Did You Hear This Rumor?

| March 8, 2010 | 0 Comments

Did you know that Wall Street is just like high school?  Not only does Wall Street have its own group of cool kids and nerds… they also have the all important rumor mill.

I’m sure you know what I’m talking about.

The rumor mill in my high school was all about who was dating who… and what desert party was going on over the weekend.  A bad rumor would tarnish an image (for at least a few days).  And no matter how true or untrue the rumor, it always spread like wildfire.

Wall Street is just like high school.

But instead of gossiping about the latest hook-up, it’s all about the money!

As you can see in this chart of the Swiss Franc, there was some unusual activity.  See how the Franc spikes up against the US Dollar on March 3rd… then promptly falls back to earth on March 4th?

Some traders look at the chart and see that as a sign…

That’s all it took to get the rumor mill started.  Traders started wondering who would try to prevent the currency from moving higher.  Who has a vested interest in the currency staying at low levels?

The rumor started… the Swiss National Bank was intervening in the markets.

It spread like wildfire.

The Swiss are manipulating their currency.  They’re trying to keep exports competitive with the rest of the world.  Currency analysts at several investment banks mentioned the Swiss National Bank intervention.  The Wall Street Journal even picked up on the rumor and wrote about it.

Personally, I think it’s crazy.

Yes, the trading activity was a bit unusual… but that’s no guarantee the SNB was intervening.  You can ask them, but there not likely to answer. Does it seem logical they would hold down the currency value?  Of course, it makes their exports more price competitive on the global stage.

Exports are always more profitable when the currency is falling.

At first glance, the intervention seems logical.

   While an intervention seems plausible, let me ask you this… why now?

In just the last six months, the currency has been trading at levels significantly higher.  In late November of last year, the Swiss Franc traded over the $100 level (that’s more than 8% higher than where we stand today).

If they weren’t intervening when the currency touched $98 in October, or hit over $100 in November, why fool around with it here at the $93 level?

It doesn’t make sense… and that’s why I’m choosing to ignore this rumor. Remember, just because someone says it (or the Wall Street Journal reports it), that doesn’t make it true.  Be careful where you get your information… and remember, like in high school, ultimately the rumors don’t matter.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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