By Admiral Markets

The sudden move on GBP was way below our initial short target as 1.2796 which was hit days ago. Low liquidity between New York and Tokyo session greatly amplified the move. Have in mind that even the small amount of selling during low liquidity might make the move sharp. No one knows exactly what happened. Someone says it is due to French President Hollande comments about Brexit, others are suggesting algos and so called “fat finger”. Fat finger happens when you place an error on trade size, or trade direction and it usually results in a loss. It happens usually during late night trading. Banks make that mistake often. If it is the trading function where they manage client and bank positions it can result in bank losses. Banks have Market Functions which are split into Sales Team and Trading Team. Sales execute the client orders. Trading execute the bank risk positions relative to the Sales client orders. Then Market Risk function oversees the Trading Team to make sure bank positions are not too exposed.

In my opinion, what happened is a “fat finger” during low liquidity period. It could have been an organized move by multiple banks and funds or just a mistake. It was a flash crash, a sudden move that was highly amplified by thin liquidity. Technically all stops below 1.2600 were triggered. I don’t think it is algos as algos usually move the price slower if they are setup in the right direction.Our technical chart shows monthly camarilla pivots and we can see a huge stop grabber extending to 1.1900 low. Bloomberg cited 1.1841 while EBS shows 1.1821. Banks like round numbers. If we dont see a move above L3 monthly confluence with EMA89 1.2850 we could see 1.1500. First POC zone comes within 1.2475-1.2500. We can see a Doji candle exactly at support and I think it could go lower from here. The price is 1.2385 and it might drop further to 1.2300 and 1.2200. In the absence of historical levels, we should use round numbers. As 1.1900 was the low, if the price proceeds below 1.1900 we could see 1.1500, that is very important level for banks too.

1.2830-50 is also a very important zone for the pair, as above it the pound will be in a bullish correction mode. traders should watch for possible selling off 1.2400 zone towards round numbers 1.2300. 1.2200 all the way down to 1.1900. If 1.1900 breaks ,1.1500 should be mid term target.

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Article by Admiral Markets

Source: Exclusive coverage: GBP/USD flash crash before Tokyo open

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