October 1998 is the closest comparison to the current financial crisis. That was the year thatRussia defaulted on its debt and Long Term Capital faced major losses. At the time, the Federal Reserve responded with multiple interest rate cuts. Below a comparison of the most recent price action against the price action in October 1998. The moves over the past few days still pale in comparison to the moves that we saw nine years ago. Therefore now is not the time to increase risk. Big moves like today necessitate lower leverage.
EURJPY
October 1998: 2,878 pips
August 2007: 1,526 pips
USD/JPY
October 1998: 1,260 pips
August 2007: 759 pips
GBP/JPY
October 1998: 3,936 pips
August 2007: 2260 pips
AUD/JPY
October 1998: 1,382 pips
August 2007: 1,588 pips
By Kathy Lien, Chief Strategist of DailyFX.com