How to Profit From Central Bank Interventions
Central banks have been busy in the currency markets. Here's how to profit when they wade in.
As if the markets weren't volatile enough, a raft of central banks picked the past week to intervene and try to lower the value of their currencies.
Good luck with that, says Andrew Busch, global currency and public policy strategist for BMO Capital.
Noting that moves by the Swiss National Bank, the Bank of Japan, and the Brazilian Central Bank created only short-term weakness in their currencies, Busch told CNBC's Melissa Leethat for trading purposes, "You want to take these examples where central banks step in and do something, and fade the move."
Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, takes an equally dim view of central bank intervention, arguing that such moves almost never work unless they are the result of many banks intervening together, and they're backed by policy initiatives.
So how can you trade the past week's interventions? Since the euro rose quickly against the Swiss franc after the Swiss intervention, only to steadily give back the ground it gained, Busch suggests selling the euro against the Swiss franc on a euro rally. He would enter the trade at 1.1385 with a stop loss at 1.1685, and take profits at 1.0885.
You can watch the whole discussion right here.
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