Role of Central Banks in Currency rates II

In continuation with the previous article, role of CBs decides the movement and even it changes the trend.

In continuation with the previous article, role of CBs decides the movement and even it changes the trend.

Infact some CBs are proactive and some CBs some what late in setting the policy. SNB had come forward independently and fixed EUR / CHF floor of 1.2. At that time there was only huge movements in that pair and was threatening and there was a fear of deflation. But once the floor was put in place, the pair was very steady and it helped the swiss economy in a very big way .

Same with BOJ. But in real terms they lagged some what due to fluid political scene. Once the strong government was elected and the PM Abe has indicated his desire to defeat the YEN strength, it is weakening day by day. Here no indicators work. No Holy grail here! Thatswhy even all the pull backs till now are shallow and prices are quickly jumping up. It is a trend change. Prices will correct for a overbought level. But only to some extent. If it has to correct technically, EUR/JPY needs to go 117, USD/JPY to 82 to name a few.

Today’s sudden jump in all JPY pairs is very swift. Though a big order in EUR/JPY for MA purposes helped, it should be the news of BOJ governor resigning to felicitate a new BOJ, who will be prosupportive to the Government in maintaining the policy and the goal of the Government.

Now this week ECB meeting will be very important as Draghai needs to defend the strength of EURO as most of the EURO countries will be better of with weaker EURO and also the weaker LTRO repayments by banks needs to be explained.

As long as US faces unemployment problem, the Dollar will always be in back foot but for some corrections and once the FED achieves its employment target and once its balance sheet starts to shrink, how tedious and meticulous it may be, the US$ will strengthen very swiftly.The real FX rates will come to the fore only based on the own Economy. Weaker economy, weaker currency. Strong Economy, stronger currency. Till then the ROLE of Central Banks will only help in weakening their own currencies for better Economy. But the irony is only weaker currency can shape a stronger Economy !!!

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