News And Views

After a very quiet London morning things heated up once New York came in. First, and most importantly, we had weak Q2 US GDP data, with revisions also to the weak side, along with a surge in weekly jobless claims to a >5 year high (albeit with quirks in the series). This saw the USD, Treasury yields and equity futures lower. Then we heard from ‘ECB sources’ there’s a chance of a negative Q2 GDP result in the Eurozone. The latter saw the USD regain most of its earlier losses. The New Zealand dollar was up and down on this USD based news, trading a 0.7309/64 range.

The Australian dollar was also up and down on the US news, but struggled somewhat to the topside, with Australian newspapers further stoking speculation of an RBA rate cut in Sep. Having squeezed to a 0.9476 high, it fell as low as 0.9397 in NY before edging back to 0.9425.

USD/JPY sank 70 pips on the US data, trading down to a low of 107.57 before regaining some ground later on.

EUR/USD soared 90 pips to 1.5700 on the US GDP/claims but later fell to around 1.5640 after the ECB news and then eased to just below 1.5600.

US GDP growth up 1.9% in Q2. US GDP growth picked up in Q2, reflecting a modest acceleration in consumer spending, slow but steady business investment growth, a lesser drag from the housing slump, stronger government spending and a roaring 2.4 ppt contribution from net exports, which more than offset a 1.9 ppt drag from inventory rundown. But the report also included annual revisions, and most recently these were to the downside, including a quarterly growth contraction back in Q4 last year.

US initial jobless claims surged 44k to 448k, their highest in more than five years, last week, but the data are distorted by some previous claimants legitimately claiming for a second time after short periods of temporary work that under prior arrangements would not have allowed a second claim. This distortion will continue for some time and follows the auto plant shutdown-reopening distortion earlier in the month, with both combining to make it difficult to interpret this erstwhile useful indicator of the jobs market. Still on the jobs market, the employment cost index confirmed benign inflationary pressures from the labour market; Monster.com reported a weaker job index, slipping from 163 to 157 in July (not seasonally adjusted, but weak anyway).

Three of the four US regional factory surveys were less weak in July, with Chicago recording its first above 50 reading since January, mainly due to further strength in orders (which we suspect is export driven). A new high for prices paid indicates that the weaker oil price in July is yet to be captured in the survey. Of the lesser watched surveys, New York slipped further into the red, Milwaukee fell at a slower pace and Cincinnati showed accelerating growth.

Canadian GDP surprised with a 0.1% May fall, mainly due to strike-impacted auto output and lower gas production.

The flash estimate of European inflation edged up to 4.1% yr in July, and unemployment dipped a little lower last month (and German unemployment kept falling in July). So even though survey data points to a much weaker outlook for the economy, the hawkish European Central Bank will take some time before coming to the conclusion that easier monetary policy is appropriate.

The UK household sector took another battering in July, with house prices sliding further, and consumer confidence slumping to its lowest since 1974 (in line with Westpac’s forecast).

Outlook

We continue to like NZD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.

Events Today

Westpac Institutional Bank
http://www.wib.westpac.co.nz/

Disclaimer

All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’s financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

Tags: ForexExchange Morning Report

U.S. Dollar Trading (USD) had a positive day consolidating the gains made on Tuesday. A surprising Jump in the ADP employment report for July coming in +9K vs. expectations of -60K set the mood on Wall St. Also supporting the markets was the decision to extend the FED Primary Dealer Credit Facility until Jan 30. A fall in US crude inventories lead to a sharp rally in Oil and capped the USD gains. In the U.S. share markets, the NASDAQ was up 10 points (0.44%) and the Dow Jones was up 186 points (1.63%). Crude Oil closed up $4.58 ending the New York session at $122.19 per barrel. Looking ahead, weekly Jobless claims seen at 395K and Advanced Q2 GDP seen at 2.2% up from 1.0% in Q1.

