Widespread panic crossed currency markets last night after numerous FX pairs crashed. Some of the big movers were USD/JPY which saw an almost 4 big figure (400pip) move. For the second most actively traded currency pair in the market, which usually sees daily turnover in excess of $1 trillion, this is a monster move. The Aussie dollar and Turkish lira also saw huge moves lower which were most extreme against the Japanese yen (c. -7%). The pound also felt the effects; GPBUSD plunged to a low of $1.2425 while the pound hit €1.0960 against the euro.
Markets have somewhat calmed down since the initial move around 22:30 last night. There are a number of factors which have been linked to the move. In all cases where such moves occur (a familiar one may be the GBP flash crash in 2016) there’s usually never one cause. To set the scene, just after the New York close (9pm UK time) Apple released a rare revenue warning citing a lack of Chinese demand as one of the key factors. This sent stock market futures tumbling and renewed fears over a wider-global slowdown. Markets became increasingly jittery from here – 22:30 UK time is a period where liquidity is exceptionally thin. Europe is getting ready for bed while the US are leaving their offices and Asia has still not arrived at the desks. Further to this, it’s still holiday season with many participants not back to full-flow. Today has additionally been a national holiday in Japan so liquidity was even lower than usual. The consequence being – smaller sized trades create much larger moves across currency pairs. Looking at specifics – the volume distribution traded in the Japanese yen around that time, it appears JPY/Turkish lira saw c.23% of the volume. It’s believed some big stop losses in this currency pair could have been that key initial trigger.
Today’s trading action will be dominated by further concern over Apple and global growth, mixed with discussion over last night’s FX moves. Data-wise, UK construction PMI, US ADP jobs data and US manufacturing/new homes sales data will cross the wires.
Written by Viv Savani. 8:49am, January 3rd 2019
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11:36am, November 16th 2018
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