The G-7 Forex Intervention Is A Perfect Example Of How Manipulated The Global Currency Market Really Is

What do governments and central banks do when they don't like what is happening in the financial markets?  They directly intervene and they manipulate the financial markets of course.  On Friday, the central banks of the G-7 acted in concert to drive down the value of the surging yen.  So why did they do this?  Well, the fear was that a rising yen would hurt Japanese exports at a time when the economy of Japan needs all of the help that it can get.  So, as central banks have been doing with increasing frequency, they directly intervened in the Forex market in order to bring about the result that they desired.  Unfortunately, this is not an isolated incident.  The truth is that foreign governments, central banks and large financial institutions are constantly manipulating the Forex, precious metals and stock markets all over the globe.  You see, in today's global economy the "stakes are so high" that the free market cannot be trusted.

The reality of the matter is that none of the financial markets are really "free markets" anymore.  Not that they are completely rigged, but to say that they are very highly manipulated would not be a stretch.

At least this time the manipulation was made public.  Of course it would have been really hard to hide the fact that all G-7 central banks intervened in the Forex on the same day.

The last time there was such a coordinated intervention in the global currency market was back in 2000 when central banks intervened to boost the struggling euro.

But the truth is that individual central banks attempt to manipulate the Forex all the time.

Some of these interventions become public.  In September 2010, a bold 12 billion dollar move by the Bank of Japan to push down the value of the yen made headlines around the globe but had only limited success.

Another example of this from last year was when the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.

Many nations around the world have become extremely sensitive to currency movements.

In particular, there are several Asian nations that are known to be constant currency manipulators.  For example, Singapore is very well known for intervening in the foreign exchange market in order to benefit exporters.

And that is what this most recent intervention on behalf of the yen was all about.  It was about making Japanese exports cheaper.

But who is going to say no to Japan right now?  It is believed that Japan asked the G-7 to do this, and so they did.

Japanese Finance Minister Yoshihiko Noda told the media the following about this massive intervention in the marketplace by the G-7....

"Given yen moves after the tragic events that hit Japan, the United States, Britain, Canada and the European Central Bank have agreed with Japan to jointly intervene in the currency market."

So isn't the Forex supposed to be a free market?

If you still believe that, I have a bridge to sell you.

According to Kathleen Brooks, the research director at a major Forex trading firm, it looks like there is a certain level that global authorities simply will not allow the yen to rise to....

"It looks as though global authorities are willing to pull out all of the stops to defend the 80.00 level in dollar/yen."

The following is the full statement released by the G-7 defending their currency intervention....

Statement of G-7 Finance Ministers and Central Bank Governors

March 18, 2011

We, the G-7 Finance Ministers and Central Bank Governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.

We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.

In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.

But it is not just foreign governments and central banks that manipulate financial markets.

If you want to try to make money on the Forex, you had really better know what you are doing, because most "little fish" get swallowed up and spit out.

A number of years ago I actually invested in the Forex and I rapidly learned that it is not a "clean game".  I discovered that there are industry insiders that openly confess that several of the "big fish" in the industry brazenly "stop hunt" and regularly trade against the positions of their clients.

Not that stock markets around the globe are much better.  It would take thousands of pages just to document the well known cases of stock manipulation and insider trading.

And don't get me started on the precious metals markets.  As I have written about previously, very compelling evidence of manipulation in those markets has been handed to the U.S. government and they have essentially done next to nothing with that evidence.

Not that people don't make money in the financial markets.  Some people make a ton of money.  But those people are experts and they know how to survive in a "dirty game".

If you are an amateur, you really need to think twice before diving too deeply into the financial markets.  If you think that you can jump into the Forex or the U.S. stock market and "get rich quick" you are in for a rude awakening.

The financial markets have become a game that is designed to funnel money to the "sharks" and to the "big boys".  Once you put your money into the game, the odds are that "the house" is going to win.

For those that still do believe that the financial markets are a good way to build wealth, at least be prudent enough to get some sound financial advice.  There is no shame in having a financial professional invest your money for you.

