What did we learn this week? – It only took one day for the market to hit the panic button

A short week to start the year but it was packed full of punches

There’s nothing like easing yourself into a new year after a break is there? Shame it didn’t happen eh? The first trading day of 2019 started softly enough, until we hit the phantom zone period between the US close and Asia open. You can take your pick for the cause but Apple downgrading their profits forecasts and blaming China pissed someone off because the next moment TRYJPY took an absolute bath and a whole house of cards came down. TRY pairs got hit, JPY pairs got hit, with AUDJPY in the thick of it. We had a full-on flash crash and we still don’t know where some of the real lows are. USDJPY dropped to somewhere in the 104’s from around the 109’s and that then got everyone thinking about when Kuroda or the Japanese Ministry of Finance would pop their head up above the parapet. Captain Charisma and the rest of the jolly boys were still on a holiday so radio silence ensued. Only today did they get around to rolling out the standard Defcon 5 response of “we’re monitoring FX markets”. By then, everything had settled down and life moved on.

It was a rather strange affair all round as even with JPY crosses falling down open manholes, EURUSD barely moved 50 pips. USDCAD and CHF pretty much shrugged it off too. Only GBP and AUD showed big moves too. Even though it was a flash event, the market had caught the global worries cold and the fallout from Apple hit stocks and sentiment in general. Instead of a New Year starting with positive hopes and dreams, it started like the sun was going to go pop any minute.

On Thursday, things were looking calmer but two data points gave us a clue of how down in the dumps the market was feeling. The ADP report came out just under 100k over expectations and the buck barely moved. Later the ISM manufacturing report missed and dropped bigly vs Nov, and stocks took another bashing. FX saw the dollar weaken somewhat but it was much more restrained.

Friday rolled around and a mundane looking panel appearance scheduled for Fed’s Powell started morphing into the market wanting a full on FOMC statement on the economy. NFP followed up the ADP report with a super 312k print from 177k expected, and a jump in wages. That gave USD buyers another chance to make some hay but once again, the reaction was muted.

So, we then went to Powell in the company of both Yellen and Bernanke. Powell largely brushed off any worries about global growth as he touched on a couple of the data points this week. It all sounded like he threw together some analysis after seeing what went on in markets but he certainly did nothing to stoke further market fears. Quite the opposite in fact, his comments, which would be seen as nothing much at any other time, was like a tonic for the market and risk rallied hard. US stocks have closed with big gains (Dow +747 pts, S&P +84 & Nas +275) and all of a sudden, the world isn’t disappearing up its own butt.

The opening days in a New Year can often be spicy. In 2018 things started calmly for about 2 weeks and then went mental. This year we’ve had plenty of early excitement and it’s only been 3 days. Next week we should be back to full liquidity but we have a whole host of events to keep us entertained. The US and China kick of their meetings to sort trade out, thought late this evening we heard that the big US chiefs are unlikely to take part in Monday’s talks. We have the BOC and perhaps an end to the US government shut down. We’re also ticking closer to the next big Brexit event and we’ll be ramping things up on that front no doubt.

Welcome to 2019 and high volatility. Lock and load and strap yourselves in. Thank you for coming to ForexFlow and have a great weekend.