The New Year started off with a bang for Forex Traders as a 9% drop in the after hours price of Apple shares triggered a 400 point drop in the USD/JPY and a 300 point fall in the AUD/USD.
Interestingly, some reports have described the event as a “chained liquidation” stemming from the unwinding of a basket of “carry” currency pairs used to hedge long Apple share positions.
Another report suggested that the “flash crash” was the result of a saturation of sell orders using “applied statistical mechanics” Algorithms, which piled sell orders on top of each other amid the low liquidity period between the NY and Asian time-frames.
At this point the explanation is inconsequential since the chart damage affected several currency pairs and the liquidity flow has stabilised, for now.
Looking ahead, despite the partial shutdown of the US Federal Government, the Bureau of Labor Statistics will announce the December Non-Farm payroll (NFP) report at 8:30 am New York time.
Yesterday’s lead up numbers were mixed but overall point to an improvement from last months jobs report. Weekly jobless claims showed an increase of 231.000 which was slightly higher than the forecasted rise of 220,000. It’s not unusual for the holiday period to distort this series and the print is still below the 3-month rolling average of 235,000.
On the other hand, the ADP private sector jobs survey eclipsed the 178,000 estimate to post an 18-month high of 271,000 for December with the November number revised slightly lower.
On balance, the market consensus is expecting a headline number of 185,000 versus November’s soggy reading of 155,000. Any print over 170,000 would match the 3-month moving average but reflect a slower pace than the 2018 average of 206,000.
As usual, Forex traders will focus on the weekly hourly growth for directional insight. If the wages data prints as expected at .3%, it will be the fourth consecutive month in which annualised wage growth is above 3.5%. These data generally follow a linear pattern with small monthly changes.
With the FED Funds futures now only pricing in a 15% chance of a 25 basis point rate hike in March, we see the wages data as a crucial metric for the near-term policy expectations for the FOMC. In short, if wage growth stalls at current levels, US inflation forecasts will diminish the prospects for further FED rate adjustments in the first half of 2019.
From a USD perspective, we see the wages data posing an asymmetrical risk to the downside. In other words, a lower print in the wages component will have a more negative price impact on the USD than a stronger number will rally the USD higher.
We entered the week short the EUR/USD from 1.1430. Our suggestion to sell the pair at 1.1465 was filled, which lifts our average to 1.1447. We suggest holding short from 1.1447 with an initial target of 1.1215 and a 1.1575 stop.
As mentioned above, the USD/JPY spiked sharply lower and traded to a 9-year low of 104.80. Our trade suggestion to buy at 109.25 was stopped out at 108.40 for an 85 point loss. We suggest remaining on the sidelines into the weekend.
The Aussie dollar has long been referred to as a proxy to the Chinese Yuan; this relationship was reinforced during yesterday’s flash crash early in the Asian session. The actual low trade varies between .6680 and .6744, so we will pick the mid-point of .6715 as high volume point of inflection.
The pair has now recovered to .7035, but we see solid resistance in the .7055 to .7075 range. We entered the week short from .7310 and our initial target of .6930 was hit for a 380 point profit. We suggest scaling back into short positions between .7020 and .7075 with an initial target of .6840 and .7195 stop.
Yesterday’s 250 point drop in the GBP/USD swift but nowhere near the 1100 point crash back in October of 2016 which saw the pair drop from 1.2600 to 1.1500 in just over 25 minutes. Still, our short position from 1.2680 hit the initial target of 1.2530 for a 150 point gain. We suggest staying flat and on the sidelines into the weekend.
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