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What Do You Do With 18 Billion Euros?

You sell them for other appreciating currencies.

It’s no secret that the SNB has been in the markets buying euros to maintain its 1.20 EUR/CHF currency peg. The euro, however, is a loosing currency to hold as it looses value in the face of its sovereign debt and political crises. To hedge against this loss of  euro value and diversify its foreign reserves as it accumulates euros, a pattern, first noted by Credit Writedowns and included in yesterday’s digest, has emerged that the SNB sells its intervention euros for other, more valued currencies. And it looks like one currency of choice may be sterling.

EURCHF DAILY CHART
Euro has drifted higher in the face of intervention
EURGBP DAILY CHART
However, euro sells off versus the sterling post-intervention

Sterling strength has been mysterious to many traders because UK fundamentals are so poor (poor economy and tons of QE). Perhaps the SNB has been big buyer of sterling as it looks to quietly get rid of a devaluing euro that it is forced to buy. Now as $EURCHF is hovering around the 1.20 peg, I have to wonder if we’ll see a drop in $EURGBP when the SNB enters the forex market again. Some argue the SNB is already in the market.

OK, I step off my conspiracy theorist soapbox.

 

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Sterling Digest, April 11, 2012: central bank fodder

Central bank balance sheets versus the SP500
Central banks at work

The 2 most active central banks last year are still drawing lots of attention from market participants. Both the BoJ and SNB are major threats of more intervention in the forex markets in 2012. Personally, I am not a fan of trading directly with or against central banks so I stay away from CHF or JPY pairs. However, as so aptly put in Credit Writedowns (below), even investors without CHF exposure should still follow this story. With so much central bank rhetoric, when will the market finally take notice?

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Sterling Digest, April 10, 2012: accommodating growth

A new twist in Myanmar
Arm twisting has also forced the UK to forge new international relationships

Sterling has been mixed bag as European traders came back to the markets today after a long Easter weekend. Currency pairs should trade very technically during this relatively quiet news week out of the UK.

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Sterling Digest, April 6, 2012: the big miss

Lightning
Holiday markets

The one flash of life was NFP as the markets hardly ticked beyond that this Good Friday. While most traders deservedly enjoyed a much longer weekend, today’s thin markets set the perfect stage for a US NFP miss. Very unexpected given the string of positive US data this week but also very much aligned with what Bernanke & Co. having been saying long after those minutes were recorded. The big miss leaves markets gobsmacked for  traders’ return after Easter not far from their NFP-induced peaks.

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Sterling Digest, April 5 2012: the herd shows itself

coins in water
Sterling down the drain...for the moment

Last week, the economic data built the case for a possible double-dip recession. This week, the PMI trifecta (industrial, construction, & services) came out quite strong. However, the bulls never rallied $GBPUSD back above 1.60. Then today we get dismal manufacturing and industrial production numbers and $GBPUSD takes a real hit in sentiment as price breaks to new lows for the week. $GBPCAD, $GBPAUD, and $GBPNZD are all lower on the week as well. Anytime the market shows its true bias, both technically and in reaction to fundamentals, you have to go with the herd. And sterling bears are keen on taking it lower short-term.

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Sterling Digest: April 4, 2012

A Bank of England Old One Pound Banknote
Looking ahead to the BoE

UK PMI numbers continue to surprise to the upside this week. While this string of positive data is not enough to declare a robust recovery in the UK, it certainly can be enough to keep the Bank of England from moving on monetary policy tomorrow and allow them to wait-and-see. With ECB out of the way today, traders look ahead to tomorrow’s BoE interest rate announcement.

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Sterling Digest: April 3, 2012

US Dollars
Today was all about the greenback baby

The $FED completely changed the game. While Bernanke had been on the circuit implying more QE was on deck, the minutes revealed a much more hawkish Federal Reserve. And as a result, the USD rallied across the board. Now the question going forward is whether the USD is really gaining strength or are traders being given a USD-selling opportunity?

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Sterling Digest: April 2, 2012

NASA PICTURE OF UK
The United Kingdom/Britain/England/UK

Sterling was very mixed bag in Monday trading despite stronger-than-expected manufacturing numbers out of the UK. GBP was able to push higher against the euro and greenback but lost a lot of ground versus the aussie, kiwi, and loonie. Traders are really looking ahead to the Bank of England later this week on Friday. While the BoE is expected to hold on monetary policy, poor economic data released in March has some market participants speculating that the BoE needs to increase QE now rather than later. However, trickle of positive news in the last few days may be enough justification the BoE needs to stay put for now.

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Sterling Digest: March 30, 2012


If central banks allow gold to become money, how would they enact QE??

A choppy week has given away to sterling strength with $GBPUSD breaking above the major psychological level at 1.60. Traders say month end flows are to blame for sterling strength when its fundamentals hold a more ominous outlook for the currency. BoE next week will continue these breakouts and trigger some profit-taking as most pairs sit GBP bullish at key levels into the weekend …despite the headlines.

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Sterling Digest: March 29, 2012

World markets as sheep falling off a cliff
UK is right on the edge

There are very mixed reactions to the UK economy. While it certainly appears that the UK is suffering from a double-dip recession, the government is in denial. The BoE is not confident that the economy will grow again at pre-crisis levels. And economists are dubbing this economy worse than the Great Depression. While it doesn’t seem that sterling can rally on such outlooks, it has and remains resilient in today’s trading. However, how long can that remain the case? Remember, the market can remain irrational as long as it pleases.

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