Forex History: What was The Plaza Accord?
"The Plaza Accord was an agreement reached on September 22, 1985, among the finance ministers and central bank governors of five major economic powers - the United States, Japan, West Germany, France, and Britain. The accord aimed to address the issue of global trade imbalances by devaluing the U.S. dollar against other major currencies.
At the time, the U.S. dollar was considered overvalued, which was hurting American exporters and contributing to a growing trade deficit. The agreement involved coordinated intervention in the foreign exchange market by the signatory countries to push down the value of the U.S. dollar. This was achieved through a combination of monetary policy changes and market interventions.
The accord was named after the Plaza Hotel in New York City, where the finance ministers and central bank governors had gathered to negotiate. The Plaza Accord had significant consequences for the global economy and the international monetary system. The value of the U.S. dollar fell sharply against other major currencies after the agreement, leading to a rise in the value of the Japanese yen and the German mark. This helped to make Japanese and German exports more expensive and less competitive in international markets.
While the immediate impact of the Plaza Accord was positive for the United States, as it helped to reduce the trade deficit, it also contributed to the emergence of trade tensions and imbalances in the global economy. The agreement was criticized by some economists and policymakers for its unintended consequences, including the rise of asset bubbles in Japan and the overvaluation of the German mark."
Sourced from Chat GPT, assessed by Sean Lee
Trade of the day: USD/JPY; play volatile ranges
Our survey of market, fundamental and technical analysts suggests the following trade will be worth monitoring today, Jan 20th.
- USD/JPY: The prospect of increased intraday corporate flows, uncertainty surrounding the US debt ceiling and positional adjustment post BOJ all suggest that USD/JPY should see continuing and perhaps increasing intraday volatility. Stops are likely to be significant below 127.00 and may well be targeted but heavy real money buying is expected on any approach to 125.00. The topside again issued a sharp rejection at the 21-day MA but shorter term technical indicators remain in heavily oversold territory. In other words, it's likely we will see tests of both sides of the market at some stage today.
Trades of the day: EUR/CHF and XAG/GBP
Our survey of market, fundamental and technical analysts suggests the following 2 trades will be worth monitoring today, Jan 18th. .
- EUR/CHF: Buying dips towards .9875 gives the highest level of intraday confidence. Talk of trailing stops below .9900 but real money and option related buyers expected below.
- XAG/GBP: Matrix suggests this pair is oversold in the short term and entry levels around 19.00 should offer decent risk-reward to short-term traders.
Day trades r Us: Cable
The daily close below 120 should open the downside up and my initial medium term target is around 1.1650. Resistance should be very solid now on the approach to 1.2150.
On a day trading basis, overnight support at 1.1880 needs to be respected whilst a previous support level at 1.1960 could now develop into a pivot point. I will play this range during Asian trade with a definite willingness to take on more risk on the downside rather than the topside.
Citi: Tide change for JPY?
Citi Bank's JPY spot desks are anticipating a reversal of the recent JPY rise with technical indicators in cross pairs like EUR/JPY, CHF/JPY and AUD/JPY suggesting that interim bottoms are in place.
They favour playing this view via USD/JPY 2m 135/138 call spread. This view is in line with their fundamental view that the market is underpricing the Fed's policy path allied to decent long term technical support near 130.50 and the fact that the market positioning of JPY has swung so significantly in recent weeks.
The little Aussie battler: Currency of the Year 2023
Looking at all of the major currencies I am really struggling to find one which I am comfortable being long.
The US couldn't afford their debt interest repayments when interest rates were at zero! Bit of an exaggeration but you know what I mean. Plus the political situation seems so divided, there seem to be more risks than upside for the USD in 2023.
With war raging in eastern Europe, I cannot justify being long European currencies to any significant extent and the JPY lost its 'risk off' status last year and I'm not sure where it's headed.
So that leaves me two options; one risky, one less so.
The less risky option is to stay in my home currency, the AUD. There are undoubtedly some geo-political risks but the domestic political and financial situations are stable and for now, I'd rather be long AUD than any other of the majors.
The risky option is to build a portfolio of emerging currencies, particularly Asian and South American. Unfortunately I don't have the energy or risk appetite anymore to manage the swings and roundabouts because this could well be the year of the underdog.
GBP: Downside risk still very real
After the turmoil of the Liz Truss leadership, sterling has settled down and the doomsday short-sellers have mostly been stopped out of the market. The outlook for the UK economy remains bleak and of all the major currencies, this is the one with the most significant downside in my opinion. Whether this weakness manifests itself against the USD or more on the crosses remains to be seen.
For now I am betting that a rebound top has been formed at 1.2450 and that we start to head lower again in cable. Levels between 1.2150/1.2250 provide the obvious short-term selling zones.
Support should initially be strong around 1.1650 but even a test of this level would confirm the rebound top to me and strengthen my 'sell rally' resolve.
Silver: Trade of the year?
Yes I know, I have said this before. Surely this heavily manipulated market will at some stage break free of its shackles but going back to the Bunker Hunt brothers in the early 80's and Buffet/Gates in the late 90's, many have tried to second guess an explosion higher and all have foundered.
Nevertheless, as a pure hedge against all that's happening in the world, both financial and political, I can see a lot of value in a smallish Silver play which can be turned into something bigger should bullish momentum start to emerge.
