This column comes with a warning as I am getting increasingly grumpy with attitudes to FX market price action. You clearly can’t please everyone, but how can someone complain – as they did to me this week – that what we have seen in sterling this week was “the wrong kind of volatility”? Luckily I have this column to let off steam so let’s do that – with a take down of the model that has turned FX traders into glorified brokers.
I know I have floated ideas around this issue before, but do we need to do more about that hour after the New York close than just talk about it? Flash events are starting to occur a little too frequently in FX markets for some peoples’ liking, so what can we do about it? Actually I think we can do quite a lot – or at least it would be a lot if all the noise around data capabilities isn’t just that – noise.
A new Staff Working Paper published by the Bank of England supports the assertion made in the original investigation by the Bank for International Settlements’ (BIS) that the October 2016 sterling flash crash may have been exacerbated by the temporary suspension of trading on CME’s sterling FX futures.
The report also uses a new methodology to measure liquidity during the event and while it concludes that the market behaved as expected during the first few seconds, thereafter the speed of the move, “goes beyond that consistent with our estimates of the likely impact on prices given the quantity of orders to sell sterling”.
The notoriety of me busting a Saturday Night Fever move on stage at Profit & Loss Stockholm last week is growing, therefore I will subtly(!) shift the direction of the conversation – but retain its musicality – by noting that I don’t remember “Ebeneezer Goode” by The Shamen being a number one single in the UK. Equally I don’t think I have ever listened to “Tubular Bells II” by Mike Oldfield. I was, however, very busy the week both hit the top of the charts.
A new research report from Deutsche Bank highlights a change in the perception of sterling across the three major FX market time zones following last year’s vote to leave the European Union. The article, How Brexit changed how sterling is traded across the world is written by Deutsche Bank analysts Oliver Harvey and Rohini Grover, and it uses intra-day seasonality as the basis for its study. Previous work by the authors had found “strong evidence” of investment biases in the different time zones.
Closer scrutiny of the data associated with the sterling flash crash reveals some surprising results, argues Paul Aston, CEO of Tixall Global Advisors.
Speaking after delivering a presentation at Profit & Loss’ Forex Network New York conference, Aston explains that his firm replicated the environment of the FX market during the sterling flash crash on a simulator.
“In the course of doing that you have to get very close to the data, analyse every tick, and what we discovered was it really wasn’t the headline grabbing price movement that we saw in the flash crash, where you’re printing all the way down to 1.13 handles, it was right before that which was the most surprising bit of data,” he says.
The value of sterling slid today as Bank of England (BoE) Governor, Mark Carney, indicated that there would be no immediate adjustment of monetary policy by the central bank.
In a speech delivered at Mansion House in London, Carney declared that “now is not yet the time to begin” monetary adjustment, ruling out the possibility of an interest rate hike.
GBP/USD promptly dropped from 1.2753 at 8am BST to 1.2631 just before 3pm BST in response to Carney’s comments. “Since the prospect of Brexit emerged, financial markets, notably sterling, have marked down the UK’s economic prospects.
CLS and Thomson Reuters (TR) have released data charting the spike in GBP trading following the UK’s recent general election.The exit poll at 22:00 produced a surprise outcome with the Conservative party expected to win just 314 seats, far less
The exit poll at 22:00 produced a surprise outcome with the Conservative party expected to win just 314 seats, far less than previous polls and 12 seats short of an overall majority.
The data from CLS shows that this resulted in an elevated trading activity in GBP/USD at 22:00. As results were being announced during the night, the unexpected exit poll was becoming more credible and GBP/USD volumes remained much higher than the 2016 average.
After an initial 1.7% drop when the exit poll was released in the UK predicting a surprise hung parliament after the UK general election, FX markets have stabilised with Cable ranging around 1.2750 and EUR/GBP around 0.8780.
Market sources say volumes have dropped from the earlier high levels as uncertainty over the outcome reigned, however the market appears to have come to terms with a minority government. BBC predicts the Conservatives will win 318 seats, with Labour in second place on 262 and analysts at the broadcaster say there is “no way” that a hung parliament can be avoided.
Sterling has dropped sharply in early Asian trading as exit polls from the UK election indicates the ruling Conservative government will win the most seats but will fall short of a majority.
An exit poll for BBC News, ITN News and Sky News indicates the Conservatives wining 314 seats, Labour 266, Scottish National Party 34, Liberal Democrats 14 and local parties (including the Greens) winning 22.
Cable has fallen from 1.2950 to 1.2710, EUR/GBP rose strongly to 0.8820 from 0.8657 and GBP/JPY fell from 142.50 to 139.75. Cable has bounced to 1.2760 and EUR/GBP is back below 0.8800,