Forex Update: Markets in Turmoil in the Aftermath of Flash Crash

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1403 0.53%
GBP/USD 1.2640 0.29%
USD/JPY 107.77 -1.02%
AUD/USD 0.7006 0.31%
GOLD 1,293 0.54%
WTI Crude Oil 46.66 0.73%
BTC/USD 3,770 -2.98%

The second trading day of the year was deeply influenced by yesterday’s wild after-hours moves. The forced liquidations which were triggered by Apple’s (AAPL) profit warning caused turmoil across asset classes, and interestingly, some of the major forex pairs (Yen, Australian Dollar, and US Dollar related) saw the biggest moves.

Safe-haven assets continued to show inflows today, with gold and US Treasuries rallying in the volatile environment. US yields hit their lowest levels in months across the yield curve, with the much worse-than-expected ISM manufacturing PMI sparking renewed global growth fears.

On the other hand, the ADP employment report was a positive surprise, but that wasn’t enough to halt safe-haven flows, with stock markets hovering just above their recent lows globally.

Technical Analysis

USD/JPY, 4-Hour Chart Analysis

The USD/JPY was in the epicenter of yesterday’s move, and with the Japanese markets still being closed today, the lack of liquidity exaggerated the moves in the yen-related pairs. The USD/JPY pair is still stuck below the 108 level and well below its pre-crash levels, after testing the March low just below 105 overnight.

The long-term downtrend is intact in the pair but a test of the 109 level is likely in the coming week, but given the fragility of the market and the global risk-off shift, traders should be only looking for entry points on the short side here. 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.

EUR/GBP, 4-Hour Chart Analysis

The EUR/GBP pair had a very volatile couple of sessions, spiking both below and above its recent trading range, before settling down just above the 0.90 level. The broader uptrend is still intact and odds continue to favor a move towards the 2017 high near 0.9350, even though the uncertainty regarding the Brexit process is still a big risk factor for all Pound-related assets.

Support levels are now found near 0.90, 0.8970, an 0.8920, while resistance is ahead just above 0.9050.

S&P 500 Futures, 4-Hour Chart Analysis

US stocks are struggling to establish even a short-term uptrend in the face of the global bearish shift, and that’s a negative sign for all risk assets. The Dollar fell together with stocks for the better part of the day, and especially after the huge negative surprise in the manufacturing PMI.

Although the bounce that started just before the end of the year might still continue, new lows are very likely in the coming months. Traders should treat every rally as a selling opportunity in equities, with the global slowdown now affecting the, so far, resilient US economy.

Copper Futures, 4-Hour Chart Analysis

Copper, one of the most growth-sensitive commodities also continues to confirm the risk-off shift, moving below a long-standing trading range in recent days, testing its August low today in early trading. Odds now favor a move below the $2.50 level, with the economic weakness in China boosting the chances of a breakdown, together with today’s dismal US data.

An unlikely recovery to the range would be a bullish sign, but for now, traders should be looking for the continuation of the broader downtrend, with a long-term target of $2.30.

Key Economic Events Tomorrow

ChartBook

Forex

EUR/USD, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

AUD/USD, 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

Major Stock Indices

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

 

Featured image from Shutterstock

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.

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