GBR Market Wrap: Do Central Bank Interventions Work?

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In this Week’s Issue: November 11, 2011

Weekly Snapshot
• Mario Monti accepts post as Italy’s new prime minister
• Italy imposed a ban on naked short selling of all Italian securities
• U.S. stocks end a turbulent week in positive territory
• U.S. consumer sentiment has risen to 64.2, the highest level since June
• Italian prime minister Berlusconi resigns and Italian Senate passes budget
• Italy’s bond yields dropped to 6.46% after hitting a 14-year high above 7%
• China’s exports underperformed in October due to the weak global economy
• U.S. Trade deficit in September was $43.1 billion, down from $44.9 billion in August
• China’s inflation in October fell to an annualized +5.5% from +6.1% in September
• U.S. 30-year fixed mortgage rates fell below 4% for just the second time in history

Market Barometers

st-2011-11-11fx-2011-11-11

Weekly Chart
Do Central Bank interventions work? The short answer is yes, but very often they influence only the short-term direction in the currency markets. Last week, we looked at a picture-perfect central bank intervention. Markets reacted immediately shedding about 400 points off the value of the Yen against the U.S. Dollar. Since then however, the Japanese Yen slowly gained strength again and has since retraced about 60% of its losses from the intervention. While we had a picture-perfect central bank intervention last week, technical traders would appreciate the picture-perfect retracement this week. With almost spooky precision, the USD/JPY exchange rate retraced 61.8% from its recent up-move, a textbook-like Fibonacci retracement level. But just in case this technical support level does not hold, the Bank of Japan might find out, much to their chagrin, that market interventions don’t always produce the intended results.

USD-JPY-11-11-11

Recommended Read
Since the events in Europe have had such a big impact on the financial markets worldwide, it is worth taking a closer look at the past, the present and the future prospects of the European Union.  Please consider: Europe, the International System and a Generational Shift.

Good luck and good investing!


Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.Disclaimer

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Author of the article
Clemens Kownatzki, MBA
Clemens Kownatzki, MBA
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