Month: September 2011

By Kris Sayce

“Manipulation on a Grand Scale”

In recent months we introduced you to one of our early warning signals – the Swiss franc.

The importance of this signal is that it can give you a clue as to how nervous – or not – the market is.

For instance, when investors piled into the Swiss franc in late July through early August, it warned you to be cautious about the market.

And when they piled out in mid-August it still warned you to be cautious, but signalled that you could take advantage of the change in sentiment. For example, by selling your stocks on the rally.

For the past two months the Swiss franc has been volatile. From one day to the next, investors can’t know for sure whether they should be bullish or bearish.

So, in August the Swiss franc soared in value against the risky Aussie dollar as the market hit bottom. And then it lost value as markets calmed.

Then last night, this happened:

Click to enlarge

After gaining against the Aussie for the past week – from CHF0.87 to CHF0.82 – all heck broke loose in the foreign exchange markets. The Swiss dropped from CHF0.82 to trade at CHF0.90… a 10% move.

What caused this move? Check out this statement from Philipp Hildebrand, chairman of the Governing Board of the Swiss National Bank:

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below one Swiss franc twenty. The SNB will enforce this minimum rate with the utmost determination. It is prepared to purchase foreign exchange in unlimited quantities.”

In other words, at the stroke of a button, the Swiss National Bank intervened in the currency market to devalue the Swiss franc.

It takes us back to the early 1990s when the U.K. government tried to keep pound sterling in the pre-euro, European Exchange Rate Mechanism (ERM). In short, the pound was allowed to trade within a range against other currencies…

It worked for a while (just), but eventually no amount of manipulation could stop the pound falling out of the ERM. Of course, George Soros’s famous punt against the pound didn’t help things either.

The point is the artificial restraint of the pound only masked the real problems. It created more volatility in FX markets and ultimately, when the pound was dumped, it fell 30% in just a few months.

So what can we expect from the SNB’s intervention?

For a start, it means the same as all intervention. It means a distorted market that only serves to deceive investors.

While the currency was free-floating it gave you, and every average Joe or Joanne Investor an insight into what the big market players were up to. But now, the Swiss central bank has effectively blindfolded investors.

Or put another way, yet again central bankers have acted to protect their own interests and harm the interests of ordinary punters.

But if the Swiss or any other banker thinks this is the way to calm markets and help the global economy, they’re sadly mistaken.

As Stuart Thomson, portfolio manager at Ignis Asset Management told Bloomberg News, “We will see a lot more intervention now, we will see manipulation on a grand scale.”

Or as our Slipstream Trader, Murray Dawes said this morning:

“We are now entering the next phase of this crisis where all-out currency wars have begun. A quick survey of past currency intervention shows that it often works in the short term but rarely works in the long term. Traders will have been shaken out of many positions and taken some bruising losses in the last couple of days.”

Boy, have they got that right.

Of course the Swiss aren’t the first to manipulate their currency. They’re simply joining a growing line.

The Japanese are regular money manipulators… Brazil introduced a tax on currency trading last year… And the U.S. Federal Reserve – even though its mandate doesn’t include managing the U.S. dollar – has manipulated the Greenback almost non-stop for the past three years.

But our guess is the Swiss intervention is unlikely to have the effect it hopes for.

On the one hand, sure, the SNB has said it will buy “unlimited quantities” of foreign exchange. That’s another way of saying it will print as many Swiss francs as it likes to weaken the currency.

But on the other, we’re not sure we believe the SNB will devalue its currency so much that it destroys the Swiss franc’s reputation as a haven currency.

The way we see it, the SNB’s intervention creates more, not less, uncertainty. Whereas in the past, the currency markets ebbed and flowed in an orderly fashion, now you’ll get a pressure cooker effect.

You won’t get to see the real value of the Swiss franc until so much pressure has built up that the whole thing explodes.

So our bet is… whether it’s next week, next month or next year… the Swiss franc’s 10% slump will be reversed in equally spectacular fashion.

But rather than the Swiss franc signalling bad news ahead of time, thanks to the meddling central bankers, it will only reveal its secrets when it’s too late to do anything about it.

Cheers,
Kris.

Money Morning Original Article: Swiss National Bank Intervenes in Currency Market to Devalue Swiss franc

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By ForexYard

With most traders focused on the Bank of Canada’s (BOC) impending interest rate decision, liquidity will likely be higher in today’s early trading. The Bank of Japan (BOJ) is also publishing its latest interest rate move, both of which are expected to make no change in monetary policies. Interest rates are in focus this week and traders would do well to follow their releases and subsequent bank statements.

Economic News

USD – US Dollar Mixed as Week of Rate Decisions Gets Underway

The US dollar (USD) was seen trading mildly bearish early Tuesday as investors returned to trading following Monday’s holiday break. A sudden wave of risk appetite seemed to have dropped the greenback following a move by the Swiss National Bank (SNB) to peg the CHF to the value of the EUR at 1.20. Heightened stability led to some losses on the USD’s value as traders sought higher yields.