The Euro (EUR) fell initially on the US data but rebounded to opening levels on a rally in Crude Oil . Eurozone Consumer Confidence came in weak as predicted at -20 dampening hopes of any more interest rate rises going into the future. Overall the EUR/USD traded with a low of 1.5522 and a high of 1.5617 before closing the day at 1.5580 in the New York session. Looking ahead, German Unemployment Change seen at -20K after -38K in June. Also released the July Inflation Report is forecasted to gain to 4.1% from 4.0% last month.

The Japanese Yen (JPY) was sold as stocks gained and US data impressed but was little changed against most of the crosses as heavy falls in their respective majors capped any gains and the USD/JPY resistance at 108.30 held firm. July PMI Manufacturing gained slightly to 47 but is still well below the expansionary level above 50. Overall the USDJPY traded with a low of 107.70 and a high of 108.34 before closing the day around 108.10 in the New York session. Looking ahead, June Construction Orders.

The Sterling (GBP) kept to a trading range with US data preceeding the day’s lows before recovering inline with the rally in Crude Oil. July GFK Consumer Confidence fell to -39 it’s lowest ever recorded with concerns of stagflation mounting. Overall the GBP/USD traded with a low of 1.9745 and a high of 1.9844 before closing the day at 1.9810 in the New York session.

The Australian Dollar (AUD) fell in line with a plummeting Gold price and strengthening USD hitting month lows. Building Permits disappointed coming negative -0.7% vs. market expectations of +1.0%. Overall the AUD/USD traded with a low 0.9412 and a high of 0.9526 before closing the US session at 0.9435. Looking ahead, June Retails sales are seen at 0.2% down from 0.7% in May. Also released is the June Trade Balance seen as a surplus of 50 million up from a -965 Million deficit in May.

Gold (XAU) fell sharply to month lows breaking through supports at 910 and 900 before finally finding support and recovering on the back of the large gain in Oil. Overall trading with a low of USD$894 and high of USD$918.80 ending the New York session at USD$908 an ounce.

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Tags: ADPJobs Surprise Helps The Dollar Fight Oil’s Rally

Euro 1.5575

Initial support at 1.5493 (June 24 low) followed by 1.5476 (76.4% retracement of the 1.5303 to 1.6038 advance). Initial resistance is now located 1.5617 (July 30 high) at followed by 1.5758 (July 29 High).

Yen 108.10

Initial support is located at 107.30 (July 29 low) followed by 106.58 (July 25 low). Initial resistance is now at 108.59 (Jun 16 high) followed by 109.71 (Jan 11 high).

Pound 1.9790

Initial support at 1.9746 (July 30 low) followed by 1.9650 (July 7 low). Initial resistance is now at 1.9843 (July 24 high) followed by 1.999 (July 22 high).

Australian Dollar 0.9435

Initial support at 0.9404 (Jun 18 low) followed by 0.9328 (Jun 12 reaction low). Initial resistance is now at 0.9528 (July 30 high) followed by 0.9590 (July 17 low).

Gold 908

Initial support at 888.68 (76.4% retracement of the 858.00 to 988.00 advance) followed by 874.5 (Jun 25 low). Initial resistance is now at 919.6 (July 30 high) followed by 935.30 (July 25 high).

Tags: FXTechnical Commentary

The contraction of the fourth quarter US GDP, along with softer than expected subsequent GDP reports and a huge weekly jobless report hurt the dollar in morning US trading as expected. But the buck recovered losses in aggressive trading at the end of the month and ahead of the US non-farm payrolls. The risk for the dollar is on the downside, but only for the day.

Euro/dollar

The euro/dollar gave back early aggressive gains to close virtually unchanged. Today, the risk is on the upside for the euro.

Immediate resistance remains at 1.5630. Above 1.5700, the next resistance is 1.5770 from a Fibonacci retracement level. The next levels remain 1.5790, 1.5820, and 1.5860. These are followed by 1.5943.

Initial support comes at 1.5555. A pivot low is at 1.5523. Further support follows at 1.5460. Distant support is at 1.5305.

Oscillators are declining.

NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Bullish

Dollar/yen

Dollar/yen had an outside day on Thursday, but when the dust settled it closed slightly lower. The key level remains the 107.95 pivot, and the pair should encounter further swinging around it today.

