Had to start with that because that’s how this question came into mind. I was reading the paper this morning and there’s a lot of talk about the Candian Dollar and it’s strength for the past little bit.
Economy-wise that means exports will go down for Candians, hurting the industrial sector of the market.
Hence, there has been talk about government intervention and debate whether policy should be implemented to correct economic conditions in Canada.
If policy were put into place and the BOC bought up dollars to benefit the economy, how would this affect us as traders in the market? That too being minor traders compared to banks buying up large sums?
Just looking for insight on this as I am mainly a technical trader, however news like this can throw off technical trading plans quite easily.
Take at a look at EUR/CHF and USD/CHF and you’ll see the sort of thing a bit of central bank intervention can do - in short bursts. The BoC doesn’t really have enough to do sustained intervention in any kind of way that will turn the USD around. Just look at USD/BRL. The Brazilians have literally been buying dollars every day for like a year now, but it didn’t keep the real from appreciating.
If the ECB (European Central Bank) were to intervene to weaken the euro against the dollar and other currencies, would this change the present dynamic affecting the high frequency trading currently driving the carry trade oriented market?
We know the drill dollar down, all assets rally and dollar up and risk comes off the table.
Well if the ECB was to intervene by either pumping liquidity into the market by selling euros or by lowering interest rates, wouldn’t the result be a stronger dollar?
Wouldn’t the easing move to boost equities around the world as more liquidity would be pushed into the asset pool, thus inflating the global bubble even more?
Would this be an event that would throw the dollar up /dollar down algorithm into disarray?
It would depend a great deal on timing. If the ECB tried to go against the stream with intervention - and I’m only talking intervention, not monetary policy - they could get buried. The Japanese (at least for a while) got pretty good at picking their spots to come in and buy/sell Yen.
Now if you throw in monetary policy vis-a-vis rate moves and quantitative easy then you have something bigger. But of course it depends on what the Fed is doing.