Intraday Market Thoughts

Yen Surge Like a Tremor Before the Quake?

by Adam Button
Aug 6, 2014 23:19

Markets rarely make big moves without a few warnings in the weeks before so although the flash yen rally on Wednesday was unexplained, it could foreshadow the future. In the immediate future, however, the focus will shift to the Australian employment report.  In our Premium trades today,  we issued a new trade in NZDJPY with 2 charts following the crucial NZ developments overnight and today's shakeout in JPY crosses. Meanwhile, our short EURUSD hit its final target of 1.3340 from Jul 25 entry and our existing EURJPY shorts are netting +90 pips and 110 pips in the green. See trade & charts in the latest Premium Insights.

Near midday in US trading a wave of US dollar selling and JPY buying crashed over the market, sparking 20-50 pip moves in seconds. The moves came on no news and remain somewhat of a mystery but they do offer some clue on what's coming next.

Rumors of some kind of fat finger followed the spike and about 50K USD/JPY futures contracts traded in moments around the move, which is 5-10x the hourly average. But a fat finger would likely retrace and most of the moves held and some even extended.

That shows the bias toward buying US dollar dips might not be as strong as the overwhelming consensus toward dollar longs. The quick yen buying could also be symptomatic of a market that's growing more risk averse.

The main event in the hours ahead is the Australian employment report for July at 0130 GMT. The Australian dollar rallied a half-cent in the flash US dollar crash in one of the largest moves. It's likely that fast money was crowded into low-conviction short positions and was squeezed in the rally to 0.9374.

Despite the rebound, AUD/USD is still in a delicate position and ultimately fundamentals will win out. The economy is expected to create 13.2K jobs but a soft number would re-plant the idea of rate cuts in the market and give the shorts a fresh reason to sell.

Act Exp Prev GMT
Employment Change s.a. (JUL)
12,000 15,900 Aug 07 1:30
Fulltime employment (JUL)
-3,800 Aug 07 1:30
Part-time employment (JUL)
19,700 Aug 07 1:30
Unemployment Rate s.a. (JUL)
6% 6% Aug 07 1:30

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