But it is no guarantee of success either.  The truth is that millions of Americans have experienced a lot of pain in the financial markets over the last few years.

As the global economy becomes even more unstable, the manipulation of the financial markets by governments and by central banks is going to become even more dramatic.

As financial markets around the world crash and rise and crash again a whole lot of people are going to be wiped out financially.

You don't have to be one of them.

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Intervention in the Yen — and the Huge Opportunity for You!

Japan’s currency has gained nearly 40 percent against the dollar since the economic crisis erupted in the middle of 2007. And 8 percent of the yen’s gains came during the past week despite the devastation from the earthquake, the Tsunami and the ongoing nuclear fallout.

Of course Japan can’t control the natural disaster or the ramifications from the nuclear fall-out. It CAN, however, control the value of the yen. And with support from its G-7 counterparts it began doing just that yesterday morning in Japan when the Bank of Japan (BOJ) stepped in to reverse the yen’s upward spiral.

Will it work?

Japan’s Aggressive Record
of Weakening the Yen

Japan has a reputation for being sensitive to movements in the currency markets and for taking action. Its heaviest periods of intervention tended to coincide with slower economic growth rates — like it’s experiencing now — especially given the threats and uncertainty represented by this past week’s events.

The last time Japan intervened to weaken the yen was last September, when it stepped in to weaken the yen by 3.5% in a day — its biggest one-day intervention on record. But it didn’t work, because the BOJ wasn’t persistent.

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Back then the world was pressuring China to stop manipulating its currency. So the BOJ was in jeopardy of fracturing the global political landscape by imposing its will on the strong yen.

Prior to September, the last time Japan intervened to weaken the yen was between 2003 and 2004 …

Yesterday, the BOJ took action to drive the yen lower.

Over the course of 126 days the BOJ sold yen in the open market to purchase 315 billion U.S. dollars. These steps ultimately sent the yen 11 percent lower.

But the overall success of interventions in changing the long-term path of a currency is not great. A lot depends on how it’s done …

Changing the path of a currency tends to have a higher success rate when countries act together in support of (or against) the same currency. These coordinated interventions also have a greater spillover effect on other currencies.

For example, between 1999 and 2000, both the Fed and the BOJ coordinated to put a floor under the dollar/yen exchange rate. The result: A 32 percent decline in the yen in less than 2½ years.

And that’s precisely what took shape in 1995, when the yen marked the all-time highs against the dollar, a level that held until this past week. The BOJ, along with the Fed stepped in to stop a steady, and steep, five-year slide in the dollar/rise in the yen.

It worked.

The yen fell 46 percent against the dollar over the next three years … and in the process marked a high in the yen that stood for sixteen years.

Why Japan’s Intervention
Will Work this Time, Too

Every major turning point in the past 16 years (with only one exception) has come with a BOJ intervention. But looking back at history, every episode of intervention hasn’t meant a turning point for the yen. So many in the foreign exchange market believe yesterday’s effort will fail — and ultimately a strong yen will win out.

I disagree …

First, Japan desperately needs a weaker yen.

Even before the events of the past week, I can’t think of one fundamental argument that would support the case for a stronger yen.

Second, Japan has every incentive to keep intervening.

Remember, this is a country attempting to weaken its currency, not save it from a death spiral of weakness.

Given that fact, currency market intervention by Japan works in their favor in several ways …

It softens the currency burden for its all-important exporters; thus making their products more competitive in the world market. And it requires Japan to print more and more yen, ultimately easing monetary policy even further. Indeed, a move needed in Japan’s fight against persistent deflation.

So what do they do with all of the freshly printed yen?

You can expect the BOJ to add more U.S. dollars to its reserves.

They sell it and buy U.S. dollars. That means they stockpile currency reserves … an area commonly perceived to be a gauge of a country’s financial wealth and stability.

Because of the incentives I discussed above, I expect Japan’s intervention efforts to persist and pay off. Perhaps most important though, is that its G-7 partners have its back this time around.

Japan’s intervention could be just the first step in a long, sharp devaluation of the yen. And given the recent weight the strong yen has placed on the dollar, don’t be surprised if the turn in the yen also results in a broad dollar rally.

For currency traders, this creates a tremendous opportunity to go along for the ride. And with the advent of exchange traded funds (ETFs) and options that track global currencies, the opportunity for individual investors to take part has never been easier.

To see how you can receive concise instructions on using ETFs and options to get the biggest possible payoff from fluctuations in the yen, the dollar and other world currencies, click here to view my latest presentation.

Regards,

Bryan

Bryan Rich began his currency trading career with a $600 million family office hedge fund in London. Later, he was a senior trader for a $750 million leading global hedge fund in South Florida. There, he helped manage and trade a multi-billion dollar foreign exchange options portfolio. Today, Bryan is the editor of World Currency Trader, a service designed to give you everything you need to trade currencies that offer the greatest profit potential with the least amount of risk.

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What Would Prompt a Military Intervention in Libya?

The tide of Libya’s revolt-turned-civil-war has turned against the rebels. Internationally-isolated dictator Moammar Gaddafi’s forces are retaking town after town in rebel-held areas of Libya and are now advancing on Benghazi, the country’s second largest city, where the youth-led rebellion began last month.

Badly outgunned and facing possible defeat, the rebels are asking, “Where is the West? How are they helping? What are they doing?” In Benghazi, the rebels’ newly-formed National Council has repeatedly called on the international community to enforce a no-fly zone to limit the regime’s ability to assault rebel positions from the air and slow the flow of pro-Gaddafi foreign mercenaries into Libya.

The United States and its NATO allies are weighing their options. While NATO has deployed spy planes to monitor the violence in Libya, US Secretary of Defense Robert Gates has stressed the limits of what a no-fly zone could achieve (protection against jets, but not against equally if not more lethal helicopters and tanks) and what it would actually entail on the part of the intervening parties (destroying Gaddafi’s air defenses; in other words, fighting an air war).

The European Union has been equally cautious so far. Its 27 member states are divided on what, if anything, to do about the violence in Libya. Powerful member states such as Germany have expressed intense skepticism about the wisdom of any military action against Gaddafi, but have stopped short of ruling out the possibility.

At what point might the US or NATO decide to carry out a military intervention in Libya? My guess is, when we see a combination of at least two of the following conditions:

– Gaddafi’s forces carry out a massacre large enough to shock the global conscience –something akin to a Libyan Srebrenica, or a re-enactment of the fall of Mazar Sharif to the Taliban in 1998.– The Arab League endorses outside military intervention.– The UN Security Council authorizes an intervention.– The Europeans agree to participate in a multilateral effort against the Libyan regime.

Libya’s rebels want Western air power on their side, but the US and its allies, bruised by the conflicts in Iraq and Afghanistan, are in no hurry to join another war.

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USDJPY Jumps 60 pips In Seconds On Apparent Intervention

While we have no confirmation yet, the USDJPY juts jumped by 60 pips from post-earthquake low levels to 81.20 on what appears a Bank of Japan intervention. The last time we had confirmed intervention was on October 31 last year, when the pair was trading at 52 week lows of 81.30. 30 pips from the previous trigger point would makes sense for Shirakawa to say "enough." If this was indeed an intervention, we hope to bring you just how much USD the BOJ purchased. Indicatively, in 2010 each intervention cost the BOJ a few hundred million. And with the effect already wearing off, the half life (pardon the bad pun) on interventions is now the lowest it has ever been.

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Italy: Interior Minister says US military intervention would be WW III

Roberto Maroni, Italy's Minister of Interior, said that "military intervention in Libya would mean a Third World War," apparently alluding to reports of posturing by the the United States, Great Britain, and NATO. Interviewed by the La Padania newspaper, Maroni spoke in the March 8 report on policy towards the simmering rebellions in the Maghreb region, including Libya and Tunisia. Said the minister, "A strong military action, in particular on the part of the US, would do nothing more than coalesce the other Arab states and the consequences would be devastating."
Continues here

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