On Monday during the Tokyo session, the Swiss franc (CHF) was aggressively sold. The USD/CHF pair, for instance, touched the 1.0106 level. This was a high that the pair last reached in November last year.
On the other hand, the Euro/Swiss Franc (EUR/CHF) pair touched the 1.1422 mark. Against the Japanese yen, the franc fell to 108.80 while against the sterling pound it touched the 1.3056 level.
The mini flash crash experienced by the Swiss franc was attributed to low liquidity as markets in Japan were closed for the National Foundation Day. According to National Australia Bank’s senior forex strategist, Rodrigo Catril, traders have learned to watch out for such sudden movements. This is especially so whenever there is a bank holiday in Japan, per Bloomberg: “Lack of liquidity is a common factor in these events. Traders and strategists now have Japan holiday calendars printed in big font at their desk!”
Another likely cause of the flash crash was the return of Chinese investors. These investors likely had large orders pending and the situation was made worse by the existence of thin liquidity. This was according to an analysis conducted by forex broker XM:”Remember that Chinese investors returned today after an entire week of being on holiday, and so may have had several older orders pending, while Japanese markets were closed on the day, exacerbating the illiquidity.”
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.
Algorithmic-based trading may also have been to blame where a data entry error may have set off trades. In the stock markets trading bots have also been proven to be fallible.