On Wednesday I highlighted the risks of the JPY rising, most notably versus the AUD and the CAD and within less than 12 hours of me publishing that article the Japanese currency shot through the roof. The USDJPY dropped to below 105 as the AUDJPY shed nearly 9% on the session and in the process fell through the neckline support level I highlighted.
The final catalyst for this appears to be a stark restatement from Apple which came late in the evening after the US closing bell and when added to the earlier news I noted out of China; brewed up a near ‘perfect storm’ for risk in general and the JPY in particular.
So, this JPY move took place at lightening speed in what were thin late night trading conditions. Another example of how a liquidity dearth can throw up an extremely dangerous move in the currency markets. As I will note in a minute, this isn’t the first time that has
happened, and it surely won’t be the last either.
Well, the JPY has since given back much of the gains it made late on Wednesday evening, but if nothing else this was for sure a clear warning on what I have been saying for some time, about complacency in respect of potential currency volatility.
Yesterday there were conflicting data reports from the US on the state of the economy there with a stellar gain in the December ADP private payroll report (up 271k against an expected gain of around 180k) being overshadowed by the December ISM manufacturing index dropping the most since 2008. That ISM data certainly sent a stark warning to the markets ahead of the main US unemployment report due later this afternoon at 1.30pm.
However, the markets are still expecting a decent outcome from that today, but it remains to be seen whether or not that ADP reading will be a true reflection of the overall employment picture. If not, then further alarm bells will ring on expectations for US jobs and the economy in 2019.
Beyond whatever transpires later today with the dollar and outlook for the US economy; the markets are still braced for what might unfold here in the UK with the ‘meaningful vote’ due on or before January 14th. So, given that and the sharp move in the JPY earlier this week I am reminded of an event that took place on 15th January 2015- potentially almost exactly 4 years to the day of the outcome of this ‘meaningful vote’ - when the SNB abandoned the EURCHF peg.
The CHF gained more than 30% in less than an hour on that occasion and whilst that’s no marker for what might happen to the pound this time around, the fact that the outcome of this vote could fall almost exactly on the anniversary of that SNB event is surely something very much to remember and from a personal perspective; a day I will certainly never, ever forget.