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justatrader
May 19, 2014 6:08 AM

Black swan events: How currencies react - Yen Education

U.S. Dollar/Japanese YenFXCM

Description

Apologies for the ominous chart title on a Monday morning, but having spent the weekend watching a few documentaries about the Japan earthquake, I was intrigued on how the currency markets react to black swan events.

The Story (Japan Earthquake - Yen)
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The Tohoku earthquake hits Japan on 11th March. What we see is a sell off in USDJPY... In other words, people were selling USD to buy the Yen. Goes to show how strongly the markets believe in the Yen as a safe haven even if crisis comes to Japan.

After a sharp drop, G7 central banks intervene in the markets to offer support. So they start buying USD and selling Yen, which forms an interim rally.

On 04/07 BoJ announces a stimulus package, which triggers another sell off in the markets. Few days later, Fukushima nuclear alert is given which sparks a continuation of the sell off.

This time it breaks the CB's support as well.

I could go on but follow the notes on the chart backed up by the news sources that explains the currency moves.

PS: For all those ECB QE addicts, I stumbled upon a very nice article which is worth reading and could possibly shed light on how European QE could work:

Source: yhoo.it/1nXW7t7

PPS: The chart is incomplete... There's just too much happening when it comes to the Yen.
Comments
Shadowbrokerltd
many thanks, If you can update the chart with more events this will be great. I find this historical data really helpful
justatrader
Yep.. Working on NZDUSD.
alex.a
The Earthquake, YEN gets stronger... UJ goes down.
HappyKing
Very Interesting article, thank you for sharing
wael
Japan’s Nishimura wants to cut effective corporation tax rate from FY2015/16 to bring it below 30% as soon as possible; Reuters reporting the vice econ min comments a few moments ago says economy in line with expectations; govt and BOJ ready to respond appropriately to risks; hopes exports will pick up but overseas risks continue to centre on emerging markets; gains in base wages and bonuses to offset sales tax hike impact and support consumption/broader economy ahead; says the gap between US and Japan in trade talks is narrowing, aiming to reach broader TPP agreement early; USDJPY still 101.32 off its 101.25 lows.
forexfactory.com/news.php?do=news&id=485186
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