What happened?

Equity Markets:

Wall Street started the new year with another session of wild swings but managed to finish the day in positive territory. Investors remain wary of the outlook for global growth which is dampening sentiment for riskier assets. The broad-based weakness in the manufacturing sector was also the trigger behind the fluctuations in the equity markets.

Unlike the US stocks, Asian and European shares were mostly trading in the red over the concerns of slowing global growth. Investors were dropping sectors of the markets that are more exposed to a slowing economy.

Investors are increasing their probability that the Fed will either finish the year with the same interest rate level or below the current level.

Currency Markets

Amid a quiet economic calendar and thin liquidity, the sharp rebound in the US dollar had put rival currencies on the back foot on Wednesday. The US dollar index rebounded fiercely after bottoming to lows seen in October 2018. The below are the main drivers behind the surge in the greenback despite lower yields:

  • US shutdown: The continuation of the shutdown is adding another layer of uncertainty in the markets.
  • Trump-Powell: Trump continues to comments on the Fed’s policies which can be unsettling for investors.
  • US-China trade tensions: The recent positive news is currently being overshadowed by too many uncertainties and lack of details on the trade negotiations.

As of writing, we have seen dramatic movements in the Asian session which might have been caused by Apple news and the thin volumes in the financial markets. The CEO of Apple had blamed the weak revenue forecasts on the slow growth in China. There were a few flash crashes in the FX markets whereby movements above 250 pips were seen. The Antipodeans took a beating and collapsed dramatically in the early Asian session.

  • AUDUSD – dropped to lows seen in 2009 around the 0.673 regions before stabilising above the 2016 low of 0.68 as of writing

  • USDJPY – has dropped below 105.00 which is more than 300 pips movement as investors flew to safety. Japanese Yen picked up the safe-haven bid following the flash crash before paring some of its gains.

We are in a low volume trading environment, and any news may bring larger volatility in the markets than normal. The FX markets were shaken-up this morning but have so far recovered from the flash crash. Risk aversion may likely persist in the Asian session.

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