An overnight flash crash has ripped through positions on forex markets. With market sentiment already under pressure, the move came during the handover between US and Asian markets (which can often be something of a “dead zone” for trading) just before 2300GMT , with thin liquidity and huge gaps, exacerbated by a public holiday in Japan. Although the exact reason is as yet unknown (fat finger in illiquid markets?), fuelled by a first profit warning by Apple since 2002, sentiment plunged further and the Japanese yen rocketed higher. Anything of a risk persuasion in the forex majors has been slammed. Majors priced against the dollar fell, but against the yen was where the pain has been felt the most. The fallout is now underway and there is a degree of unwinding that is now taking place this morning. However, it is events such as these which will play further into market fears. The Apple profit warning is also something that flashes red on the warning sign. Lower expected iPhone sales (paints a picture of global demand problems), whilst also citing issue with slower supply lines (suggests the impact of the US/China trade dispute), all adding up to revenue now likely to be 5% to 10% lower. If Apple can be considered a canary in the coalmine, it has just keeled over. Risk appetite has been notably knocked again and 2019 has got off to a decidedly rocky start.
Wall Street rebounded from sharp early losses to close mildly higher, (S&P 500 +0.2% at 2510) however, with Apple’s after hours announcement, futures at -1.5% lower. Asian markets have been hit, (Shanghai Composite -0.3%) whilst European markets are also lower (FTSE futures -0.5%, DAX futures -0.8%). In forex, there is a decided risk aversion of note, with huge yen outperformance, along with positive showing from the Swiss franc, but also interestingly, the euro is holding up relatively well. Under pressure we see sterling, in addition to the commodity currencies, the Aussie and Kiwi. In commodities there is a continued pull higher for gold, whilst the rally on oil seen yesterday has dropped back again.
It is predominantly a day of US data today but the UK Construction PMI will catch the eye for UK traders today at 0930GMT, which is expected to slip a touch back to 52.9 (from 53.4 last month). The US data kicks off with the ADP Employment change at 1315GMT and is expected to tick a shade lower to 178,000 (from 179,000 last month). The US Weekly Jobless Claims are at 1330GMT and are expected to increase slightly to 220,000 (from 216,000 previous). US ISM Manufacturing for December is at 1500GMT is expected to drop back to 57.7 (from 59.3 in November) which would equal the lowest since the April reading of 57.3.
Chart of the Day – AUD/USD
Negative market sentiment remains a key theme through forex majors and although the US dollar has been underperforming of late, the AUD/USD pair has been relatively stable in recent sessions. That is, until yesterday’s decisive downside break below $0.7018 key support and the subsequent flash crash overnight. Let’s start with yesterday’s breakdown. The move took the pair to a new low dating back almost two years and to open the way for a full retracement to the key January 2016 low at $0.6825, a multi-year low. Then the flash crash overnight saw the market fall almost 200 pips in a few minute and gap below $0.6825. An almost instant unwind has played out but the broad negative outlook is now in place and a retest of $0.6825 when markets are trading properly cannot be ruled out now. The move means that the resistance of the $0.7018 breakdown is increasingly important now, whilst any unwinding move back towards $0.7018/$0.7050 overhead supply is now a chance to sell. Momentum is deeply negatively configured but with the MACD lines once more accelerating lower, as the RSI also has downside potential, the break looks very concerning for the Aussie bulls now.