Data from the American manufacturing sector yesterday also signaled an uptick in output from the previous month. The news has done little to the forex market, however, though it could ripple through longer-term analyses on US capital markets. Manufacturing was forecast to slump moderately going into the third quarter as most indicators revealed decreased demand.

As for today, there will be few US economic releases, with most news focused on the Bank of Canada’s (BOC) impending interest rate decision. Liquidity will likely be higher in today’s early trading as the Bank of Japan (BOJ) is also publishing its latest interest rate move, both of which are expected to make no change in monetary policies. Interest rates are in focus this week and traders would do well to follow their releases and subsequent bank statements.

GBP – GBP Trading Bullish as Europe Falters

The Great Britain pound (GBP) is expected to be seen trading with bullish results this week ahead of a slew of reports on the country’s manufacturing, housing, and service sectors. Against the US dollar (USD) the pound has actually been trending upwards despite the greenback’s bullish moves against its other currency rivals.

Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains; though the recent pegging of the Swissie to the euro at 1.20 may affect this attitude in days ahead.

Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Great Britain, however, appears positioned for a relatively better quarter than its southerly neighbors. With major interest rate decisions expected all week, the nations most poised for gains are those whose monetary policies are more stable, like Britain’s. The pound could see some bullish movement this week as a result.

JPY – Japanese Interest Rates on Tap

The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.

The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. With interest rate decisions out this morning, traders are waiting to see what the BOJ will do. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan’s current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.

Crude Oil – Oil Prices Holding Steady amid Market Turmoil

Crude Oil prices held steady Tuesday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

An expected dip in dollar values due to this week’s risk sensitive environment has helped many investors ram up their long-taking positions on physical assets, but with the USD’s losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.

Technical News

EUR/USD

Last week’s candlestick highlights two key points; the inability of the EUR to maintain a bid above the 1.4500 level and the formation of an outside day down candlestick pattern on the close. As such the key support levels for the pair are found the 1.4100 level where the August 11th low coincides with the 61% Fib retracement from the July to August move. The other key level is the rising trend line from the May 2010 low which comes into play at 1.3975. To the upside resistance is found at this week’s opening gap of 1.4180 followed by 1.4325 and last week’s high of 1.4550.

GBP/USD

The GBP/USD has the monthly, weekly, and daily stochastics falling while the price is encroaching upon significant support where the 200-day moving average and the August 11th low coincide at 1.6110. A break here could open the door to 1.6000 with additional support way down at 1.5780. To the upside the high from last Thursday/Friday at 1.6250 stands as initial resistance followed by 1.6450 and 1.6615.

USD/JPY

The JPY has formed a base at 76.40 while failing to move below the all-time low of 75.94 set earlier in August. Weekly and daily stochastics have turned up but monthly stochastics remain firmly to the downside. Initial resistance is found at 77.70 followed by the post intervention high of 80.20 and finally at 81.30 off of the 2007 falling trend line.

USD/CHF

The appreciation of the pair failed at the 0.8275 resistance and the long term downtrend continued with a vengeance, falling as low as 0.7710 before recovering slightly. There are two levels that stand out from the August move higher; 0.7650 at the 50% Fibonacci retracement and the 0.7510 at the 61% retracement.

The Wild Card

AUD/NZD

On the back of a more hawkish than expected RBA interest rate statement and stronger than forecasted GDP the AUD has made a strong move versus the NZD, rising above the neckline of the pair’s head and shoulders reversal pattern at 1.2560. Forex traders can find the pattern’s measured move of 400 pips by measuring the height of the chart pattern from the August low to the top neckline. Resistance is found at 1.3000 as well as 1.3180 from the February and June lows.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

The SEK continues to trade higher after the Riksbank sounded more hawkish than expected and the German Constitutional Court Ruled in favor of the Greek bailout but said its ruling is no blank check for additional bailouts.

This morning the Swedish central bank announced its intention to hold interest rates steady at 2.0% citing concerns over public finances in Europe and deteriorating global growth prospects. The Riksbank also expects Swedish growth to slow in the near term. Despite the pause, the Riksbank came off more hawkish than expected as it will only adjust its tightening cycle rather than coming to a full stop. The Riksbank indicated rates could rise to 3% in two years. Markets responded positively to the more hawkish tone by bidding the SEK higher as most expectations were for rates to stay near the 1.75% level. Given the decision by the SNB to peg the CHF combined with rising Swedish interest rates this will likely bring additional safe haven flows to the Swedish krona, a potential catalyst for the SEK.

Also supportive of the SEK was the ruling by the German Constitutional Court. The court upheld the first Greek bailout package but ordered any additional bailouts must be subject to a vote in the German parliament. The EUR has again come under pressure from Greek fiscal troubles. Greece recently announced it will fail to reach its budget deficit targets and the Greek economy will likely contract by -5.5% this year, down from -4.5%. Greek 2-year yields have risen to record levels on fears of a potentially unorganized Greek default.