Support is at 107.45. Distant support follows at 106.75 from a 50-point pivot, which targets 106.25 and 107.25.

Immediate resistance is at 107.95 from a 50-point pivot, which targets 107.45 and 108.45.. Distant resistance is at 109.15.

Oscillators are rising.

NEAR-TERM: Mixed to slightly bearish
MEDIUM-TERM: Mixed to slightly bullish
LONG-TERM: Mixed

Sterling/dollar

Cable mimicked euro/dollar and surrendered early aggressive gains to close virtually unchanged on Thursday. Today, the pound’s risk is on the upside.

Initial resistance still comes at 1.9840. Above 1.9880, the next significant level is at 1.9970. There is a pivot high at 2.0075.

Immediate support remains at 1.9790. This is followed by 1.9747 and 1.9690. Distant support is still seen at 1.9650.

Oscillators are falling.

NEAR-TERM: Slightly bullish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Bullish

Dollar/Swiss franc

Dollar/Swiss recouped early losses to close basically flat on Thursday. The risk remains on the downside today.

Initial support is seen at 1.0440. Below 1.0370, support now comes at 1.0315. Distant support is pegged at 1.0200.

Immediate resistance is at 1.0522. Above 1.0545, resistance now comes at 1.0622. This is followed by 1.0790.

Oscillators are rising.

NEAR-TERM: Slightly bearish
MEDIUM-TERM: Slightly bearish
LONG-TERM: Mixed

Cornelius Luca
Global Forex Trading

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Tags: DailyForex Market Commentary

Price: 107.70

ELLIOTT WAVE COMMENTS

1st August:

The break of 107.65 only to reverse at 107.56 has frustrated exceptionally. It does leave the whole picture mixed, but still looking for a peak either way.

The way price developed yesterday seeing a marginal new high and then decline does still allow the retention of a bullish ST structure that would call the 107.56 low as Wave b of Wave v. Thus while it remains intact I could still argue a bullish stance in Wave c to the 58.6% retracement in daily Wave (iv) at 108.73. Also note the 138.2% projection in Wave c at 108.93. This area should therefore cap.

However, with the decline to 103.76 having come in 3 waves we can’t rule out this was Wave (i) lower and while it is unusual the move to 108.36 may well have just been a deep Wave (ii). If this is the case then a break of the 107.56 low would be the first sign and cause losses to the prior Wave (b) at 105.96. Overall however, this would be very bearish for around 99.50 at least.

Ian Copsey
FX-Forecaster

Legal disclaimer and risk disclosure

The Daily Forecaster is an analytical tool only and is not intended to replace individual research. The service is offered as an opinion on the current state of the market with anticipated trading signals but not recommendations. The information provided in The Daily Forecaster should not be relied on as a substitute for extensive independent research before making your trading/investment decisions. Ian Copsey is merely providing this service for your general information. No representation is being made that any view or opinion will guarantee profits or not result in losses from trading. In addition any projections or views of the market provided may not prove to be accurate. The opinions are subject to change without notice. Opinions or views expressed in The Daily Forecaster are not meant to be either investment advice or a solicitation or recommendation to establish market positions. Ian Copsey will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this service. The information contained is private and may not be distributed or shared.

Tags: TheDaily Forecaster: USDJPY – Forex Trading

However, the answer is most of them have something between -1000 to -5000 pips of open trades on their signal board and they actually trapped in desperately while they could cut the losing trades and ran another one instead. Also I should mention that there are some other types of system trading that called “Hedge Fund” and I don’t actually want to argue if they are right or wrong. I am definitely talking to day traders who get into challenge with big bear every day.

Sometimes, I don’t understand why a trader could be convinced of not having a Stop Loss while we see almost every month an unexpected uncounted impulse (I would call it Best of the Test for whom with less of the rest) in the market.

There is no specific rule as to where you should place the stop loss, so consider the below mentioned tips as the general rules and ask your mentor to fit reliable Stop loss rules just for you and your trading system(If you have one?).

