AUTOREFRESH 
2008: A quick review
(For our readers who weren’t trading FX in 2008, when Lehman Brothers and Bear Stearns went bust after the US property market bubble exploded in everyone’s face).
The FX market had been building the risk-on trade for many years as equity markets roared higher and the ‘carry’ on trades like AUD/JPY was excellent. This pair got to 110 and looked like it would never fall ever again. Once the banks blew up, everyone tried to bail out of these trades at the same time and I remember one particular morning when AUD/JPY fell from 83ish to 73ish in about 3 hours; a fall of 15%.
Over a period of a few months, AUD/JPY fell below 60 and other pairs like EUR/GBP also experienced huge moves. The market wanted to buy USD in the first instance but also JPY, CHF and EUR to some extent. AUD, CAD, NZD and GBP were out of favour. The reasoning behind the USD rally was purely a liquidity issue and the reason behind the GBP fall was due to its exposure to financial markets.
Can history repeat itself? Probably yes but the situation is somewhat different this time around. The big problem now is Sovereign debt, not bank debt. The EUR is in a much different situation and nobody can buy with any conviction; the CHF and JPY are at much higher levels than they were back in 2008 and the market is surely already long both of these currencies; the AUD rise this time has been fuelled more by commodity demand out of China rather than the carry trade so I don’t think it can collapse in the same panic again; the GBP does look vulnerable due to the City of London exposure to European banks; one thing which does look the same is the desire to maintain USD liquidity, as we’ve seen in USD/Asia over the last few weeks.
Conclusion: I don’t think we will see collapses in pairs like AUD/JPY and AUD/CHF like happened last time. The market is structurally different this time around. I personally am sitting on the sidelines, waiting for some clarity; the intraday vol traders will be having a great time.
Good read on things Sean and thx for the recap of ’08!
Hi Sean morning
Thanks for the info.
Hi Sean, good day. and thanks for your snap shot about 2008 market. Can you please tell me a little idea as I have hedged in gbp/jpy. Is this pair going towards 110.00 level or bounce back by 115.00 level? how long BOJ will going to be quite? Many thanks.
THANKS! Sean! Had the same thoughts. 2011 looks very different. Monetary Policy for one has no Mana left to do some magic tricks.
USD liquidity issue doesn’t exist currently. Currenly the Q will be; can we take out the 100/200 MA level in the dxy? Where else to go when US is as uncertain as Europe, is as uncertain as China?
Gold trade could be over (deflation arguments vs inflation arguments).
Cash for one thing. Alternative assets another.
Diversification is a thing of the past with correlation left and right in a global economy.
absolutely agree with you Sean, the market is structurally quite different fundamentally and position- wise from 2008 so we shouldnt expect the same types of moves in certain pairs. Also given the snb actions in chf makes that ccy worth taking off any watchlist from a trading perpsective as well as possible boj intervention as well. This is more a situation of unwinding usd shorts than risk off/aversion
BTW. From Axel Merk (Merk Funds) from 21st Sept.;
“Because of the scale of the issues, policy makers have taken an ever more active role in the markets; we don’t see that trend abating. As a result, securities may increasingly be trading based on the next perceived move of policy makers, rather than on fundamentals. “
I remember 2008 very well. I made lots of $ shorting the heck out of AUD/JPY. July -October felt like Christmas every day (for my account anyways).
Hello Sean, cable at great support level of 1.5330 and 1.5300 . RSI on 4 hr rock bottom at abysmal 15. I know it’s contrarian strategy to be long but do you see a pull back in cable. I feel it’s very cheap too.
Hi Sean, That brings back memories!! I think you’re right, can’t see the AUD getting hammered like last time, nor do I see too much more grief for cable. The Pound has been highly sold off and is always in demand as an offset currency for both CHF and EUR. CHF is being shunned due to government intervention and the EUR (need I say more) Just my humble opinion. Keep up the good work.
Thanks Sean, have a good day and a GREAT week end!
George – cable can still go lower with the RSI rising, just look at the end of last year. Think about it and trade what you see.
Hi George, I agree with Lilac, looks to have more downside potential so I’m sitting it out. USD/CHF is the dangerous one and if that breaks higher to 95+ then I think cable almost certain to fall a bit at least
Hi Sean, I just checked my daily chart. It was October 6th 2008.
AUD JPY
Open 8111
High 8115
Low 7055
Close 7219
USD JPY at the same day fell from 105 to 100. At that time EUR JPY was at 139 and people were screaming how low it was. Now? It is ready to break through 100. How time has changed
http://www.forexlive.com/blog/2008/10/06/lots-of-fear-very-little-greed/
Thanks indeed Charles, that was the day
For me it was April 22, 2008 and I was at a trading seminar and got a short EURUSD at 1.6014. But because I was getting ready to get on a plane I didn’t want to leave the trade open since we were in “uncharted waters” and I closed it for 22 pips lol……… What a dork!! Had I only known or had the guts to let it ride but………… Oh well lol…… Had to go back over my trade history to see what 2008 was like. For me, being one who prefers to go long the EURUSD I had to adjust and actually took more short positions than I remembered. Wonder if we’ll ever see it that high again??????
Hi Sean! What do u mean with keeping Usd liquidity? thx
Hi Romanus, in times of risk aversion the mkt will naturally tend towards its most liquid asset, the universally accepted USD. When in fear mode, get out of the hard-to-dispense with assets and stick with something you can use everywhere.
BTW – Charles, how did you get a link all the way back to 2008? I’ve wondered if there was a way to check on what was happening “back in the day” but haven’t figured out how to look back on this site. Thanks!!
Thanks Sean for yet another world-class analysis. I’ll need to go back thru FL’s entire history on some random weekend and building an archive of your nuggets of wisdom…
You have to log in first, bluebirdie.
After that forexlive’s yer oyster
Thanks Lilac! I see where each time I “reply” I have to login but don’t see where there’s any other place to login. I know there are many pages listed on the bottom of each thread that is created but how to know “where” something may be seems difficult to “search” for. I thought maybe there is a place where just the heading of each thread may be listed. But this is more a blog style than database style so maybe it can’t be set up in such a manner. That’s cool. Sometimes it might be interesting to see how the market reacted “last year” with the same data as this year type thing.
twitter-fxi: try this
1. Go to google
2. Type this in the search bar => siite:www.forexlive.com
3. at the left hand panel, select More Search Tools
4. Choose a date range
And your done! Here is an example from 2008~2009 -> http://bit.ly/ogVRAg
Sweet tinkerfun!!! Works like a charm – never thought of Googling with parameters lol……