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Monday Asia after weekend news, and cable on 26 September 2022

A reminder of how thin Monday morning in Asia can be when there's big news over the weekend.

On Friday 23 September 2022 the UK government announced the mini-budget, with large unfunded tax cuts. Sterling fell hard that Friday. Then over the weekend the Chancellor suggested there were more tax cuts to come. When FX trading resumed in early Asian hours on Monday 26 September, GBPUSD dropped to around 1.0350, a record low, before bouncing a long way within the same session.

The move happened at a time when London was asleep and liquidity in sterling is normally low. Spreads at retail brokers were very wide in that window, and stops below Friday's lows were filled far below where they were set.

I bring it up because the lesson isn't about the UK specifically. Any weekend headline can do the same, whether it's an election result, a central bank comment or a political surprise. The Sunday open in Wellington and Sydney is the first chance to trade it, and that's the thinnest market of the whole week.

What I take from it for my own trading:
I don't hold scalp positions into a weekend at all.
On a Monday after big weekend news I don't trade until London is open and spreads are back near normal.
If I have a pending order that could trigger at the open, I cancel it on Friday.

It's also a reminder that the chart you look at on Monday morning may not show what was actually tradeable. Many retail feeds printed slightly different lows that night, because each broker's liquidity was different and some simply stopped quoting for a while. If you compare your platform's low with another broker's, the numbers can be tens of pips apart. Neither is wrong. The market was just that thin.

That Monday is a good example of why Asia trading after big weekend news needs care. Spreads on GBP pairs were very wide in the first hour, and the move to the low came in thin liquidity with sharp bounces. From Hong Kong it was early morning, and the few banks active in GBP were cautious. One habit from that period: on Monday after major weekend news, I wait until Tokyo has been open for an hour before trading any pair linked to the news. The moves are still large, but the prices are more reliable.

The bounce afterwards is part of the lesson too. Cable recovered several hundred pips within days, and the Bank of England stepped into the gilt market on 28 September. Anyone who got stopped out at the lows saw price come back without them. Gap fills and thin-market spikes are the worst kind of loss for a scalper, because the price was never really available to a normal-size trader. The only defence is not being in the position, since stops can't protect you through a gap. Planning for that kind of open means deciding in advance that you won't be there.

If you trade a prop account, check what your firm does with weekend positions and with fills at the Sunday open. Some firms close everything on Friday for you, some allow holding on certain account types, and some count the gap loss toward the daily limit for Monday. A stop filled 200 pips beyond its level on a modest position can wipe out a whole daily allowance on a single tick. Reading that rule before a big event weekend saves a nasty surprise. On a typical Monday that isn't a concern, but on an event weekend it can be the whole story.

A smaller version of the same pattern happens with other currencies. Elections that finish on a Sunday are the common case. If you trade any currency with a big vote scheduled for a weekend, look at the Sunday open over the last few elections on your platform. You'll often see a gap, a fast spike in one direction and wide spreads for the first hour. Planning the Monday as a non-trading morning is easier than trying to manage it live. Treat it as a scheduled no-trade window, the same way you'd treat an FOMC afternoon.

For anyone backtesting, these Monday opens can make a strategy look much worse or much better than it would be in practice, depending on whether the test includes weekend gaps. Many tick data sets don't capture the actual spreads at that time, so the test fills at a price you would never have got. I'd exclude the first hour after the Sunday open from any scalping test, or at least run it with and without that hour and compare. The spread data from the real open is the piece most test sets are missing.