• Many loser traders do place the same stop loss for all the trades they execute without even trying to measure market environment.
• Don’t be scared of placing a stop loss while it is for your gain and you must know what your profit objective is.
• Stop Loss should not be too close to the current price while most of the stop loss enemies have ruined their trading accounts already just by using very close ones.
• Stop Loss should not be too far from the point you get into trade while it’s better to not placing any Stop Loss rather taking an unreachable, fictional protector.
• Try to not to risk more than the points of your profit goal. Pro traders recommend to only take those trades which have at least 2 points of potential profit per 1 pip of potential lose, but I would say it is completely depends on the money management system that you use, as different money management systems has different recommendations for Risk & Reward.
• Sometimes a trading system does not work if you risk less than recommended %7 to %10 of your total account balance. It means you trade oversize or you just entered the market when everyone else getting out of the market. In this case this is not your fault as it has a clear message for you “don’t trade this way anymore and ask an expert to solve the problem”.
• If you are convinced enough that you can make up 1 million dollar out of your 10000 dollars account by not using stop losses as you may think you are the one who knows the price will be back on its way to you instead of hitting new highs, well, simply you are wrong.
• Remember, there are no sky limits for the price of any of currencies in FOREX market.
• If you don’t like to place a pre defined Stop Loss on your trades, please ask someone to show you how to follow a wining trade by using “Trailing Stop”.
• Be sure it is better to have one or two losing trades with 100 points of lose, instead of being desperate with sinking into -1000 pips of dizziness.

How to Define the Best Stop Loss point?

Try these tools to define the most accurate stop loss points easily:

• Use 10 pips over/below the first Parabolic SAR spot(dot) appeared over/below the price candles for Short/Long Trades.
  Note#1: Remember you just can use 10 pips above the parabolic SAR dots as an Stop Loss point when you have a Short trade and Vice Versa.
• Note#2: You realized that the Stop Loss obtained from SAR is too far from the point which you want to enter the market. OK, this means you are about to enter the market very late so better to not do it.
• Use 10 pips over/below the day before yesterday’s HIGH and LOW and in the case of the market has moved a lot far, use 10 pips over/below the yesterday HIGH and LOW as a Stop Loss point for your Short/Long trades.
• Use two Moving Averages of 55 EMA and 144 MA. You may place your stop loss just 10 pips below/above one of those two MAs depending on how do you set up the profit/loss game for your Long/Short trades.
  Note#: If you trade on the range market break out be aware of this kind of Stop Loss setting, and it is quite safer to use another way.
• Place the Stop Loss 10 pips over/below Bollinger Bands Upper/Lower band for Short/Long trades.
• If you use Elliot Waves theory to analyze the market:
  # Place the Stop Loss just 10 pips below the lowest point of the Second (2) wave in bullish trend when you LONG on Wave 3.
  # places the Stop Loss 10 pips below the lowest point of the 4th Wave when you go for LONG on 5th Wave.
  # Place the Stop Loss right above/below the top/low of the previous wave when you go for SHORT/LONG based on A-B-C correctional waves.

Notes:

• Aforementioned suggestions are based on 4Hours chart.
• Those ways of defining Stop Loss points has worked for me, but It does not necessarily works for you, so ask your mentor or an expert friend to do evaluate the probability of fitting those suggestions to your trading strategy.
• 10 pips are because sometimes price hit the important support or resistance levels by more than a touch.
• Please don’t forget, the Stop Loss issue is not actually a game. It is not even an option for you; it is a “MUST” and will save you when you can do nothing, so refresh your mind in this case.

Settlement of Oil Futures

The trading anomaly in USD/CAD stems from the fact that Canada is one of the world’s largest oil producers. Their oil reserves are also second to only Saudi Arabia. Canada is also the top exporter of oil and other petroleum products to the United States, making the US dollar-Canadian dollar exchange rate especially correlated to energy prices and related money flows.

