New Intervention Hints |
After weeks, or even months, central banks are once again floating hints of intervention. It should be no surprise that these innuendos come form Japan and Switzerland, countries which witnessed their respective currencies appreciate of late. In case of the Swiss Franc, this has been especially true – it has been making new highs against the Euro, the Dollar and the Pound for a long time now. Last week has been no exception and all these currencies sank to new lows versus the CHF.
Officials from both the BoJ and the SNB have quoted as “closely monitoring the markets”, complaining that too strong currencies hurt their countries’ competitiveness and exchange rates are “far out of line with real fundamentals”. As always, the BoJ is more vocal, but for the SNB’s comments are notable, because the central banks has been quiet for a long time. In the past they intervened when the EUR-CHF was around 1.5000, now it is closer to 1.15000, certainly more “overvalued” than before.
Typically interventions are preceded by a prolonged period of these threats, so we should not expect any action soon. They are trying to give markets a chance to correct what they see as imbalances. After all, interventions have, at best, a spotty history of success and are very expensive, so central banks will not bee too eager to engage in an operation with a questionable outcome. However, we should expect theses kind of hard line rhetorics to increase, probably adding to volatility.
For some time I have been watching CHF pairs for signs of reversal in the main trend, while periodically taking trades with the trend, using smaller time frames. So far the long-term trend has been persistent showing no signs of reversal on weekly charts. On the daily charts, though, there are some signs of possible weakness.
On the daily charts of the USD-CHF, which is very similar to other Swissy pairs, we see a nice hammer formed on Thursday. Unfortunately, it was followed by a doji, which is also an inside day, and that, in turn, suggests a collective indecision on part of market players. Seems like everybody is waiting for new developments, unable, or unwilling to commit now. For now, I still keep my buy order at 0.8015, but at the same I am also exploring the possibility for another buy, if the price moves above the high of the hammer.
On smaller still time frames, the downtrend is even more precarious. As we can see on the hourly chart of the EUR-CHF, the moves down are becoming less convincing, and more shallow. Presently there is a decent looking support at 1.1490. Pretty soon we will see if there is another leg down, or will this hold. I am not interested in selling the move down, but will watch it (if it happens) for a possible fading opportunity.
Another pair I find interesting now is the GBP-CAD. After a good size sell off, this pair appears to to have built a bottom. It is not confirmed yet. the price must climb above the 1.5530 resistance, where I have a buy order waiting at 1.5540. This particular trade has objective of 240 pips. Because the price direction on Friday was down, I will also look for a bullish candlestick reversal pattern on a 4H chart, for additional entry. Realistically, if that is what develops, we would see it somewhere between 1.5375 and 1.5300. In addition, gaps are possible at the open, and could present good opportunities.
About the author: Mike Kulej
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