Forex market volatile to begin 2016; Yen soars, equity markets down big

Well, 2016 has started off with a bang. a piece by Patrick Graham of Reuters got some inside quotes from brokers in the trenches as China’s yuan currency hit its lowest in more than 4 years in both onshore and offshore Renminbi. The culprit of the volatility? Downbeat Chinese economic data. China’s benchmark Shanghai Composite shed 6.9%, while the Shenzhen Composite lost more than 8%. China’s trading was halted and was China’s first-ever use of circuit breakers — a kind of emergency brake, implemented in December of 2015 after the Chinese market saw extreme sell-offs in the last year. The basics of the breaker sees that if the index moves by 5% after 2:45 p.m., or if the index rises or falls by 7%, trading will be suspended until 3 p.m., or daily trading close time.

Mr. Graham of Reuters got the following quotes:

“All about China really,” said the head of foreign exchange at one large London brokerage, asking not to be named.

“Volumes are still not that high but it has been a very interesting start this morning. The weakening of the yuan is getting a lot of attention.”

The Swiss franc and Japanese yen both soared in Asia and Europe trading hours on the “risk-off” environment (see USD/JPY chart below), so did anyone see this coming?

Yen strengthening around 1% heading into American trading hours...Picking up where it left off 2015.

Yen strengthening around 1% heading into American trading hours Monday…Picking up where it left off 2015. Courtesy: BarChart

According to Reuters, Citi…the world’s biggest Forex bank had recommended selling the yen overnight with a two-week time-frame before swiftly recommending clients take profit thanks to the scale of the strengthening against the dollar. January looks to be another month of decent volatility, after we reported early December 2015 numbers, where volumes were very strong before the holiday lull, it looks like January could carry December’s pre-holiday momentum into some very busy months for brokers and exchanges to begin 2016, let’s hope we don’t have to see any more circuit breakers kick into gear again though!

Stay tuned to LeapRate as Forex broker and FX exchange instrument volumes begin to report for January…

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