User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Friday July 3, 2009 - 11:22:16 GMT
Global-View.com - www.global-view.com

Share This Story:
| | Email

A Forex Trader’s Tale of Central Bank Intervention

I have been trading the forex market for over 30 years and have seen central banks intervene in all sorts of ways. In the wake of the recent global financial and economic crises, governments are taking a more active role in managing their economies. This may or may not involve a more active role in managing their currencies although some (e.g. Switzerland) have taken a stand to discourage currency appreciation. The following is written from memory and is an anecdotal history of forex interventions.


My first introduction to intervention was in 1977, soon after Japan allowed the JPY to trade internationally. I was running a bank dealing room in Singapore and would open a line to our Tokyo office to monitor that market (there were no screens in those days and forex trades were conducted by telex, telephone and voice broker). USD/JPY was trading around 310 at the time and the Bank of Japan (BOJ) would come into the market and intervene at a price for $200,000,000. That was considered a large amount in those days and the BOJ would sit there until it bought its limit. It would then pull out and reappear 2 big figures lower. If it held off the market, there would be a scramble to cover short positions ahead of the Tokyo close. I remember one time when USD/JPY was trading at 305.99-306.01, the BOJ being on the bid at 306.00. We has sold USD/JPY and got a running account on the telex from our Tokyo dealing room – 15 minutes to the close, BOJ has bought 162 million… 10 minutes to go, BOJ has bought 169 million, finally with 1 minute left the telex rang out – change, 303.99-304.01. The BOJ got filled at 306 and now dropped its intervention level to 304. 

 

Floating foreign exchange rates was a new business and central banks have gotten more sophisticated in their approach over the years. In the 1970s-1980s, they were still finding their way. It was then I learned not to base trading decisions on expectations that a central bank would be there via intervention to bail out a position. Major US banks had a direct line to the Fed dealing desk and would get calls asking about the market and placing orders, usually to smooth the price action. In those days the dollar was under pressure so most of the orders were to buy dollars. It was the early 1980s and I co-managed a trading operation for a commodities company. I had close relationships with many bank dealers and got call one day from a friend who was furious. The Fed had been in the market during the US afternoon each day for months buying dollars to cool speculation. This day, the Fed seemed to disappear and USD/DEM dropped several big figures out of nowhere. Where was the Fed? My friend, apparently caught the wrong way by the disappearing Fed, went ballistic and called to find out what happened. It turned out those manning the Fed trading desk went to lunch and forgot to leave the customary buy orders. I learned then never to count on a central bank top bail out a position.


The most noted intervention took place after the Plaza Accord, in September 1985, when the G7 got together in New York City and decided to band together to push down an overvalued dollar. The meeting was held in secret and sprung upon the market on a Sunday night. This set off a prolonged slide in the dollar. I remember getting the news, looking at my portable quote machine ay come, calling my broker and hitting the first usd/jpy bid I could find. The first reaction was one of those strange ones and the pair actually rebounded from the initial reaction. I got out too soon once it started down again and we have never seen that level again. With some hindsight, the clue to this intervention was the element of surprise and the fact that it was a coordinated effort.

 

It was less than two years later, in February 1987, that the G7 felt the need to put a halt to the dollar’s slide. This led to the Louvre Accord, where the G7 agreed to stabilize exchange rates. All I remember of this time was a skeptical market and how much harder it was to stop a falling currency.

 

I don’t remember the exact date but believe it was sometime in 1989 when European finance ministers met in Gleneagles Scotland over the weekend and announced they would support the falling dollar. I remember it well as we were short USD/DEM at 1.9850 in a market where it was a safe bet to be short dollars. This weekend turned out not to be a safe bet. The surprise announcement saw the dollar gap higher. The first price we saw was 2.0850, a 10 big figure move. We were sick but fortunately not overleveraged. We stayed up all night and managed to trade out of the position with a small loss. Had we held on until the end of the week, we would have made money as the market renewed its attack on the dollar once it became clear the U.S. was not part of the agreement. Nonetheless, I never want to go through that experience again and recognized the pain that can be inflicted by a surprise intervention attack regardless of whether the impact lasts.

