It is oddly appropriate that in a year everyone
finally admitted markets are manipulated by central banks and broken by
HFT algos, that on the last trading day of 2016, the dollar flash
crashed with for no reason whatsoever.
Shortly after 6:30pm Eastern, the dollar plunged by 150 pips against
the Euro, once 1.05 stops were taken out, with algos sending the EURUSD
as high as 1.07 in a matter of seconds...
... while concurrently the Swiss Franc soared as much as 1.6% against
the greenback, as the USDCHF tumbled from just over 1.025 to just above
1.0050 as the pair briefly flirted with parity.
What caused it? As there was no fundamental news, the answer is the
same catalyst as the pound sterling flash crash: once EURUSD stops were
taken out, algos all piled up on the same side of the trade and with
virtually non existent market depth, it sent the world's most actively
traded currency pair soaring. Indeed, as FX traders in Asia, cited by
Bloomberg said, the EUR/USD jump was partly driven by a surge of
algo-buy orders after pair rose above 1.0500 in early session.
Others agreed: as Shigeki Yoshitoshi, head of Japan FX and
commodities sales at Australia & New Zealand Bank said, it "seems to
be no particular factor driving euro sharply higher in extremely thin
volume" adding that “there wasn’t any particular news. Markets are
extremely thin and perhaps position tuning occurred."
So after the initial freak out where are markets now? Well, according
to Bloomberg, after the Euro was dealt as high as 1.07 on the EBS
platform, though that price level has been dismissed by banks and
clients according to Asia-based FX traders, the pair is slowly returning
to its pre-freakout level. As Bloomberg adds, the post-mortem of the
EURUSD spike already has "traders swapping stories of clients dealing
away and banks shedding tears" especially those who were stopped out by a
few good stop-busting algos.
And while funds were seen buying under 1.0500, when the pair hit 1.0540 one trader says he had to take the loss.
Finally, if any readers missed the move, fear not: with the world's
most actively traded market having become a farcical, flash crashing
joke, it is only a matter of time before the next algo-driven freak out