Currency interventions: studying the effect on the price chart

If you look at the history of the price chart, you can see fluctuations of varying magnitude. The biggest ones are the market's reaction to news. TradersThe people who trade on the news know this very well. But if we single out the biggest movements among them, then we are dealing with currency intervention.

What is currency intervention?

Currency intervention is an artificial intervention in the economy of the country whose exchange rate is planned to change. The purpose of the interventionThe main thing is to regulate the exchange rate to a certain level. This is to ensure that at a given rate the economy of the country is better developed, in any direction. It is important to note that intervention is a forced measure. The central bank through a system of commercial banks conducts buy/sell operations in large volumes, regulating the value of the price.

A trader who will specifically wait for a currency intervention is like a photographer who travels in hopes of photographing lightning. Currency interventions are not frequent. On average, one country per year holds one currency intervention. But practice shows that minor interventions in the dynamics of the exchange rate occur more often.

Examples of currency interventions on the chart

Let's take a look at the latest highlights of the market.

More recently (October 31, 2011) in Japan there was a currency intervention. The price passed the distance of about 400 points in a couple of hours.

Все предыдущие попытки (похоже как и эти) были неудачными. Японцам не удалось сдвинуть курс с «мертвой точки», задать upward trend.

Example of August 2011The price went through 300+ points, but then every day it moved back to the original price:

The most interesting thing is that on September 15, 2010 in Japan was also held a currency intervention, also unsuccessful, and, after the intervention in Japan, the entire Cabinet was sent to resign, and the Government was very strongly criticized by the public!

Пример прошлого года — September 15, 2010:

In addition to Japan, the year 2011 was marked by The Swiss Bank, by pegging the euro to Swiss franc as 1 to 1.2. The price went over 1000 points in just one day!

By the way, after the events of Fukushima, banks from different countries carried out a joint intervention, but it was aimed specifically at curbing exchange rate fluctuations.

There is no advance warning when an intervention will take place. The exception was the intervention related to the events of Fukushima. When the G7 countries scheduled their presence on the market by the hour to regulate the exchange rate, keeping it from strong fluctuations.

How do you predict an intervention?

Practically no way. In order to predict a currency intervention it is necessary to either analyze every statistical report very well and in detail, to follow the slightest changes, which is very difficult to do in practice. Or listen to the speeches of political and economic figures, who always warn about the possible actions of their Central Bank before the intervention. Unfortunately, only they do not name the time.

How to trade during an intervention?

It is impossible to catch the beginning of the price movement. In this case, the only thing left is to catch up with the "departing train". Traders who have a lot of experience try to trade on pullbacks.

How long does an intervention last?

As a rule, an intervention lasts from 2 to 5 hours. On the charts above (one Japanese candle corresponds to one hour) you can see that the strongest movements occur in the first 2-3 hours. Further the price can grow "by inertia", with the predominance of "bulls" forces. After there is a pullback and the price is already corrected for the new existing conditions.

Thus, the market is self-regulating, but with forced government intervention to "correct" the exchange rate. This allows the economy of a given country to develop more efficiently.