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Understanding Economics — How Banks Create Money

This video talks about how banks create money and add money to the money supply using fractional reserves. When money is deposited into a bank the bank must keep a percentage of that deposit as what is know as reserves. The percentage they must keep is known as reserve requirement. The banks are only required to keep it in hold a fraction of the money that is deposited, the remaining amount known as excess reserve can be invested alone now. When the bank loans out part of your deposit they are actually adding to the money supply.
For example if the reserve requirement is 10% and assume someone deposits 10,000 USD into the bank. The bank must hold 1000 USD of that in reserve and however they can loan out 9000 USD of that. The original customer’s deposit of 10,000 USD is still in the bank and he can withdraw it anytime he wants. However the bank has loaned out 9000 USD to another customer. As you can see the loan actually added another 9000 USD into money supply. The banks are counting on the fact that not every single customer is going to take their money out of the bank at the same time. Only a small percentage of the people actually want their money out of the bank and therefore they could keep loaning money back with the idea that not too many people will withdraw the money all at once.
This process can keep continuing indefinitely with the potential adding ten times the original deposit in to the money supply. Raising the reserve requirement however reduces the amount of potential money being created and amount of potential increase to the money supply is dependent on deposit multiplier. If the reserve requirement is 10% then deposit multiplier is 10. Regulating a nation’s money supply is one part of monetary policy.

Coleman — Why I’m Selling GBP/USD?

In this video the Alan Collins looks at currency pair GBP/USD pair for the May 27th session.
GBP/USD — The medium term view on cable remains positive. But in the short term we are looking for a deeper correction for 3 main reasons. The first reason is last week the pair very aggressively declined creating a bearish piercing pattern on weekly chart. Second reason the daily keltner channel peaked at last week’s high and is now showing a mildly negative trend. Thirdly 13 day moving average was marginally broken last Friday and the selling emphasizes that move down. We are looking for 1.5384, 1.5354 and 1.5295 as targets. We are looking to sell at 1.5425 and our stop at 1.5477.

Daily Forex News and Analysis — May 27th 2015

The Wall Street finished in the red weighed down by concerns about Greece and some upbeat data that fueled expectations that US Rate hike could come sooner rather than later. The Dow Jones fell by 1.04%, S&P 500 by 1.03%, the biggest decline in 3 weeks and NASDAQ lost 1.11% from its value. The US Dollar traded high against major currencies after string of postive US reports and expectations of rate hike in coming months. Today high volatility is expected with G7 Meetings in progress. Gold fell by 1.64% to close at $1,187 an ounce. Crude oil fell by 2.51% to close at $58.31 a barrel.
The Euro fell by 0.86% versus the dollar to close at 1.0874 its lowest level this month due to strong US data. On the 4 hour chart the pair has broken below support level of 1.1068 and is trading below the moving average 10. Maintaining these conditions may lead the pair to drop towards 1.07. Breaching above the moving average can cause a reversal in momentum and retracement towards 1.10. Today GFK German Consumer Climate is expected at 10 vs. 10.1 previously. The Pound fell versus dollar to close at 1.5386. On the 8 hour chart the pair is trading close to the support of 1.5350. Holding above this level could take it up towards 1.5450. However with momentum indicator below 0 a fall is likely and we might see it breaking below support of 1.53 again. No economic data is expected today.

Coleman — Why I’m Selling AUD/USD?

In this video the Ian Coleman looks at currency pair AUD/USD pair for the May 26th session.
AUD/USD — Last week we saw some aggressive selling pressure and this broke the sequence of 3 positive performances last week. We are in a large channel formation and it could actually be seen as a reverse head and shoulders formation. The support of this pattern is located at 0.7765 ad we look for that as prime focus today. Shorter timeframes, we are in a very small channel formation, bespoke resistance line at 0.7843. We are looking that level as a trigger level and the trading call today is to sell AUD/USD at 0.7840 and a break of 0.7840 which is the channel base we place our stop at 0.7870. The target level is at 0.7765 and then down to 0.7725.

Short Selling — Forex Basics

Traders short sell when they feel the price is something is going to go down. When traders sell short he will borrow the item and when the price is higher. Sell it and then later on hopefully after the prices dropped will buy it back and return it. Lets look at real life example. Lets say your friend own a rather large tank of gasoline when it is selling for 4 dollars a gallon. Lets say you borrowed gas from your friend and sold it for 4 usd per gallon. After the price has dropped to 2 dollars a gallon and you bought back and returned it to your friend, so you made a profit of 2 dollars a gallon.
Lets see another example in stocks. Assume you have borrowed and sold 100 shares at $10 per share. Later on you buy back the shares and return 100 shares at 8 dollars per share. You have made a profit of 2 dollars per share or 200 dollars.
In Forex things work a little different. Because always there are 2 currencies in every transaction you are always going long or buying one currency and at the same time selling the other currency.

