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AUD/USD and NZD/USD Fundamental Daily Forecast – After “Flash Crash” Focus Shifts to U.S. Manufacturing Data

James Hyerczyk
The AUD/USD and NZD/USD have retraced the earlier sell-off and are in a position to turn higher for the session. It may take days to figure out what happened in the market. We may even see prices change. In the meantime, the move is being blamed on aggressive shorting and sell stops that were triggered when key support levels were taken out. In other words, the selling was technically related since there were no major changes in the fundamentals.

The Australian and New Zealand Dollars were hit by a “Flash Crash” earlier in the session with the Aussie feeling the brunt of the selling pressure. According to Reuters, the Australian Dollar suffered some of the largest intra-day losses in its history amid a “drought of liquidity and a cascade of computerized sales.”

The daily chart shows that a one point the Australian Dollar was down 5 percent against the Japanese Yen and almost 4 percent versus the U.S. Dollar, before clawing back much of the losses as trading conditions calmed and humans intervened to stabilize the markets.

At 0909 GMT, the AUD/USD is trading .6963, down 0.0023 or -0.32% and the NZD/USD is at .6647, down .0005 or -0.08%.

According to Ray Attrill, head of FX strategy at National Australia Bank (NAB), “Violent moves in the AUD and JPY this morning bear all the hallmarks of a ‘flash crash’ similar to that which befell the NZD in August 2015 and GBP in October 2016.”

Attrill went on to say, “The fact that over half the move down in both these pairs has since been retraced is testimony to today’s moves being first and foremost a liquidity event.”

Forecast

The AUD/USD and NZD/USD have retraced the earlier sell-off and are in a position to turn higher for the session. It may take days to figure out what happened in the market. We may even see prices change. In the meantime, the move is being blamed on aggressive shorting and sell stops that were triggered when key support levels were taken out. In other words, the selling was technically related since there were no major changes in the fundamentals.

The fundamentals remain the same. Investors are concerned over the slowing global economy, the lingering trade dispute between the United States and China, and heightened stock market volatility. The U.S. stock market is trading sharply lower because of lower guidance from Apple. This event may set the tone for the day.

Traders will be busy on Thursday with the U.S. releasing a slew of economic data.

At 1230 GMT, traders will get the opportunity to react to the Challenger Job Cuts report.

At 1315 GMT, look for a reaction to the ADP Non-Farm Employment Change report. It is expected to show the private sector of the economy added 179K jobs in December.

At 1330 GMT, Weekly Jobless Claims are expected to climb a little to 220K, up from 216K.

At 1500 GMT, the major ISM Manufacturing PMI is expected to drop to 57.7 from 59.3. This report could move the markets. Keep an eye on it. Stocks could plunge as well as the USD/JPY if this number comes in below the forecast. ISM Manufacturing Prices are expected to come in at 57.9, slightly below the 60.7 estimate.

Investors are on heightened alert so be prepared for a volatile two-sided trade.

This article was originally posted on FX Empire

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