Recently, the Swiss National Bank has revealed it had lost more than CHF 14 billion when in intervened in currency markets earlier this year. Their objective was to keep down the value of the Swiss Franc. Nothing really new about this fact, the figure was disclosed about two weeks ago. But knowing the extent of losses, we can extrapolate the approximate size of the SNB intervention and shed some light on the question of just how much money is needed to turn direction in a major currency.
By all accounts, the rate of EUR-CHF was the major concern to Swiss central bank. The interventions started at about 1.50 level and lasted to roughly 1.3300 or so, while the rate dipped even lower, to about 1.3070, before rebounding. This means that during the intervention campaign the CHF appreciated over 12%. Since selling of the CHF by the SNB took place at different levels during this time, we can say that their losses were about 10%. Knowing that this corresponds roughly to 14 billion, the total commitment of the Swiss National Bank can be estimated at CHF 140-150 billion range.
In spite of this enormous sum, many claim that the interventions were not successful. After all, the Swiss Franc kept advancing, so an argument can be made that the CHF 150 billion, or so, was not enough and even more money is needed for interventions to work. Perhaps, but we don’t know how low the EUR-CHF would have fallen, had the interventions not happened at all. It could be at 1.25 or maybe 1.20. This is speculative. However, it is clear that vast sums are needed and the outcome is far from guaranteed.
Japan is another country that could intervene against its currency. Exporters and other businesses are unhappy with the Yen’s strength and the Bank of Japan made preparations for a possible intervention. Earlier in the year the BoJ augmented the account for this purpose, bringing it to about $300 billion. Would that be enough? Given the big difference in size between Swiss and Japanese economies, and respectively larger amount of money in circulation, the BoJ might need perhaps as much as $500 billion or more. Is it even worth to commit resources of this scale to something that, at best, has an uncertain outcome? This could be the reason why the Japanese authorities are only watching Forex developments.
Following less than impressive trade in AUD-JPY on Friday, I’m taking another look at this pair. Zooming out to 4H chart, a sell order is placed at 77.17, with 150 pips objective. In the meantime, should the price keep advancing, I’ll be searching for shorting opportunities all the way to 79.40, the last high. If that resistance is broken, views might have to be changed to bullish. But the opening is first, so gaps are always a possibility. I want to get more active this week, starting today with gaps, if they happen.
Mike K.
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BoJ will intervene soon, mate, enough money or not. But you are right about the outcome – uncertain at best.
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[...] needed to achieve success. Otherwise, the BoJ might find itself in a situation similar to that of Swiss National Bank lately, meaning commitment of huge resources for potentially prolonged period. Currently, many [...]
[...] needed to achieve success. Otherwise, the BoJ might find itself in a situation similar to that of Swiss National Bank lately, meaning commitment of huge resources for potentially prolonged period. Currently, many [...]
[...] achieve success. Otherwise, the BoJ might find itself in a situation similar to that of Swiss National Bank lately, meaning commitment of huge resources for potentially prolonged [...]
[...] appears that this action was different than the one done by the Swiss National Bank earlier in the year, or for that matter what the BoJ did 6 years ago. In those instances central [...]
[...] appears that this action was different than the one done by the Swiss National Bank earlier in the year, or for that matter what the BoJ did 6 years ago. In those instances central [...]
[...] seems that the markets are finally doing what Hildebrand and the SNB could not accomplish – putting a squeeze on the Swiss Franc. In spite of interventions by the central bank and threats of [...]
[...] 21st, 2010 Goto comments Leave a comment It seems that the markets are finally doing what Hildebrand and the SNB could not accomplish – putting a squeeze on the Swiss Franc. In spite of interventions by the [...]
[...] highs/lows established last year certainly deserve attention. Like the Swiss Franc. In spite of repeated interventions, the Swiss National Bank failed to stem the rise in CHF. In fact, late in the year, this trend [...]
[...] gold holdings (hoardings) it suffered major losses due to unfavorable currency exchange. During its intervention campaign earlier in the year the central bank amassed one of the largest FX reserves in the world. It was [...]
[...] too much, expressing concerns. Those were vaguely veiled threats of interventions. Unlike the Swiss National Bank, the BoC never came through with these innuendos and took no action in open market. Perhaps the [...]