 

In 1992, the GBP was forced out of the ERM (European Exchange Rate Mechanism), where currencies traded within upper and lower bands vs. one another. Member central banks were required to support their currencies at the lower end of the band and vice versa at the upper end. The alternative was a revaluation or devaluation or in the case of the UK, an exit from the ERM. This was a famous incident where speculators put sterling under attack and forced the UK to exit the ERM, which resulted in a near freefall in GBP. It is also an example of what could happen when intervention fails. In this regard, it seems the markets used to be more willing to attack central bank resolve than nowadays, where they seem more content to be led by central banks.  In the old days, intervention, especially if it was unilateral, was like waving a red flag in front of a charging bull.

 

I don’t remember the date but believe it was in the 1990s when the BOJ bought about USD/JPY 30 bln during the month of March ahead of the Japanese yearend yet the pair continued to plunge. In this case, the flows were so overwhelming that all the BOJ could do was supply liquidity to ease the impact. The purpose of the intervention was not to reverse the trend but to slow it as it was flow driven.

 

This brings us to the current market, where the Swiss National Bank (SNB) has taken a stand to prevent the CHF from appreciating. Its focus has been mainly on eur/chf, where 1.50 appears to be the line in the sand. This intervention, while unilateral, has been effective in keeping eur/chf above 1.50 as the central bank has taken various tactics to keep the market off guard. Intervention was initially broadcast by the SNB that it did not want to see its currency appreciate. The SNB initially came in with a surprise attack buying eur/chf in the open market. It did this on several occasions before switching tactics when it became too predictable. The more recent interventions were apparently done using the BIS (Bank For International Settlements) as a surrogate by placing orders with it. The BIS not only bought eur/chf and usd/chf, but did so at successively higher levels to inflict as much pain as possible. Once the SNB exited the market, eur/chf has backed off but is currently finding support just below 1.52, which provides a cushion to the 1.50 “line in the sand.”

 

There are some lessons to be learned here. It is generally easier for a central bank to counter currency appreciation than to stop a falling knife (i.e. weakening currency). In the current trading world, where speculators are less likely to take on a central bank, it is better to step back and let the dust settle before trying to fade an intervention led move. Intervention is also more likely to be employed during times of tame inflation or deflation (such as current times) as a weaker currency can be inflationary.

 

This brings up another central bank who appears to be defending the downside, the Bank of Japan (on instructions from the Ministry of Finance). This is often referred toas stealth intervention whereby intervention is carried out by surrogates (e.g. government pension funds, etc). The idea is to keep the market guessing, deflect any criticism from other countries, and to slow the appreciation of its currency. In the current environment, it appears that usd/jpy 95 is the current “line in the sand.” Unlike past times, when the focus was on export competitiveness to the United States, the current strategy appears to be focused on China. The goal is probably to keep usd/jpy in a range (e.g. 95-105) as long as China keeps usd/cny in a narrow range. This is likely to remain the case until China’s economy stabilizes so expect the stealth intervention to continue.

 

This sums about a brief anecdotal history of intervention in the forex market. While I am sure I missed many instances, the stories should give enough background to put the current and future interventions in perspective.


Jay Meisler


Jay Meisler is a co-founder of Global-View.com, the leading forex discussion site for more than a decade and where traders from around the globe come for the latest breaking news, flows, rumors and trading ideas =>http://www.global-view.com



 

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 20 October 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales


Tue 24 Oct
All Day flash PMIs
Wed 25 Oct
01:30 AU- CPI
08:00 DE- IFO Survey
08:30 GB- GDP
14:00 CA- BOC Decision
14:30 US- EIA Crude
Thu 26 Oct
11:45 EZ- ECB Decision
12:30 US- Weekly Jobless
14:00 US- Pending Homes Sales
Fri 27 Oct
12:30 US- GDP
14:00 US- final Univ of Michigan

Forex Trading Outlook


Potential Trading Opportunities


  • POTENTIAL PRICE RISK: High Fri-- 12:30 GMT CA- Retail Sales and CPI. Top economic indicators.


  • POTENTIAL PRICE RISK: HIGH Fri-- 14:00 GMT US- Existing Homes Sales. Top Housing statistic.



John M. Bland, MBA
co-founding Partner, Global-View.com

EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105