| Forex interventions- do they work?
Among many interesting developments in Forex trading during 2009, were efforts by financial authorities of some countries to weaken their own currencies. Earlier in the year, with world in deep recession, most central banks used almost any means necessary to breath life into contracting economies. Many unorthodox steps, collectively know as “quantitative easing”, were taken, but even those failed to have immediate results. At this point strength of national currencies became a “competitive disadvantage” for some countries. Respective central banks started to talk them down, mostly with threats of intervention. One of them delivered.
Swiss National Bank sold the Franc on open market. Among reasons stated at the time were sharp deterioration in Switzerland’s economy, unacceptable appreciation of CHF and to combat threat of deflation. Of most interest to currency traders was the part about the Franc- SNB singled out EUR-CHF as being at level harmful to Swiss economy. No surprise, really. Country is virtually land locked by Euro Zone and vast majority of its trade is done with Euro partners. While not specified at the time, or even since, 1.5000 level in EUR-CHF was believed to be critical to SNB, a “line in the sand”. This view is prevailing among market participants to this day.
First intervention in March, combined with other measures, resulted in the biggest ever move in EUR-CHF. Cross registered almost 600 pips daily range, certainly great result for central bank. However, it didn’t last and market started to move lower. In June SNB stepped in again, this time causing almost 400 pips swing. This happened just above 1.5000 level, reinforcing general opinion about importance of that number. There was another, smaller move also attributed to intervention, but I was on vacation at that time and didn’t keep notes.
Last edited by tictactalk; January 4th, 2010 at 01:00 PM.
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December 26th, 2009, 08:43 PM
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