We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The #Nikkei 225 trades at 4-month highs after a 50% surge from the March low, while the RSI registers its first overbought readings since November 2019. Get your market update from @DanielGMoss here: https://t.co/pOEt698Ooi https://t.co/EHD2EHmQLW
  • The British Pound technical outlook still seems to favor the downside. GBP/CAD may pressure key rising support from August as GBP/AUD could prolong its downtrend. GBP/CHF may fall. Get your $GBP market update from @ddubrovskyFX here: https://t.co/hBOpDKXmfW https://t.co/8gGfGuw87o
  • The $USD breakdown has taken the index into confluence support at the objective yearly open. Get your USD technical analysis from @MBForex here: https://t.co/A16XEv6n4d https://t.co/VFxFMFWJ5L
  • Texas virus cases increase 2.4%, above 7-day average of 2.3% - BBG
  • Forex Update: As of 20:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.68% 🇨🇦CAD: 0.58% 🇬🇧GBP: 0.56% 🇪🇺EUR: -0.40% 🇯🇵JPY: -0.41% 🇨🇭CHF: -0.71% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/KqzhTKmnaK
  • The divergence between weekly gains in the #Fed balance sheet and with the #SP500 continues to grow https://t.co/A7HQRtukwj
  • Commodities Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -1.11% Silver: -1.74% Gold: -1.78% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/oiiAzDSusO
  • The animal spirits were boisterous today as a blowout jobs report defied expectations of continued economic pain and malaise in the United States. Get your #Nasdaq technical analysis from @JStanleyFX here: https://t.co/1LI54uvI8x https://t.co/1JydMIGLWz
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.09%, while traders in US 500 are at opposite extremes with 75.23%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/NqGfEOph43
  • S&P 500 Surges as VIX 'Fear-Gauge' Implodes Post-Jobs Report (via @DailyFX) $ES_F $SPX $SPY $VIX #Stocks #StockMarket #Trading #Analysis #Volatility #NFP https://t.co/laVWdqMgDG
Trading in the Aftermath of a Yen Flash Crash

Trading in the Aftermath of a Yen Flash Crash

2019-01-04 04:30:00
John Kicklighter, Chief Strategist
Share:

Dollar Talking Points:

  • The Japanese Yen crosses experienced what can reasonably be labeled a 'flash crash' with the biggest intraday swing since June 2016
  • Other markets experienced a violent shake - especially the Aussie Dollar - suggestion conditions and broader catalysts
  • Trading such moves as a simple reversal or trigger for trend is a low probability approach, watch conditions instead

Did any of the DailyFX analysts focus on the Yen or Australian Dollar in their top trade selections for 2019? At least one did. Download their preferred opportunities for the year fromthe DailyFX Trading Guides page.

Yes, That Was a Flash Crash

Technically speaking, a flash crash is a rapid move in a market that covers a lot of distance in a remarkably short amount of time. The Japanese Yen's swing Thursday certainly qualified on that front. However, there is another element to this categorization in that the motivation for such a dramatic move is typically vague or even completely lacking for traditional fundamental backing. There again, the Japanese currency meets the criteria. This past session, early in Asia trading, the Yen experienced a sudden surge that drew the FX market's attention. Moves of that magnitude in the most liquid of FX currencies is extremely rare - to have it happen during the off-market liquidity between New York and Tokyo hours qualifies as a 'grey swan' - it is a possibility but considered highly improbable. Some would argue that the drop from the Yen (the largest since June 2016 on an equally-weighted basis) was rooted in a catalyst as the downgraded revenue guidance from Apple owing to trade wars fallout hit risk trends via carry trade and the Asia region in general. Yet as much as there was a spark and environment to facilitate movement, the intensity was far beyond what we would reasonably expect.

Chart Equally-Weighted Yen Index and Size of ‘Wicks’ (Daily)

Trading in the Aftermath of a Yen Flash Crash

A Flash Move Holds Limited Potential for True Trends

What is further interesting in the past session's oscillations is the recognition that the Japanese currency was not the only market in motion. In fact, certain emerging market currencies, the Kiwi Dollar and even the Pound exhibited a remarkable swing. Yet, it was the Australian Dollar that deserves the most credit as an equally-weighted index shows the AUD put in for the biggest intraday bullish reversal from lows (signaled by a lower wick) on my records. Combine the Australian and Japanese currencies in AUDJPY and the chart readily tells the story. As it happens, such extreme volatility draws an inordinate amount of trader interest. Rather than 'risk', investors interpret from such extreme movement pure opportunity. That is presumptuous and ultimately poor risk/reward balance. We have seen qualified flash crashes in the FX market from the Pound in October 2016 and from the Yen at various times over the past few decades, and from these instances there is little consistency on what we can expect. There is little systemic motivation for the abrupt change in tempo and bearing which naturally starves the development of reliable trends. Temporary price dislocation exacerbated by liquidity does not establish moves over many days or weeks - much less longer.

Chart AUDJPY and Size of ‘Wicks’ (Daily)

Trading in the Aftermath of a Yen Flash Crash

How to Trade After Extreme Volatility

If we did not sort the market conditions and fundamentals participant to the technical volatility, traders may readily take a surface level evaluation of flash crashes and make assumptions upon which trades are unreliably built. Back in 2016, the Sterling's own flash crash proved the end gap for a post-Brexit tumble that set a three-decade low. The reversal wasn't dramatic beyond the first day, but the turn was reliable. Then again, there are examples in history where sudden movement spelled the technical break to extended trends. To attribute the Yen's move as blow off top (a panic low on crosses), we would need to see a sizable backdrop build behind risk appetite to offset the connection carry trade has to traditional speculative assets. Alternatively, as a catalyst intent on follow through, there is little excess to Yen crosses like there may be on US equities. Trading such extreme moves should be viewed more practically than default contrarian or committing to the amplified charge. A normalization of volatility is highly likely. Direction still relies on what fundamental conviction the masses can register while technicals are unreliable until more significant boundaries are developed. Would I trade the Yen, Aussie or other extreme movers? We discuss that in today's Quick Take Video.

Chart of GBPUSDand Size of ‘Wicks’ (Daily)

Trading in the Aftermath of a Yen Flash Crash

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.