The levels I am watching now are roughly 22.00/26.50. We can expect the usual suspects to be corralling the market whilst prices stay in this range. Technically I'm looking at a bottoming pattern to emerge (https://www.tradingview.com/chart/PoTdl7vs/) which would be confirmed by a break and hold above 27.00.
In the meantime, I'm happy to buy dips and play the range game but be ready for the 1% chance of the big upside play.
USD/CHF: Same procedure as last year?
I had expected a big move higher in USD/CHF last year, especially given the move in US interest rates but it didn't happen. USD/JPY was the pair that made the 30%+ rally but despite strong historical correlations between the CHF and the JPY, at least in terms of short term momentum, USD/CHF remained stubbornly heavy on every approach to 1.0000.
Now we are back around .93 which is almost exactly where we were this time last year. Where to from here?
The long term chart is in a sideways consolidation phase roughly between .88/1.02. I would play this range for the year ahead and try not to get too carried away in the noisy middle (like I did last year!)
In the short term I would favour buying dips for the simple reason that we are nearer to support levels than resistance levels.
Fundamentally I cannot see any strong reason for favouring either of these currencies so I will take my leads from the market until such time as something significant changes.
https://www.tradingview.com/chart/PoTdl7vs/
Citi: USD strategy update
"We remind that CitiFX Strategy remains bullish USD in the medium term, writing that the Fed is
likely to reprice higher, and risk assets likely to return under pressure. They expect that it will take
the Fed easing decisively to turn the dollar. In terms of the short term, however, they noted that
market has pivoted in its perception of the Fed amidst thing liquidity/low participation and that this
has created short term noise and suggests USD downside bias in the near term."
BofA Bull & Bear Indicator
BofA Bull & Bear Indicator: remains at 0, i.e. “max bearish” for the 9th consecutive week
Credit Suisse EUR/CHF trade idea
"We revise our EURCHF target downward from 0.9700 to 0.9400, as we still believe that the fundamental drivers for a lower EURCHF are in place. We close our EURCHF 1.01 / 0.99 put spread and recommend instead buying a 30 Sep exp 0.9400 EURCHF put."
CHF: Looking to add to short positions
Hot real money has been ploughing into the CHF since the Russian invasion of Ukraine and the CHF has been doubly attractive as the only 'other' safe-haven buy alongside the USD. A slightly unexpected 50bps rate rise by the SNB followed by a 3 month meetings holiday certainly hasn't harmed the CHF.
Speculative leveraged positioning in the CHF is quite moderate according to most reports I've read, with most reporting small net CHF short positions.
I'm taking a bit of a punt here in trying to pick the bottom of a sharp move but as we know, these reversal moves tend to be the most lucrative and quickest returns, once the trend stalls. I have no doubt that this trend will indeed reverse, and sharply at that, but getting the timing right is always fraught with danger.
The pairs I'm looking at are USD/CHF, AUD/CHF and GBP/CHF.
I'm definitely a bit early on USD/CHF but I'm keeping longs at a minimum and looking to add on dips towards strong technical support around .9300 or if/when bullish momentum returns to the short-term outlook.
AUD/CHF I am more comfortable with. I've also only got the minimum position here and I'm trading the short-term moves hoping to get on it when it starts moving higher. A break above .6750 will have me feeling more comfortable and I can then start adding on dips. A break below .6500 will tell me that my timing is off (again!)
GBP/CHF as always will be the riskiest one but potentially the most satisfying if it comes off. I'm watching the short term charts for any signs of a bottom forming. If it does I will be aggressively building longs looking for at least an 800 pip rally.
Be careful out there.
HSBC: Revising USD/TRY targets upwards
"We revise our USD-TRY forecasts higher to 19.5 by end-2022 (17.50
previously) and to 21.0 by end Q2 2023 (18.2 previously)."
Citi: Still short-term bullish on USD/Asia
Citi's USD/Asia spot trader and their strategy desk remain bullish in the short term. No specific trades have been released this week so far.
CACIB Trade Ideas: Positioning returning to neutral, no fresh positions.
"At present, the G10 FX PIX 2.0 signals that positioning is
close to the medium-term average for all currencies in the G10 space.
Subsequently, we have not entered any new trades this week. The model
remains up 12.06% with a hit ratio of 57% over the past 12 months."
Gold: Major technical support window 1675-1700 holds again
Well it held the first test at least, which is usually what happens with major technical levels.
This level has formed 4 lows on the weekly chart and must be respected.
One way to get potential "bang-for-buck" in the FX space is to look for USD selling opportunities. USD/JPY looks like a likely candidate after a bit of a battle for supremacy at 138.00-50 has potentially been decided in the sellers favour. I'm looking to sell USD/JPY on the day, hoping for a swift 200-300 pip Friday clean-out of stale longs before the uptrend reemerges.
Levels to watch week starting July 4th 2022
- Cable: I'm still in the short-term buy-the-dip camp but I'm a bit bruised and we need to break and hold above initial resistance 1.2160/90 where I'd expect the day traders to have their offers.
- AUD/USD: Expect a broad .6750/.6950 range ahead of the RBA tomorrow. Market is expecting a 50 bps rise but the Governor hasn't covered himself in glory with his recent statements and I'm not quite sure what to expect. On the crosses, I'm looking for good entries to sell AUD/JPY back towards 93.50.
- USD/CHF: Looking to buy intraday dips to .9550 with stops below .9500 (where I'll have company I hear!)
- Gold & Silver: Long-term trade still the same; staying long but keeping leverage very low for now!