As a result of the pressures in the euro zone and the search for safe haven currencies the Swedish krona has performed well with the EUR/SEK falling from its mid-August high of 9.35 to test its August low of 8.9450 earlier in the day. Today’s low is an important technical level as it is the 61% Fibonacci retracement of the May to August move. A close below this technical level and the market could turn its focus on the next support levels of 8.8750 and 8.8540 from the May and April lows.

Read more forex trading news on our forex blog.

AUDUSD is testing the support of the price channel on 4-hour chart. A clear break below the channel support will indicate that the rise from 0.9927 has completed at 1.0764 already, then deeper decline could be seen to 1.0250 zone. On the upside, a break above 1.0625 key resistance will suggest that a cycle bottom has been formed, and the fall from 1.0764 has completed, then another rise towards 1.0900 could be expected to follow.

Daily Forex Forecast

By James Woolley

There are many different ways you can trade the forex markets, and one of the most popular ways right now is to use automated forex trading signals. By using these third party services, you obviously do not have to come up with trades yourself. However there are a few dangers that you need to be aware of.

Whilst you can make some excellent profits letting someone else trade for you, you can still lose money very easily if you are not careful. That’s why you need to spend many hours doing your research to find which signal providers are the most reliable and the most trustworthy.

If you go to a website that offers these automated signals, you will often find hundreds, if not thousands of different providers. Some will be really profitable, whilst others will obviously be less profitable.

However it is not just a case of picking the most profitable providers and then sitting back and watching the profits roll in. If that was the case then we would all be millionaires, and none of us would actually be trading ourselves because we wouldn’t need to.

What you need to look at is the detailed trading history of each provider going back several months. Each signal provider has different ways of generating profits, and some will look to make lots of small profits whilst using really large stop losses. These are the ones you need to be aware of because they may make excellent profits for months at a time, but every so often they may make a huge loss, which could potentially wipe you out.

Similarly you will find lots of signal providers that use excessive stop losses, which they do not believe will ever get hit. Unfortunately the markets are unpredictable and these big stop loss can get triggered.

You need to remember that a lot of the signal providers on these sites may not actually trade their own money. They probably make more than enough money from the people who subscribe to their signals. So whilst they are seemingly making steady profits, they are probably doing so via a demo account, whilst you are putting your hard-earned money on the line.

So as I say, you do need to bear these things in mind when using automated forex signals to trade the markets. It is possible to make a nice reliable income from these signals, but you ideally need to find providers that use sensible money management principles and trade their own real money accounts as well.

About the Author

Click here to read a full Zulutrade review to find out more about one of the best places to find automated forex signals, and to learn about a forex course that will teach you all the basics of currency trading.

The Central Bank of Tunisia reduced its key interest rate by 50 basis points to 3.50% from 4.00% previously.  The Bank said: “To boost economic activity and the implementation of investment plans by limiting the financial burden on businesses, the Council decided to reduce, again, the rate of the BCT half a percentage point to bring it back to 3.5 percent,”.  The Bank also noted a slowdown in activity in the non-manufacturing sectors, and a decrease in private investment and FDI flows; and noted the “persistence of economic difficulties” were connected with the recent regime change and associated period of instability.

The Central Bank of Armenia reduced its key refinancing rate by 50 basis points to 8.00% from 8.50% previously.  The Central Bank Board said in its release “Softening of monetary and credit terms are believed to keep inflation within the projected range of fluctuations creating additional impetuses for growth of economic activity”.  The Bank also noted the impact of uncertainty and recent developments in advanced economies, particularly in Europe, and cited deflation risks as it aims to keep inflation within the target range of 4% (± 1.5%)

The Bank of Uganda increased its new monetary policy interest rate (the central bank rate [CBR]) by 200 basis points to 16.00% from 14.00% previously.  The BoU will also widen the ban around the CBR to 400bps (keeping 7-day interbank rates within that band), and set the September Rediscount Rate at 21% and the Bank Rate at 22%.  Bank of Uganda Deputy Governor, Louis Kasekende, said: “BoU is raising interest rates in order to curb the growth in bank credit, which has expanded rapidly over the last 12 months, to encourage higher levels of saving and to provide more support to the exchange rate.” and further added that “If the inflation outlook deteriorates in the next few months, the BoU will implement further increases in the CBR.”

Previously the Ugandan central bank increased its interest rate by 100bps to 14.00% at its August meeting, after setting the new central bank rate at 13.00% at its June meeting.  The Bank only recently began using the 7-day interbank rate to influence inflation, also commencing official targeting inflation; the Bank previously announced an inflation target of 7%, and noted it has a 5% core inflation target in today’s press release.  Uganda reported annual headline inflation of 21.4% in August, up from 18.8% in July, 18.7% in June this year, 16% in May, and 14.1% in April, while core inflation was 20% in August.  The government of Uganda is forecasting 6.6% GDP growth for the current fiscal year.

Sept. 6 (Bloomberg) — Steven Major, global head of fixed-income research at HSBC Holdings Plc, discusses European Central Bank interest rates and the prospect of a common euro-region bond. He speaks with Francine Lacqua on Bloomberg Television’s “Countdown.”