Forex Update: Forex Update: Yen and Dollar Surge as New Year Starts With Flash Crash

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1339 -0.72%
GBP/USD 1.2545 -1.48%
USD/JPY 107.59 -2.08%
AUD/USD 0.6921 -0.93%
GOLD 1,288 0.19%
WTI Crude Oil 45.90 -0.93%
BTC/USD 3,885 1.81%

While financial markets were active all day long, as global markets reopened for 2019, things really got heated following the US market close. Risk-off sentiment dominated in Asian and European trading, then bulls got back in control during the Wall Street session, but following a profit warning by Apple (AAPL), markets broke across the globe.

Risk assets got hit hard again, even as the flash-crash was likely caused by forced liquidations in the illiquid environment. Currency markets saw major dislocations, with the already very strong Japanese Yen and Dollar surging against the risk-on complex. Stocks, bonds, and commodities also followed the risk-off move, but currencies saw the highest relative volatility.

While the assets recovered a large chunk of the losses, the chars remain wounded and the fragility of the market is still apparent, and tomorrow, the US ISM Manufacturing PMI and the ADP Employment Report will pose the first hurdle for the rally attempt that started just before the end of the year.

Technical Analysis

USD/JPY, 4-Hour Chart Analysis

The USD/JPY was headed lower in early trading, dipping below the August low and the 109 level for the first time since June, continuing the trend as we expected. The after-hours flash crash pushed the pair to a 104 handle, before bouncing back towards the 108 level after the spike lower.

With the pair being deeply oversold after two bearish months and the flash crash, new short positions could be risky here, even as we expect the bearish trend to continue due to the likely persistent global bearish shift. Strong resistance levels are now ahead near 108.25, 108.75, and near the 110.50 level, while long-term support if found near 105.50.

Shanghai Composite Index CFD, 4-Hour Chart Analysis

The early negative trend was, in part, triggered by a much worse than expected Chinese manufacturing PMI, which confirmed the recent soft economic releases from the country and pushed the Shanghai Composite towards its recent bear market low. Apple also cited weakness in the country today in its profit warning, and it seems that the global slowdown remains clear.

The index, which has been leading the way lower in the current broad bearish shift, is now very close to starting another leg higher, and with the other lagging markets are also showing weakness, risk assets will likely remain under pressure despite the rally attempts.

EUR/USD, 4-Hour Chart Analysis

The sudden spike in markets had a much smaller impact on the EUR/USD pair, which already had a very active trading day before the after-hours madness. The pair failed near the top of the long-standing trading range, despite the spiking above the key 1.1440 level, and it got close to the 1.13 level too.

While the trading range is intact in the most traded pair, the positive year-end seasonality was only enough for a range-bound consolidation, and the Euro might already be headed for a test of the low near 1.12, even as the short-term picture remains neutral from a technical perspective. With the broader downtrend clearly being intact traders should be looking for short entries on the rally attempts in the pair.

AUD/USD, 4-Hour Chart Analysis

The AUD/USD pair, which has been acting weak from the beginning of December dipped below its October low as expected, even before the flash crash that rattled the Aussie-related pairs too. The pair spiked below the 0.6840 support, before rebounding and settling down near the 0.6930 support/resistance level.

Although we remain bearish on the pair from a broader perspective, a rally up to the previous bear market low could be in the cards in the coming week, especially should investors successfully digest the effects of today’s flash crash.

Key Economic Events Tomorrow

ChartBook

Forex

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

EUR/JPY, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

 

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.