Yen crosses crushed
Some insane moves in markets are unfolding. The FX space has been a relative island of stability in the market uproar is no fully involved.The commodity yen crosses are all down 5% and fell nearly 8% at the lows in minutes.
Here's a look at AUD/JPY in the short term:
And on the daily chart:
These are shades of what happened last January, only this time the market has something real to panic about.
I warned just over an hour ago that all the elements were in place for a market panic, and here we are.
If we got back to last January and look at AUD/JPY the move was actually small at 7% but certainly in the same neighbourhood. As you can see, it made a complete recovery in 48 hours.
In the hour of panic during that crisis, here is what I wrote:
These are some of the biggest moves you will ever see. I'm sticking my neck out here but this looks like a one-off liquidity event and those tend to retrace
This time, it's a different kind of crash. The market is reacting to a virus that's real, an oil price war that's real and the very real possibility of a global recession. The bond market has been in a panic for a week; not a one-off blowup.
This isn't just a liquidity event. These are the kinds of moves we saw before the financial crisis (NZD/JPY fell 12% in a day before the crisis). It's a straight flight into the yen as carry trades unwind. Tokyo is hitting the panic button here and bringing its money home.
Obviously these things can overshoot in the short-term and central banks can't intervene. These are very dangerous markets and while there is incredible opportunity, it's the time when it's most-important to manage risk.
Don't try to be a hero today. Stay in the game because there are going to be lots of amazing opportunities in the next few months.
The big question is: Why is this happening now. My answer is that the market is looking at the numbers on the virus and the conclusion is obvious: Every day for the next month -- at least -- is going to be worse than the last. The pandemic is coming.
See: