Forex Volatility Spikes: AUD Reverses from 3-Year Highs, JPY Bids on Risk Aversion

The foreign exchange markets experienced a significant uptick in volatility on Thursday, driven by a toxic mix of sliding equity markets, erratic commodity prices, and shifting central bank expectations.

AUD/USD: The Bull Trap

The Australian Dollar (AUD) provided the day's most dramatic technical action. The pair initially surged to a fresh three-year high, buoyed by expectations that the Reserve Bank of Australia (RBA) may be forced to hike rates in February to combat sticky services inflation.

However, the rally was violently rejected as broad market sentiment soured. The breakdown in copper prices and the tech-led rout on Wall Street dragged the risk-sensitive currency back toward its daily lows, trapping late bulls.

Safety Plays: JPY and CHF

As capital fled risk assets, safe havens outperformed. The Japanese Yen (JPY) strengthened, dragging USD/JPY down 0.33% toward the 152.70 region.

The move highlights the market's jittery nature regarding US equity valuations; as US stocks sold off, money rotated back into the Yen and the Swiss Franc (USD/CHF down 0.40%).

Meanwhile, the Euro (EUR) remained effectively flat against the Dollar. Despite trading near four-year highs earlier in the week, upside momentum has stalled as European Central Bank officials begin to voice concerns regarding the currency's strength.

Market Snapshot

• AUD: Rejected from three-year highs amid RBA hike bets.
• USD/JPY: Dropped 0.33% to 152.70.
• USD/CHF: Down 0.40% on safety flows.

Technicals

• Support: USD/JPY testing 152.70 region.
• Resistance: AUD capped at structural three-year high.