CHF Remains Weak Following Intervention
The EURCHF continues to strengthen as the USDCHF is consolidating huge gains made earlier thanks to the Swiss National Bank intervening to prevent the risk of further deflation. This drastic move occurred as the firm CHF was clearly a concern for the SNB. Behind possibly the worst Swiss recession in 30 years, the export-dependent economy needed a spark and this move will hopefully provide that.
As this is the first move by a central bank in this global economic crisis, the question now is who, if anyone is next? There has been much discussion for the last few months about Japan intervening. The deepening economic crisis and risk aversion had allowed the JPY to firm to alarming levels. However, we have seen a slight swing as the JPY did lose steam and soften up with the Japanese fiscal year coming to an end and JPY selling. But the strong JPY threat remains with comments from former Japanese vice Minister of Finance Sakakibara “Mr. Yen” predicting that the USDJPY will range from 70 to 100 in 2009.
Masahiro Sato, joint general manager of the treasury division at Mazuho Trust & Banking Co. does not see Japanese intervention anytime soon:
“Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great. The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy,” Sato said. “A weaker currency is not necessarily a cure-all, because it can fuel capital flight. Japan certainly doesn’t want to take on that risk. Japan’s homework (task) from the G7 is fiscal stimulus, so it should focus on that.”
The EURCHF is just off highs (1.5395) made hours ago. The USDCHF has failed to get back to yesterday’s high as renewed risk appetite has somewhat weakened the USD.
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I actually thought Yen intervention was definitely on the way before reading Masahiro Sato’s comments. It is quite unbelivable as to what is happening in the market. It seems like everyday some sort of intervention is lurking in the horizon. I still love forex and enjoy the rush that comes with being a trader. However, with all these interventions you are not even sure what to do because you feel like your strategy depends on some governement’s intervention. In any case I’ll just direct my energy into predicting when and not if an intervention will happen. I just hate to see how everything is so manupilated now. In any case, thanks for the vast amount of information in your blog. Anything helps when you are a trader.