Intervention rumours and the rate check: a scene that keeps repeating

[Shadow Trader]

USDJPY has been climbing for weeks and sits near levels not seen in decades. Officials have used stronger and stronger language. Then, in the middle of a calm session, a report appears that authorities have been asking dealers for quotes. The pair drops several big figures in minutes, sometimes before any actual intervention takes place.

That is a rate check: contacting banks to see where the market would trade, without necessarily doing anything. It is a signal that action is possible, and the market treats it as a warning. Some people buy back the yen out of fear, others take profit on shorts of it, and the drop feeds on itself.

What follows is often partial. Price bounces some of the way back, because a threat is not the same as a trade, and unless the underlying pressure changes, the drift resumes. Sometimes a real intervention comes later, and then the move is more lasting but still tends to leave retracements.

The hard part for a scalper is spread and liquidity. During those drops the quotes thin out, and stops on the long side get slipped badly. It also pays to know that the sensitive levels are rarely announced and the timing can be random.

Have you ever been caught on the wrong side of a rate-check drop, and did the bounce afterwards look tradable at all?