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November 8th, 2009 at 6:30 am

The Tobin tax.

The dreaded “Tobin tax” came up during yet another G-20 meeting took place over the weekend, this time in Scotland. Seems like every other week “G”-something has a summit here and there, always discussing the same few topics. Current subject of choice appears to be the so called exit strategy, which is a plan of withdrawing excess liquidity from the system. After all the bailouts and stimulus packages some feel it is time to start closing the easy cheap money spigot, while others claim this would kill the just starting recovery. This is something that will be in the spotlight from now on.

Of note was British Prime Minister Gordon Brown’s call for urgent consideration of a global fund to rescue troubled banks, possibly financed by a tax on financial transactions. This is a version of the so called “Tobin tax”, a flat tax on international currency transactions named after the Nobel Prize laureate James Tobin. Details of what and how would be taxed were not announced, but it would most likely include international speculation as well as other banking activities. Proposal received tepid response from other delegations, for now at least. We can understand that Mr. Brown doesn’t want to spend public money on bailouts of bank, but there is another solution to the problem- stop the bailouts. Vast majority of financial institutions got in trouble because of mistakes made by executives, and not external forces. They deserve to fail. Perhaps some of these people should have extended vacation in prisons for mismanagement and breach of fiduciary obligation? Start holding the fat cats responsible for their greed and short sightedness, not levy a punishment on everybody else for excesses of few.

Australian Dollar has once again gotten stronger last week. It had experienced some weakness before, which had looked like a beginning of somewhat larger correction. Now most AUD crosses show indecision  and leaning towards resumption of bullish run for the Aussie. Personally I don’t think we will witness new highs for this currency, but charts are conflicting from time frame to time frame.

gbp-aud-11-07-e.jpg

This chart of GBP-AUD shows recent run up of a little over 1000 pips, which looks like a legitimate trend reversal on daily time frame. At least the beginning of one. Intermediate chart, however, is already showing exhaustion of this move and is forming topping pattern., which looks promising at the moment. Noticeable support developed at around 1.8000. I’ll be watching this level closely but have no standing sell order, rather try to get in at market if I’m convinced move is for real, with an objective of 1.7750-1.7700, but I doubt new low will established.

eur-nzd-11-07.jpg

I am also adjusting stop for the price action, EUR-NZD trade. It was moved to 2.0320 level, to guarantee almost 300 pips for the trade. In principle I should wait for a new high to form above “A”. However, this trade has already lasted long time and I thing it would be a shame to stick to the 100 pips gain which is locked right now. So I’m moving it up a little bit, making the outcome a little more attractive. Hopefully, new high will be made and trade can keep on rolling.

The G-20 meeting produced nothing extraordinary, but as always gaps on the open are possible. I also have some orders from last week still pending, so should be busy during next few days. We all better take advantage of what opportunities we can find now, before some kind of Tobin or Brown tax is assessed on us. Russian Finance Minister Alexei Kudrin said he it best:”Gordon Brown is well known as the person who raises taxes all the time.” He may have been right.

Mike K.

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  • Heather
    7:10 pm on November 8th, 2009 1

    It is pretty good timing, Mike. I mean adjusting the stop on euro-kiwi trade. It dropped like a stone after opening.

  • admin
    10:09 pm on November 8th, 2009 2

    Heather, thank you. And now we have a gap to play with, right?

  • Maxim
    10:18 pm on November 8th, 2009 3

    Only EUR/NZD? I’m talking about the gap.

  • Prudence
    10:25 pm on November 8th, 2009 4

    And now we have a gap to play with, right?

    Uh-oh.

  • admin
    10:29 pm on November 8th, 2009 5

    Maxim, no. All NZD pairs.

  • manuel
    7:55 am on November 9th, 2009 6

    Hi Mike,

    what kind of signal can we use to enter the GBPAUD trade (short)? An hourly/4 h. candle close below the support area around 1800?
    manuel

  • admin
    8:07 am on November 9th, 2009 7

    Hi,
    Yes,you can use closing of 1H/4H candle under the support. Price just dropped under 1.8000 but the candle closed above the level, so not trade. But I wasn’t looking for candle closing there, just wanted to see more price history, before trying to trade it. More in next post,.

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