Well, the start of the Asia session has been anything but quiet, with GBPUSD suffering an 8% flash crash only to rally 6% just as quickly. More on this in a moment. Elsewhere the USD rally continues unabated as the market builds to the Non-Farm Payroll (NFP) announcement this evening. A big number will in the eyes of the market, make a Federal Reserve rate hike in December almost a done deal.
Flashbacks to the SNB for sleepy Asia traders just sitting down this morning. Following comments this morning from French PM Francois Hollande demanding “tough” Brexit negotiations, GBPUSD finally managed to break 1.2600 support. What followed next was nothing short of astounding. Clearly, a lot of stop losses lay at this level, and the selling started in earnest straight away. It, unfortunately, occured in the “twilight” zone between the New York close and the start of Asia at a time when liquidity is always at a premium.
GBPUSD quickly dropped in a matter of minutes on algorithmic driven selling for stops in a thin market quickly triggering more stop-loss selling as it dropped in a so-called “perfect storm.” Stories of “fat fingers” I feel are incorrect, rather this is a side effect of the computer-driven trading age. A lot less wholesale market makers combined with a very thin timezone with a lot of people running for the door only to find it wasn’t very big. Depending on who you speak to the low in GBPUSD was anything from 1.1378 to 1.1900. Spot FX trades on a number of fractured venues these days as opposed to central exchanges and this is the side effect of these sorts of moves. I expect Asia trading desks will spend most of the day cleaning up the wreckage.
From whichever low you call it at, GBPUSD just as quickly bounced back to 1.2500 before dropping to 1.24350 before settling as I write at 1.2422 some 2 % down from the New York close. Stripping out all the flash crash noise, the fact remains that GBP has broken 1.2600 and is now 2 % lower. 1.2600 now becomes resistance with support around 1.2340. Reality is biting now regarding the consequences of a hard Brexit, and a much lower GBP will be the easiest way to mollify its effects.
Turning to some other interesting set-ups…
The sell-off continues in Gold promising gold bugs an emotional end to an emotional week. GOLD has broken its last major support at 1260, having closed below the 200 days moving average at this level. There is minor support in the form of a series of daily lows in the 1248/1250 area. A close below this level tonight opens up 1200 on a technical basis although I note as a word of caution the daily RSI is very oversold now.
Looks to be finally cracking under the USD pressure as ECB tapering talk denied by the ECB itself. Resistance at 1.1250 has never been threatened and the EUu has finally had a daily close under the 100 and 200 day moving averages at 1.1167 and 1.1181. There now become resistance. The break of 1.1120 on the chart points to a technical move to the 1.1050 support. EUR’s fate will be decided by this evenings NFP.
The EURUSD move will be more of a slow grind as it gleans support from EURGBP buying. EUR’s fate will be decided by this evenings NFP.
Has smashed through 8860 this morning to consolidate 80 points higher at 8930. Again, stripping out this morning’s noise, the technicals now point to a move towards the 2009 high around 9160.
Yield differentials continue to support USDJPY as a tightening US curve brings sighs of relief in the halls of power in Tokyo. USDJPY has marched higher through the top of the Ichi moko cloud and also the 100-day moving average. Support lies at 103.65 the 100 DMA and 103.28 the top of the Ichi moko cloud. Resistance is at 104.15 and 104.40 previous daily highs.
Again the fate of USDJPY will be tied to tonight’s NFP number. Risks to this up move are a bad miss to the downside in that number forcing a tapering of Fed rate expectations.
Trying to keep some perspective on AUDUSD here. Short term against the USD it most certainly is weaker having broken support at 7385. Not by much, though. In the bigger picture though it is sitting comfortably mid-range in its symmetrical triangle. Support lies at 7535 and then 7510 the 100-DMA and 7490 ascending trend-line.
Like EURUSD, expect more of a slow grind then fast fireworks as the AUD will continue to find support on the crosses. Namely AUDJPY and EURAUD from carry traders. Remembering that Australia is a AAA rated G10 currency with a real yield in a zero percent age.
A revisit of this chart with USDCNH retesting yearly highs. China has been on holiday this week and a much higher USD generally on Monday may see a decisive break of 6.7200 on the cards. The CNY fixing will be closely watched here in Asia on Monday.
The fireworks in GBP aside, the undeniable fact is that GBPUSD is over 2% lower from its New York close, even allowing for the dust to settle. The USD is strong against precious metals, emerging markets and JPY. Less so against currencies that have signigicant cross interest. Tonights Non-Farm Payrolls is the key, with a strong number making a Fed hike a done deal in the eyes of most and most likely leading to more USD strength and higher yields. Things will get messy if it misses badly….