiable way to enter the market (without large losses) that monthly analysis sometimes means. Thank you anyway!
You are welcome. When there is a sharp and strong signal, even on the monthly chart, we can trade it. A signal that shows the color of the next month candle at least.
Another possible ‘overheating economics’ is coming soon on the media………China. Imagine: China World crisis !!
Thanks a lot Vahid for the monthly forecast. I think December will be more fun and challenging for forex traders like us.
Rids.
Thank you too Rids. Yes, it is scary even to imagine something similar happens to China. But fact is fact. What if US defaults to pay its debts to China? China will be the end loser in this case.
Hi Valid, I have a quick question:
So you think that EUR-USD pair is going up, but isn’t it possible that it has just retested “broken support line” (that now acts as resistence line) and that now it should go DOWN?
Does this make any sense? Why you have chosen to go against technical analysis?
Cheers
Igor
Hi Igor, It seems EUR-USD has borken above the broken support line. So this line should act as a support line again because market has borken above it. However, it is not a strong and sharp breakout, which means possibly this line is acting as a zone now, not as a line and EUR-USD can still be below it.
Hi Vahid
A great insight as usual for coming month and thats what makes you different than rest of the lot cuz they would talk about historical data.
So what do you think about first quarter of next year. Are we still gonna see continuos bullish trend or will there be a correction in equity market? And can you kindly give some insight for Gold as it seems like with US weakness Gold has benifited the most so far?
hanks in Advance
Bilal