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Vicious Volatility Dominates FX Trade

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Top Stories

  • Massive volatility rocks capital markets as risk rally fades
  • All eyes on the Fed as markets look for relief
  • Nikkei off -1.68% Europe decimated -3.7%
  • Oil at $78.49/bbl
  • Gold to $1778/oz. fresh high

Overnight Eco

  • AUD Home Loans (JUN) 0>0% vs. 0.7%
  • AUD NAB Business Confidence (JUL) 2 VS. 0
  • JPY Consumer Confidence (JUL) 37.0 vs. 37.6
  • JPY Machine Tool Orders (YoY) (JUL P) 34.6%
  • CHF SECO Consumer Confidence (JUL) -17 vs. -7
  • EUR German Trade Balance (euros) (JUN) 11.5B vs. 12.9B
  • GBP Industrial Production (YoY) (JUN) 0.0% vs. 0.4%
  • GBP Manufacturing Production (YoY) (JUN) -0.4% vs. 0.3%

Event Risk on Tap

  • CAD Housing Starts (JUL) expected at 195K

Price Action

  • USD/JPY back to 77.00
  • AUD/USD very volatile as it rebounds from parity to trade 1.0150
  • GBP/USD rebounds to 1.6400
  • EUR/USD targets 1.4300 as short covering kicks in

An absolutely vicious night of volatility in the FX market as currency trading was completely dominated by risk flows with high beta FX such as the Aussie carving out mutli hundred point ranges in Asian and early European trade. As equities first rose on bargain hunting and short covering flows then crashed again to set new yearly lows currencies followed the rollercoaster ride.

Risk aversion flows dominated in the first half of Asian trade with AUD/USD dropping through the key 1.000 level for the first time since March of this year as stops were triggered in a selling frenzy. The pair however rebounded strongly rising to 1.0250 by the start of European equity open as stock futures rallied to positive territory. The pair then fell once again to test the 1.0100 level before recovering towards 1.0200 as the day progressed.

USD/CHF set fresh record lows crashing the .7400 level before bargain hunters swooped in to drive it back above the figure. The Swissie continues to benefit from the unprecedented uncertainty in the markets as its remain the predominant risk aversion instrument in FX. EUR/CHF broke below the 1.0500 level in tumultuous midmorning trade before bouncing to 1.0600 as selling in equities eased. The pair continues to be a one way trade to the downside and if EZ credit markets deteriorate further it could reach the parity target of uber euro bears much sooner than most traders thought possible.

With economic data an afterthought in today's trade the only key releases of note came from China where the monthly indicators missed their mark. Retail Sales grew at 17.2% rate versus 17.7% eyed while Industrial Production printed at 14% versus 14.7% forecast. The news only helped to accentuate the dour mood of the markets as fears continue to spread that the global economy is entering a period of synchronized slowdown in growth.

As we noted earlier, "With markets on edge, the focus will turn to the FOMC statement later today at 18:15 GMT as traders look for any clues that the Fed may consider additional monetary measures in order to stimulate the US economy. With US fiscal policy completely constrained the Fed remains the only agent of demand in the US economy and although the impact of its various QE programs has been limited at best, Fed authorities may feel that they have no other choice but to act once again as the buyer of last resort. If the FOMC statement suggests that US monetary officials are considering the prospect of QE3, that news should prove positive for risk and could fuel a more sustained recovery in both equities and high beta FX."

FX Upcoming

Currency GMT EST Release Expected Prior
CAD 12:15 8:15 Housing Starts (JUL) 195K

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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