Therefore it is not surprising that the movement of the Canadian dollar is especially sensitive to end-of-month oil contract settlement. It is fairly easy to determine when firms are required to settle outstanding oil contracts and potentially convert US dollars for loonies on a monthly basis. More specifically, it is well-known that oil futures settle in the final week of every month.

Looking at the table below, we see that a 10-year sample of data shows the biggest appreciation in the Canadian dollar against the US dollar happening in the final week of every month. In other words, on average, USDCAD falls 6 points per day in the final week – a result statistically below 0,at a 95% confidence level. Six points is hardly worth getting overly excited about since it is difficult to take advantage of such a small price move on a vague, weekly basis. However when we take a much more granular look of the USDCAD’s behavior around specific days of the month, the moves become more substantial.

The chart below shows that the Canadian dollar tends to appreciate the most on the 24th and 25th day of every month, with continued gains into the early days of the month that follows. This dynamic is exactly consistent with settlement on oil futures contracts, as the “notice day” – the first day on which the purchaser may be called upon to take delivery – is typically between the 22nd and the 24th calendar day.

Taking a look at the NYMEX crude oil schedule through 2007, we see an interesting connection between the USDCAD and delivery dates.

Namely, it seems as though the Canadian dollar moves the most following the Notice Day, while the First Delivery Day likewise causes some strong moves in following month. Given that the Notice Day occurs today, August 23rd, it is especially interesting to note that the Canadian dollar has appreciated strongly against yesterday’s close.

The chart below shows USDCAD movements through Notice Days from December 2006 to present.

The statistical relationship showed signs of waning through the early months of the year, but it has clearly picked up from June through August. Given such a relationship, it seems clear that the USDCAD stands to continue declines through the short-term – leaving Loonie appreciation probable in upcoming days of trade.

The universe of foreign exchange has expanded dramatically since entering the new millennium and its future remains golden. Fresh from the pruning dictated by the introduction of the euro, the wave of banks mergers, and the emerging market crisis of 1998, currency trading benefited greatly from the equity crisis in the aftermath of overinvestment in tech stocks in the late 1990s and the Y2K brouhaha. Currencies were finally recognized as an asset class and funds and corporations were happy to incorporate them in their portfolios, particularly given the low costs of electronic trading. But the explosion in FX trading also enhanced macro risks that affected major participants’ interests in specific economies. And that resuscitated the central banks, whose role had been continuously diminished since their days of glory in the 1980s. This brings us to the cases of three central banks: a G7 bank, a developed economy central bank and one from a premier emerging market.

But whether we are looking at the Bank of Japan, the Reserve Bank of New Zealand or the Brazilian Central Bank, the main questions are: why are these central banks intervening? Is it to fight back muscular and aggressive funds that unfairly bend the value of their currencies or to put the leash on the results of their own policies and decisions? And are they successful?

The Bank of Japan – the Group of Seven Representative

Central banks can no longer protect certain levels simply because they cannot compete any longer with the mighty CTAs, which can easily raise and trade billion dollars worth of yen. But that reality may not always ring true to some major central banks. In the most extreme example in currency trading, the Bank of Japan (BoJ) sold an unprecedented 32.9 trillion yen, which is equivalent to buying US$311 billion, in the fiscal year that ended March 31, 2004. The intervention was designed to stop the yen’s revaluation to under 100 yen per dollar, after foreign investors bought record amounts of Japanese stocks. Figure 1 shows dollar/yen bottoming at 103.38 at the end of March 2004 and then embarking in a sustained recovery for a month and a half.

Figure 1. The Bank of Japan sold 32.9 trillion yen (US$311 billion) in the fiscal year ended March 31, 2004, to weaken its strong currency.

At the time, the demand for Japanese securities reflected the success of that economy. Ironically, the BoJ had to try to pour cold water over the success of its economy. And $311 billion could certainly buy a lot of water. In hindsight, the BoJ probably had no intention of putting that much money in that prolonged intervention. Nor did it hope to reverse the direction of the market. Central banks simply lack the ammunition, drive and motive to do that. The best they can hope for is to dampen volatility of the currency enough as to not trigger the aggressive momentum models that funds fondly use. But the BoJ managed to do just that and the dollar/yen stayed away from the 103.38 level for several months. It eventually bottomed in December 2004 at 101.67 and rallied for three years. March 2004 was also the last time the Japanese central bank overtly intervened in the currency markets. And nearly three years later, BoJ officials are actually talking the yen up!

