Currency markets suffered a major “flash crash” after Apple issued an earnings warning. What’s next?
Here is their view, courtesy of eFXdata:
EUR/USD: Neutral (since 21 Aug 18, 1.1485): Scope for EUR to crack the major 1.1265 level.
We highlighted yesterday EUR “may struggle to maintain a toehold above 1.1500” but the sharp and rapid drop from a high of 1.1497 came as a surprise. The sudden turnaround has shifted the pressure quickly to the downside. From here, we see scope for EUR to crack the major 1.1265 level (this level was tested in late-Nov and mid-Dec but held both times). For now, the odds for a break of the solid 1.1200 support seem unlikely (note that the 2018 low is at 1.1213). Only a move above 1.1430 (‘key resistance’) would indicate that the downward pressure has eased
GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): GBP could test the major 1.2400 support first.
Our view that the “recovery phase in GBP has scope to strengthen to 1.2850” (see update from yesterday, 02 Jan, spot at 1.2745) was proven wrong quickly as GBP sliced through the 1.2660 ‘key support’ after NY close and crashed to a low of 1.2409. Despite the subsequent sharp swing higher from the low, the underlying tone has weakened considerably. From here, we see chance for GBP to test the major 1.2400 first below the current weakness may stabilize. At this stage, the prospect for a sustained break below 1.2400 is not high. On the upside, only a move above 1.2680 would suggest the current weak phase has stabilized.
AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): AUD could continue to trade in a choppy manner within a broad range.
AUD suffered a ‘flash crash’ after NY close (close of 0.6985) as it nose-dived to a 10-year low of 0.6715 before staging an equally remarkable bounce to the current level of 0.6915. The price action after a ‘flash crash’ could be extremely erratic as market participants adjust to the elevated volatility. For now, the probability for a sustained decline below 0.6715 is not high but on the other hand, any recovery is expected to face solid resistance at yesterday’s top near 0.7055. In other words, AUD could continue to trade in a choppy manner between 0.6715 and 0.7055 for the next couple of weeks.
NZD/USD: Neutral (since 07 Dec 18, 0.6880): Room for NZD to test 0.6550.
While NZD dropped after NY close (close of 0.6654), the magnitude of the decline was much than its ‘antipodean cousin’. However, downward momentum has picked up and from here, we see room for NZD to test the 0.6550 level. Further weakness below this level is not ruled out but at this stage, a drop to the next support at 0.6500 seems unlikely. All in, we expect NZD to stay under pressure until it can reclaim 0.6720.
USD/JPY: Neutral (since 09 Oct 18, 113.10): USD could continue to trade in a volatile manner.
While we highlighted yesterday “USD is still under pressure and could test 109.00”, the ease of which it took out this level (overnight low of 108.70) and the subsequent ‘flash crash’ after NY close came as a big surprise. The price action after a flash crash is expected to remain volatile and the support and resistance levels are far apart. We expect it could take a while before the current volatility would settle down. In the meanwhile, a 104.50/109.50 range should be enough to contain the price action in USD.
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