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- Volatile crash in Asian session hits most FX pairs

- Could mark the start of a new uptrend in USD says one analyst

- Glynn bullish USD for duration of 3-year bear market

Last night's currency crash (or JPY spike) has seen substantial volatility in FX markets.

The USD/JPY pair has probably been the most volatile after falling over 3.5% to an eight-month low of 104.78, after previously trading in the 110s on new year's eve. Traders put this down to the Yen's safe-haven appeal which makes it a magnet for investors when markets are in turmoil.

Another currency which saw a lot of movement was the Australian Dollar, which weakened across the board because of it's close trade ties with China, the epicentre of the crisis.

Although AUD/USD had recovered to 0.6968 at the time of writing, only a quarter of a percent off the day's open, earlier on the pair had briefly spiked down to 0.6745 - a region not seen since the 2008 financial crisis.

The crash affected most major G10 pairs with the same generalised pattern of support for safe-havens’ such as the Yen and the Swiss Franc and weakness for those currencies most sensitive to the Chinese economy like AUD and NZD.

The Next Wave in the Dollar Rally

The US Dollar was also quite strong across the board, rising versus the Pound, Euro and most other major currencies with the exception of the aforementioned safe-havens.

Volatile spikes of this nature can be interpreted in two contrasting ways: sometimes they are a sign the market is reaching a sort of 'blow off’, exhaustion point - especially if occurring at the end of a trend - and at other times they can be seen as the initial, kick-off move in a new trend.

Which category today's flash crash falls into is not yet clear, although for one analyst the volatility comes as little surprise.

The analyst in question in Enda Glynn, founder of Bullwaves.org, who says the US Dollar is about to strengthen notably, right across the board.

The appreciation in the Dollar will be caused by a contraction in global credit conditions and will, according to Glynn, coincide with a bear market in stocks and a general slowdown in the whole global economy.

So far Glynn has been right about the weakness in stocks, successfully calling an end to the stock market rally in October 2018 when the Dow topped out, but his other call, for US Dollar appreciation has not been mirrored by financial markets up until today's crash.

For Glynn the crash will be signalling the start of a new uptrend for the Dollar in many pairs and therefore reflect the second interpretation of volatility spike as the kick off to a new trend.

“I am bullish USD for the current bear market period which is likely to last about 3 years or so,” says Glynn.

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“The mechanical idea behind this is a form of massive credit contraction. The destruction of the credit creation process will cause a type of short squeeze on the US Dollar,” he adds.

Glynn uses a branch of technical analysis called Elliot Wave theory which consists of documenting and labelling market activity in ‘wave counts’.

Elliot theorists hold that financial markets are made up of wave patterns or cycles which tend to repeat themselves in a predictable sequence. Therefore, the Elliotician’s job is to correctly identify where in the current wave cycle the price series in question is since this will indicate where it is most likely to go next.

Broadly speaking Glynn sees the US Dollar as about to unfold a large C wave higher, which though essentially corrective in nature, nevertheless tends to be the strongest of the three corrective waves which normally unfold (the other two being A and B).

“The Elliot wave suggests a rise in a large C wave, which is the final move in a three wave pattern,” says Glynn of the Dollar.

More specifically he sees all major USD pairs strengthening, even USD/JPY which Glynn sees as ending an exhaustion move at last night's spike down; but both EUR/USD and GBP/USD are also set for steep declines in line withb greater USD strength.

In the next phase of US Dollar appreciation he sees EUR/USD falling to the 1.03s initially but probably even below parity in the end, perhaps beyond 2019.

The decline in cable could be less extreme as it appears to be in an idiosyncratic count of it's own different from most other USD pairs, and is in the process of completing a 5th and final wave lower before it reverses trend and starts rising. Nevertheless, a low of 1.10-12 is quite possible in the next few months before the recovery starts, according to the charts.

Finally, USD/JPY could take a lot of people by surprise, according to Glynn's analysis. The pair is currently completing the final e-wave of a large triangle before breaking higher in a large C wave higher, which could rise all the way back up to the 129s or even higher, in 2019.