Currencies flash crash recap: Where are we now?
A quick sum up of the day in currencies so far
- Apple has cut its Q1 revenue guidance
- Apple commentary on China's economy ... sharp contraction in market
- AUD/JPY falls further (and its not the only Turkey)
- Flash crash hits the currency market
- AUD/JPY rebounds above 61.8% retracement
- Anyone remember the GBP 'flash crash' in Oct 2016? Its worth revisiting
- Analyst on the FX flash crash(es) and what now
- USD/JPY looks to find a base ahead of European trading
- USD/JPY recovers some ground, moves towards 108 handle
The chronological order is from top to bottom. Basically, things started with commentary by Apple as it cuts its Q1 revenue forecast and pointed the finger on China. That raised serious concerns among equities as even the biggest of companies such as Apple appears to not be spared from the US-China trade dispute.
It prompted a sharp drop in equities before currencies started to move almost an hour later. Things started off with a breakdown in the Turkish lira and when TRY/JPY was heavily offered, it resulted in stops being taken out in JPY pairs across the board with AUD/JPY ultimately being the standout pair that took the biggest hit.
It's pretty much a combination of thin liquidity and a handful of stops being triggered that caused a quick move down.
The earlier moves were quickly retraced somewhat thereafter with AUD/JPY moving back above the 61.8 retracement level of the drop ahead of European trading. USD/JPY also started off the session around 106.90 after having posted a low of 104.87 during the morning flash crash.
And as the session moved along, yen pairs have recovered further but remain limited by technical levels. USD/JPY in particular is failing to find conviction to move above 108.00 and now slips back towards the 107.50 levels.
Meanwhile, equities sentiment remains tepid with Nasdaq futures still down by over 2% as Apple shares are down by more than 8% in pre-market trading. With price action sitting neither here nor there at the moment, that still leaves a lot of question marks ahead of the cash equity market open in the US.
Oh, not forgetting markets are also a little worried about potential BOJ intervention that could follow. Although the yen is perceived to be undervalued against majority of its peers (based on OECD's PPP scale):
The sort of spike earlier today in the yen is one that fits the description which the BOJ tends to phrase in its interventions, being "excessive market volatility". Despite the fact that things have calmed down somewhat since the morning moves, I reckon that Japanese authorities cannot take the chance to leave this as it is.
Markets have already provided a glimpse of how quickly and how badly things can turn on current geopolitical issues. The BOJ surely can't afford to wait and let that play out a second time. So, let's see if we hear anything from them tomorrow (or later tonight if things turn sour again).