FX flash-crash, Yen jumps sharply
Global sentiment didn't improve at the start of 2019. Poor Chinese (and EMU) PMI's reinforced investor worries on the global economy. The US dollar lost interest rate support of late as markets priced out further Fed rate hikes. It looked that more EUR/USD gains were possible yesterday morning. The pair came close to 1.15, but a poor start of European equities and a sharp decline of German yields blocked the euro upside. USD/JPY, EUR/JPY and EUR/USD declined in lockstep, with EUR/JPY taking the lead in a classic risk-off move. Sentiment improved temporarily in US dealings, but a (China related) profit warning from Apple after US close, recharged the risk-off trade. EUR/JPY closed at 123.55 (open at 125.87). EUR/USD (close 1.1344) lost more than a big figure. USD/JPY closed at 108.88. In thin markets early in Asian trade (Japanese markets still closed), the post-Apple repositioning triggered a violent run to the yen. EUR/JPY and USD/JPY were temporarily in free-fall. The likes of the Aussie dollar were also hit very hard. The move eased later in Asian trading, but yen gains remain impressive (USD/JPY trades currently below 107, EUR/JPY is trading in the mid 121 area). Contrary to yesterday's losses, EUR/USD reacted rather calmly in Asia (currently 1.1360 area). FX traders will closely monitor European markets (Asian equities are holding up relatively well, but US equity futures show heavy losses). The jury is still out, but this price action suggests a repositioning out of US assets/equities as the impact from the trade war is also weighing on (parts of) the US economy. In this context, markets will eagerly look out for the first 2019 US data with the ADP labour report and the manufacturing ISM. Especially the latter might be important as investors try to make up their mind on the health of the US economy. A weak ISM will probably weigh on USD/JPY. The reaction in Asia suggests that US equities and maybe the dollar, are vulnerable, despite yesterday's EUR/USD decline. EUR/USD is holding in the established 1.12/1.15 trading range. Even in case of a further risk-off repositioning, the 1.1265/70 area might provide first important support.
EUR/GBP hovered mostly in the low 0.90 area yesterday. The UK manufacturing PMI unexpectedly improved, but didn't help sterling as the rebound was mostly driven by stock-building ahead of Brexit. This morning, the temporary sell-off of risky currencies also hit sterling. EUR/GBP trades currently in the mid 0.90 area. Today's UK construction PMI is probably of second tier importance. The combination of global market stress and uncertainty on brexit remains sterling negative.
Author
KBC Market Research Desk
KBC Bank
KBC's Market Research Desk publishes a number of short-term reports.
