For weeks, and even months now, we have been led to believe that serious economic recovery was under way. Stock markets around the world have been enjoying strong rallies, commodities are working hard to create new bubbles and governments have been issuing ever more optimistic projections. China, the “new engine” of the globe has been growing at dizzying pace. Things look good, right? Even the bailouts and market stimulus packages were said to be doing their jobs. We were told that taxpayer were very likely to recover money injected into individual companies and maybe even make some profit.

While some of it seems true, there are some conflicting signs. Banks have been posting good earnings, but they didn’t come from their core business, lending. Financial institutions have been making money trading, fueling the fore mentioned rallies in markets, partly with cheap money made available to them governments. Meanwhile, what should be cornerstone of their activities, commercial and personal lending, has been suffering. Foreclosures reached nightmarish levels, and, by some accounts, are bound to get worse. Commercial real estate is just starting to do the same. Bank for International Settlements released report which shows that international bank lending dropped by over $300 billion or 1.1 percent in the second quarter as the financial crisis continued to restrain credit. This statistic – the only one of this kind- shows, how banks have been cutting off funds to companies and to each other despite efforts by governments and central banks to unlock jammed credit markets.

Swedish Riksbank, which introduced negative rates on commercial banks deposits few months ago, left its benchmark rate unchanged. Officials said they expect to hold policy steady for another year. This was coupled with a cryptic statement “Recovery has begun but it will take time”. All central banks seem to be using the same script for their announcements, they just fax it from one country to another before meetings… And here, in USA, government is starting to admit that it is unlikely to recover all the money committed to bailouts. Is this why the “Pay Czar” is finally going after compensation packages of some of the executives from those companies? He is screaming to cut them by as much as 90%, though by the time it is all said and done, I’m sure it’ll be closer to 9%. Plenty of talk, far less action….

This ” plenty of talk not much action” principle applies to trading as well. Like my AUD-NZD trade from couple of days ago. I decided to close it for 19 pips gain, rather than 100+ originally sought. There is nothing fundamentally wrong with it, analysis is still valid, but I had too many trades floating around and had to close some, including this one. I’m not sure if I’ll be able to follow markets closely for the rest of the week, so had to limit exposure, even if new orders are placed.

AUD-CAD is building reversal pattern on 1H chart. No way of telling if the price will indeed drop from here, but IF it does i want to be in on it. Have a sell order placed at 0.9635, targeting 75-80 pips. I hope that market doesn’t go through it on next attempt (happening as I’m writing it), but bounces and repeats it later. This would make support more important, which is a foundation for more decisive break when it eventually happens.  Not much to add to EUR-GBP analysis from last post, they are still valid. Market is bouncing a little, but is not within the sell zone yet. Must be patient.

Mike K.