2011 Forex Recap: Not Good, Not Bad, Just Tradeable

By FX Empire Analyst - James Hyerczyk
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In deciding which currencies were the best or the worst performing currencies during 2011 it would have been easy to just look at the closes on December 31, 2010 and compare them to where the markets are currently trading. This would have been easiest but also the most uninformative because just looking at the net gain or net loss for the year would have meant ignoring the volatile swings and changes in direction, which in my opinion, really define the Forex markets this year.

During 2011 the Forex markets have been at times subject to headline news, flight to safety, rumors and risk-on/risk-off scenarios. We saw a tsunami drive a currency both up and down. There were interventions and threats of interventions. The year had to be extremely difficult for trend traders because the trends that occurred were short-term in nature, ended suddenly and took back gains quickly. Support and resistance traders also had difficultly because just when they thought a solid range had been established, the market became trending, and they were left in the dust.

Here is a list of the highlights and lowlights in 2011 for a few of the major currencies.


The EUR USD has had a rollercoaster ride in 2011. The rally started in January at 1.2873 after then European Central Bank President Jean Claude Trichet hinted that the economy had improved enough to warrant a rate hike. From January to May the market trended from 1.2873 to 1.4940 then sovereign debt problems in Greece and neighboring countries began to surface after being swept under the carpet for almost a year.

As the situation worsened, talk began to surface that perhaps Greece should be ousted from the Euro Zone. In addition, Euro Zone bank stocks began to plummet, calling for the need to recapitalize. Euro Zone finance ministers finally got the message after the market had fallen from 1.4940 to 1.3145. After bottoming in early October, the Euro mounted a strong rally that produced a monthly closing price reversal bottom. Until the October top at 1.4247 is penetrated this currency repair remains susceptible to further downside action.

As the year ends, the Euro Zone is still battling the risk of contagion but recent government shuffles in Italy and Greece could mean that the European Ministers are lining up allies that support its plans to save the Euro Zone from further damage caused by toxic sovereign debt.


On December 31, 2010 the USD JPY closed near its low for the year at 81.18. This currency pair straddled this close for the first two months of the year under the threat of intervention by the Bank of Japan. The central bank and the Japanese government are battling traders seeking lower-yielding currencies in times of economic turmoil while trying to protect its fragile export trade.

In March Japan was hit with a devastating tsunami which wreaked havoc on the economy. Almost immediately after the event the Yen soared as Japanese citizens around the world repatriated their money to come to its aid. Sensing an economic debacle, the Bank of Japan called upon central banks from around the world to help it intervene in an effort to drive the Japanese Yen lower. Everyone knew at this point that besides government aid, Japan would have to step up export sales in order to avoid a recession.

The aggressive action by the global central banks drove the USD JPY from 76.37 to 85.52. This intervention stabilized the Yen, helping the Japanese economy slowly recover from the devastating effects of the tsunami. The action only lasted until August, however, when the currency pair penetrated the tsunami low. This was caused by greater demand for lower-yielding assets because of problems in the Euro Zone and a downgrade of the U.S. debt rating. Once again an intervention took place as the Japanese government made it clear that it would defend its currency from instability.

The battle between those demanding the lower-yielding Yen and the Japanese government’s need to stabilize its currency to help grow the economy is likely to continue into the end of the year. As recently as three weeks ago, another attempt was made to drive the Japanese Yen higher. As long as the government has the firepower to defend its currency, look for it to continue to take aggressive action. The battle line has been drawn so don’t expect too much movement until one side decides to give in.


As conditions worsened in the Euro Zone, risk adverse traders shunned the U.S. Dollar for safety and were rebuked by the threat of intervention in the Japanese Yen. This gave them no choice but to buy the Swiss Franc. From May until early August, the EUR CHF plunged sharply lower as speculators sold the Euro and bought the Swiss Franc.

The higher priced Swiss Franc began to adversely affect the economy as it drove up the price of Swiss goods and services. With its export based economy being threatened, the Swiss National Bank decided to take decisive action. In early August it began to threaten to intervene. When this didn’t work it actually intervened. At the same time talk began to circulate that the central bank was fed up with having to defend its currency. Records show that it had lost a large sum of money making transactions that just weren’t working.

Rumors began to surface that the SNB was poised to peg its currency at 1.20 to the Euro. This triggered a massive short-covering rally from 1.0068. Then true to its word, in September the central bank took the aggressive action. Since then the EUR CHF has remained locked inside of a tight range with 1.2000 the support and last year’s close at 1.2479 the resistance. Look for the volatility to remain low and this pair to remain locked inside of a tight range until either conditions improve drastically in the Euro Zone or the Swiss National Bank gives up defending its aggressive action.

In summary, with almost all of the major currencies making volatile moves in both directions and hovering near last year’s close, it’s difficult to say which the best was and which the worst was. From a year-to-year standpoint, one can easily assess the gains and losses, but looking at it from a trader’s perspective, the conclusion is different. In my opinion, there wasn’t a “good” or “bad” currency, just very exciting trading markets. Corporations and bankers may be complaining, but traders have to have liked the volatility offered during 2011.

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