The Reserve Bank of New Zealand – a Bank from the Developed Markets

The New Zealand dollar appreciated from 0.3898 against the U.S. dollar in October 2000 to 0.7642 by June 2007. In response to this staggering long-term uptrend, on June 11, 2007, the Reserve Bank of New Zealand (RBNZ) intervened to push down the value of the kiwi. That was the first intervention in the market since its currency was allowed to float 22 years earlier. The bank was rumored to have intervened again several days longer. Given its shock value, the NZD/USD quickly buckled from its high levels, but this didn’t last long. In fact, it lasted only 2.5 days before the Kiwi resumed its powerful uptrend to reach new highs. See Figure 2. Clearly, the New Zealand dollar only managed to slow down the uptrend, but had a hard time slowing down the volatility.

Figure 2. The impact of the unprecedented Reserve Bank of New Zealand intervention to devalue of the kiwi lasted only 2.5 days.

Why? The country enjoys one of the highest interest rates among the developed economies and nearly everyone in the world wants a piece of the Kiwi, preferably while selling yen. While not perfect, New Zealand is fairly close to economic heaven. Its GDP accelerated 1 percent in the first quarter of 2007 from the fourth quarter of 2006, when the economy expanded 0.8 percent. That strength should continue despite higher interest rates that reached a record-high 8 percent. Unemployment is low and consumption is high – what’s not to like? RBNZ’s governor Alan Bollard argued that the intervention was necessary because the exchange rate was exceptional and unjustified in terms of economic fundamentals. But the high yield says otherwise. And so did investors, small and large.

Imagine you’re a Japanese salary-man looking to enhance savings. Would you resign yourself to receiving a meager 0.5 percent rather than 8 percent in New Zealand? When you could make some money from the exchange rate as well? Now picture yourself as a leading investment entity trading currencies. Would you fold your long-term long position in NZD/JPY just because the RBNZ intervened a couple of times? Probably not.

The Brazilian Central Bank – a Bank from a Premiere Emerging Market

The Brazilian Central Bank’s (BCB) has been very active in FX and has intervened heavily since the end of 2005, when government measures opened the capital and financial accounts. Foreign interests chased Brazilian high yields and the central bank was forced to balance the FX surplus in order to curb the excessive appreciation of the Brazilian real.

By May 2007, the BCB had accumulated a total of US$122.4 billion in international reserves, and by the end of the year the reserves could expand to US$180 billion. But how effective has the intervention been? Between the lowest low in May 2006 and the highest high in June 2007, the Brazilian real has already surged approximately 21 percent. See Figure 3.

Figure 3. The Brazilian real has already surged approximately 21 percent between the lowest low in May 2006 and the highest high in June 2007.

This means the intervention has been successful only in slowing down the appreciation of the local currency, rather than reverse its direction. What’s in store for the real? Probably only good things. For the time being, the Brazilian banks regard the real as “theirs,” as most of then simply limit their FX activity to buying and selling USD/BRL. But the real is no longer a lonely emerging currency best left to local interests. It is now a thriving currency that is a pre-requisite to any sophisticated currency portfolio. This means two things: the real will become subject to more volatility reflecting economic developments and expectations; and Brazilian banks will have to quickly expand their horizon to pair their real against the euro and the yen, and reduce their exposure to the real in favor of non-real pairs. And slowly but surely the BCB will lose its control on the real.

Conclusion

Central banks generally abhor interventions. It is more common for central banks from emerging markets to intervene. The effectiveness of their success is random in the short to medium term, but improves in the long term. Single-handed interventions rarely fare well, even though the example of the Bank of Japan was successful. Central banks must be on the right side of the fundamentals to succeed. The RBNZ is not.