Nanex Research

Nanex ~ 18-Mar-2015 ~ U.S. Dollar Flash Crash

On March 18, 2015 between 4:02 and 4:09 PM Eastern Daylight Time, the U.S. Dollar flash crashed, losing over 3% of its value in just under 4 minutes, then gaining most of it back over the next 3 minutes. This event occurred 4 minutes after the regular session of stock market trading closed on the NYSE and Nasdaq at 4 PM (16:00). Two hours earlier, at 2 PM, was the widely anticipated and watched Federal Open Market Committee (FOMC) event. A quarter of a second after the initial 2 PM announcement, the U.S. stock market exploded higher. At the same time, the U.S. Dollar moved sharply lower, setting up conditions for the flash crash 2 hours later.

Pam Martens has posted a well written article with more information on this event.

The following charts detail this event.

1. Dow Jones Industrial Average (green, symbol DJIA) vs U.S. Dollar (red, ICE futures, symbol DX).
Price changes are measured from 14:00 (2PM). At the 16:00 (4PM) market close, the DJIA gained 1.8% while the Dollar lost approximately the same amount. Four minutes later, the Dollar Flash Crashed, dropping as low as 4.6% measured from 14:00.

2. Price changes in active currency futures since 2 AM on March 18, 2015.
FOMC began at 14:00, U.S. Stock Market closed its regular trading session at 16:00. Dollar Flash Crashed at 16:04.

3. Price changes in the Euro Fx Futures contract from midnight for every trading day since 2009.
March 18, 2015 is shown by the thick black line. By 16:00 (4 PM), the price change was about 2% higher, a rare event, which would cause many automatic trading machines to back away from the market. 

4. Liquidity in Euro Fx Futures for every trading day of 2015.
March 18, 2015 is the thick black line. The sharp drop at 14:00 was expected and this pattern occurs before major news events (FOMC in this case). However, liquidity usually recovers quickly following news dissemination. In this event, the Fed scheduled numerous follow up conferences, which prevented liquidity from recovering. 

5. Short term price volatility: price changes 5 minutes apart.
The Dollar Flash Crash caused the widest price swing in CME Euro Fx Futures over the past 4 years.

6. Price changes in Cross Currency Rates (currency pairs) since 5 AM.
This chart puts the magnitude of the Dollar Flash Crash in perspective.

7. Price changes in U.S. Dollar Cross Rates in major currencies since 14:00.
FOMC began at 14:00, U.S. Stock Market closed its regular trading session at 16:00. Dollar Flash Crashed at 16:04.

8. Depth of book for CME Euro Fx futures (6E).
Close inspection revealed an artificial barrier when prices reached 0.0400 higher than previous days close. This is due to CME's rule 589, which was filed December 5, 2014.

9. Comparing Dollar Futures trading (inverted price) with Euro Fx Futures.
Here, the effect of CME's new price limit rule 589 is clear. The Dollar moves significantly further, while the Euro is artificially held back.

10. Depth of book for ICE Dollar Index Futures (DX).
Liquidity evaporates, and prices swing wide on just a few contracts (how to read our Depth of Book charts).

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