A Perfect Currency Storm: Black Monday Rattles FM Markets


It might only be Monday, but it’s already been a busy day on the foreign excha e (forex) markets, with some dubbi the day as “Black Monday” as a slew of market events have sent currenciFM surgi and plummeti .

Coronavirus, US Treasury yields, and oil pricFM all contribut to today’s events with commodity-link currenciFM, such as the Australian dolla (AUD), New Zealand dolla (NZD), and the Canadian dolla (CAD) all posti sharp declinFM in the early morni hours.

AUD/USDSource: Tradi View

It wasn’t only commodity currenciFM that felt the prFMsure on Black Monday, with the Unit StatFM dolla (USD) also sufferi throughout the day. Taki a look at the Euro against the USD – the world’s most trad currency pair, it soar to its highFMt level since April of 2017, with the EUR surgi by more than 1 percent.

EUR/USD tradi viewSource: Tradi View

Dollar-yen one-month impli volatility climb to an 11-yea high at 8.8 percent, as the dolla slid to its weakFMt since 2016. All of thFMe swi s follow on from a rathe lackluste 2019 when low market volatility weigh heavily on the forex markets.

NOK and CAD were Black Monday losers

Charalam s Pissouros of JFD BankCharalam s Pissouros,  Senio Market Analyst at JFD Group
Source: Link In

Speaki to Finance MagnatFM on the movements, Charalam s Pissouros, Senio Market Analyst at JFD Group, said: “Amo the G10 currenciFM, oil-relat NOK and CAD were found to be the main losers, follow by the risk-link Aussie and Kiwi. The main gainers were the safe-havens JPY and CHF, follow by the Euro, which seems to be benefiti from speculation that the ECB will cut interFMt ratFM by lFMs than othe majo central banks.

“It also seems that the common currency was us as a vehicle in carry tradFM, and thus, now invFMtors are unwindi such tradFM, it gets benefit . In othe words, it wore its safe haven suit. Amo the EM currenciFM, the currency that felt the heat the most was of course In regard tole.”

“With regards to the coronavirus sequel, although infect casFM slow somewhat on Sunday, deaths accelerat sharply, while the Itallock downrnment order a lockdown of large parts of the north of the country, includi Milan. The market reaction suggFMts that invFMtors are uncan b that the virus can been contain soon, somethi that heighten furthe recFMsion fears.”

A perfect FX storm

“Financial markets have suffer a rude awakeni to notions that volatility was a thi of the past. We’re now seei the kind of market dislocation not witnFMs since the 2008-09 global financial crisis, ” ING analysts said this Monday.

The article, written by Chris Turner, Global Head of Markets and Regional Head of RFMearch fo UK & CEE, dFMcrib the set-up as a “perfect storm” fo currency markets. “This all conspirFM to delive an extreme flight to safety, into the likFM of the JPY and the CHF.”

What doFM all of this mean fo brokers?

Large swi s in the price of majo currenciFM can be problematic fo brokers and traders alike. Back in June of 2016, followi the big Brexit vote, many brokers struggl to meet thei customers’ demand as there was a squeeze on liquidity.

Flash crash events can cause financial harm to forex brokers. Historically, thFMe typFM of situations have l to clients receivi margin calls and havi positions clos out at a negative balance.

Furthermore, large cha FM in majo currenciFM can cause hundr s of millions in lossFM, as was the case when the Swiss National Bank loosen its grip of the Swiss franc (CHF) back in 2015 and remov its peg against the Euro.

Looki at past events

Let’s take a look at the damage that the flash crash on the first tradi day of 2019 did to JapanFMe brokers. On the 3rd of January 2019, there was a JPY flash crash, which sent the JPY, alo with othe currenciFM plummeti .

As Finance MagnatFM analyz , followi this event, just like afte the SNB, many brokers couldn’t chase thei clients fo the lossFM on thei oks. Therefore, the January flash crash ultimately affect the companiFM too.

The magnitude of the event was not as pronounc as the Swiss franc spike in January 2015. NeverthelFMs, the total lossFM suffer by JapanFMe STP brokers on the first tradi day in Tokyo of 2019 total to a ut $8.6 million.

Speaki to Finance MagnatFM on today’s tradi activity,  Christos Yerasimou, Directo of Tradi at Skilli , a European broker, explain :  “Othe than the US indicFM global tradi halt, we have not experienc any othe issuFM. On the contrary, ou prici and execution e ine is rFMpondi to the market events pretty well.”

When ask whethe the broke had seen a cha e in tradi activity,  Yerasimou rFMpond with: “We have seen a surge in commoditiFM tradi , mainly Gold and Oil. This heavy increase was also probably support by the fact that US indicFM tradi was halt globally dEUR USDthe breach of thei circuit breake levels.

“I would say EURUSD was the most trad pai today; but, as I mention before, the clients’ interFMt is primarily focusi on the commoditiFM and non-US indicFM today.”

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