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Swiss Franc Slumps in Mini ‘Flash Crash’ as Japan Curse Strikes

Michael G. Wilson and Ruth Carson
Swiss Franc Slumps in Mini ‘Flash Crash’ as Japan Curse Strikes

(Bloomberg) -- The Swiss franc swooned almost 1 percent at the start of Asian trade Monday as thin liquidity caused by a Japan holiday led to a mini recurrence of the “flash crash” that roiled FX markets early last month.

The Swissie slid from 1.0004 per dollar around 7 a.m. in Tokyo to as weak as 1.0096, the lowest since November, within a matter of minutes before almost as suddenly reversing the move to trade 0.2% stronger on the day. The round trip created a trading range for Monday of almost 110 pips, about double this year’s daily average of 56.

The move was a smaller cousin of the whiplash that saw the yen jump almost 8 percent against the Australian dollar early on Jan. 3, when Japanese markets were nearing the end of a week-long New Year holiday break. A spokesman at the Swiss National Bank declined to comment on the franc’s drop on Monday.

“Lack of liquidity is a common factor in these events,” said Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Traders and strategists now have Japan holiday calendars printed in a big font at their desk!"

Catril said the move may have been initially triggered by a data entry error that set off a cascade of computer trades based on pre-entered algorithms.

One client who had a short position on USD/CHF had earlier entered instructions to buy back the currency pair if it rose and the transaction was triggered at 1.0070, according to a sales trader who asked not to be identified. When the trader called the client to inform them the level had already dropped back to 1.0020.

“It’s like a mini flash crash,” said Eleanor Creagh, a strategist at Saxo Capital Markets in Sydney. “It’s a combination of low liquidity and Japan on public holiday that’s driven the move.”

The Swissie’s drop, while less extreme, adds to a number of high-profile crashes in recent years. In January 2016, South Africa’s rand tumbled as much as 9 percent in minutes, while the pound plummeted more than 6 percent in a few frenzied minutes in October that year.

The Aussie’s crash against the yen this January prompted the Reserve Bank of Australia to issue a report last week, noting that flash crashes tend to occur amid thin trading volumes between the close of U.S. markets and the opening of the Tokyo session.

“While the flash event of 3 January did not lead to wider disruption, it adds to a growing list of extremely sharp moves in foreign exchange (and other asset) markets,” the RBA said. “These events are likely to owe in part to key changes in the structure of markets more broadly over the past decade; for example, the make-up and behaviour of principals, intermediating agents and trading platforms.”

To contact the reporters on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net;Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds, Liau Y-Sing

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