Currencies In Apparent Flash Crash As Risk Sours

Fundamental analysis of Forex market

USD/JPY collapses to 10-month low

Thin markets and a scramble to cover positions or seek safe havens meant risk-focused currencies tumbled early in the Asian trading session today. USD/JPY collapsed more than three big figures in a matter of minutes, hitting the lowest level since March last year, as the scramble into the safe-haven yen accelerated, while AUD/USD slumped as much as 3.7% to the lowest in almost a decade. The Turkish lira plummeted, falling as much as 5% against the US dollar.

Currencies appear to have stabilized now, with USD/JPY currently down 1.5% at 107.23 and AUD/USD down 0.65% at 0.6940.

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AUD/USD Daily Chart

What was the trigger for the crash? There appeared to be no one specific item, though news that Apple had downgraded its iPhone sales forecasts in China piled pressure on slightly shaky sentiment, with an ongoing bank holiday in Japan affecting liquidity. Apple shares tumbled as much as 7% in after-hours trading.

China seeking to boost consumption

December comments from China’s President Xi were revisited in the Chinese press today, announcing that the government is considering a “new” package of measures to boost consumption. On December 3 President Xi had commented to that effect too.

Separately, the Peoples Bank of China said yesterday it will adjust the calculation of some banks’ reserve ratios, focusing on loans to small- and micro-sized enterprises, in an attempt to boost the impact of an earlier easing step. China’s CICC Research has calculated that the measures could release up to 400 billion yuan ($58 billion) of reserves.

Trump’s wall remains unfunded

The meeting between Democrats and Republicans which promised much to potentially end the US government shutdown came to nothing. However, Nancy Pelosi, speaker-designate of the House of Representatives, has said that the Democrats will offer a bill tomorrow to reopen the government. Meanwhile, Trump has invited congressional leaders back to the White House on Friday for additional negotiations, though it remains unconfirmed who might accept the invitation..

Data to take a back seat amid volatile markets

Wild movements and thin liquidity is likely to overwhelm any impact of economic data releases today. For the record, UK reports construction PMI for December, which has been on a mild upward trend for the past two months, while the US calendar is populated with the ADP employment change (estimates see it barely changed from November’s 179,000) along with the ISM manufacturing PMI. This is seen sliding to 57.9 from 59.3.