Contrarian Investing

Contrarian Investing is an ideology in which the investor chooses to make investment decisions that go against the popular consensus. The movement of market combined with signals such as buy and sell orders give investors a good idea of trends of their fellow investors. When a stock is going down it generally means the investors are bearish or pessimistic about its future. When a stock rises it means that the general investing population is bullish or optimistic about its chances. Contrarian investors like to go against the stream of investor consensus and do the opposite of what the majority are doing. Often that means selling a stock that many others are buying. Contrarian investors take these opposing view points simply because it allows them to take advantage of what they see as a mispricing in the market. For example they might not think the current investor pessimism is well founded so they see some price dips is temporary misspricing that they can capitalize on. So while most investors are scrambling to sell contrarian investors are buying. In essence contrarian investors live by the adage of buy low and sell high. In other words contrarian has a negative connotation. Contrarian investors are not consistently bearish or pessimistic on the market and they are doing the opposite of what the majority of investors are doing.

EUR/USD — Daily Forecast Technical Analysis — May 26th 2015

In this video the trader guy looks at currency pair EUR/USD pair for the May 26th session.
EUR/USD — As you can see on the daily chart we did nothing on the Monday session. Thats not a surprise because we had Memorial day in the United States and Bank holiday in the UK. The liqudity would have been nothing at that point of time. As a result we did not get much in the way of action. When I look at this chart i look at the level and not the day. I look at 1.10 level with interest. If we get above 1.1050 level we are bullish and we think we could open the door to 1.12. If we break down below 1.09 then we are bearish of this pair then we could go down all the way to 1.06.

Daily Forex News and Analysis — May 26th 2015

The Wall Street finished in the red after Federal Reserve Chair Janet Yellen hinted that Interest rates could rise at some point this year if economy continues to show improvement. Yesterday the market was closed due to Memorial day. The Dow Jones fell by 0.29%, S&P 500 by 0.22% and NASDAQ lost 0.03% from its value. Today Core Durable Goods Orders is expected at 0.5% vs. 0.3% previously and CB Consumer Confidence unchanged at 95.2. Gold rose to close at $1,207 an ounce. Crude oil fell to close at $59.81 a barrel. The Euro fell against the US Dollar to close at 1.0970 after US Consumer Spending rose and concerns over Greece continue to weigh on the single currency. According to daily chart the pair is trading close to the lower bollinger band. Holding below moving average 10 and MACD Indicator below 0 the pair is expected to fall towards 1.0950. However breaching moving average may lead to a reversal in momentum and a rise towards 1.1020. The Pound fell slightly versus US Dollar to close at 1.5471. According to 1 hour chart the pair is trading close to support level at 1.5445. Breaking below this level with momentum indicator below 0 may lead the pair towards 1.54. However failing to do so may cause a retracement towards 1.5525. Today the CBI Realized Sales is expected at 18 vs. 12 previously.

Treasury Bills

The United States Government issues a variety of debt obligations to finance its operations. Those with the shortest maturity are called treasury bills and one of the unique features of these bills is that the government does not make regular interest payments to the holder. Instead the securities are sold at a price below face value resulting in a profit at the maturity date. For example Heather is a conservative investor and buys a 52 week T Bill with a face value of 10,000 USD priced at $9,700 with #300 of interest income. Her yield is 3.1%. T Bill offers Heather 2 major benefits.
1. Lack of risk
All treasury instrements are backed by full faith and credit of the government given its taxing authority and the size of the economy the odds of defaulting are very small.
2. Offer Tax advantages over other investment opportunities.
The difference between the bills initial purchase price and its face value called the original issue discount is that its taxable at the Federal level and exempt from state and local taxes. Investing in T Bills may not make sense for individuals seeking optimum long term growth but for those that value stability these government offerings are a safe investment.

Durable Goods — Economic Reports For All Markets

Durable goods are manufactured goods that have a normal life expectancy more than 3 years including things like cars, appliances, business equipment machinery, basically everything that is consumable. The advance report on durable goods is used to indicate the condition of the manufacturing sector as well as overall health of economy. The report comes out once a month by Department of Commerce about 3 to 4 weeks after a month been reported. The report is split in to 2 sections with sections having 2 categories. The first section contains 2 manufacturers, shipments and new orders and second section contains manufactures and unfilled orders and inventories. The New orders and shipment section of the durable goods report can be used as a leading indicator for all markets.
For instance it could be used to gauge if the economy is expanding or contracting and it is an excellent indicator for predicting short term changes in GDP. This section can also show which sectors are expanding or contracting. The new orders section can also be used for gauging future employment levels.

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