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Another ‘OMG’ Moment: Yen Surges In Incredible Bout Of FX Madness

Add this to your list of dramatic "fragility" events, folks.

Oh boy, things got interesting after the closing bell on Wall Street Wednesday.

Following Apple’s “shock” (and really, I don’t know why you’d be shocked considering the environment and what suppliers tipped back in November) guidance cut, 10-year yields touched fresh 11-month lows in a testament to the cross-asset implications when the market’s bellwether par excellence delivers bad news.

Fast forward an hour (give or take) and USDJPY flash crashed – and “big league”, too. Have a look at this:

USDJPY

That, folks, is a 3.7% move in the space of what looks like seconds and it briefly took USDJPY to its lowest since March 26. What you see in the following chart is an “oh my God” moment:

Yen2

Even more dramatic was the action in AUDJPY which dove an astonishing 7% (!) on the way to touching the lowest levels since May 2009.

AUDJPY

Needless to say, this was exacerbated by non-existent liquidity and a holiday in Japan.

One trader who spoke to Bloomberg suggested a stop run on AUDJPY, which in turn triggered the robots, causing the move to ripple out across markets. “Algos would probably have gotten involved after the initial run, I’d imagine”, Ray Attrill, head of FX strategy at National Australia Bank in Sydney said.

The moves are astonishing across everything from USDTRY to AUDUSD to [fill in the blank]. Pick a pair, any pair. Carry trades unwound all over the place.

Paul is amused:

Expounding on that, here’s some color which suggests that much like some of the shenanigans we saw in and around the lira’s multiple collapses in 2018, it might have started with retail stop outs on TRYJPY.

This comes as the yen was riding a hot streak on the back of the risk-off sentiment that dominated Q4 and the move lower in 10-year Treasury yields probably exacerbated things, but the overarching point is that this was yet another “fragility” event which further underscores how things can go from crazy to bonkers when thin liquidity meets algos at the “wrong” time of day.

When a butterfly flaps its wings – etc. etc., where “etc. etc.” today means liquidity simply wasn’t sufficient to absorb whatever flow there was.

Anyway, the bottom line is this: You can add this to your list of evidence to support the contention that flash crashes are now a fact of life in modern markets.


 

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2 comments on “Another ‘OMG’ Moment: Yen Surges In Incredible Bout Of FX Madness

  1. lol I was short USDJPY tonight and of course missed this move (but woke up to a pleasant surprise nonetheless), should use wide trailing stops to exploit asymmetries like these maybe.. further piling onto the dumb algo heap.

  2. Anonymous

    Some geniuses in Europe have been talking 126.

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