Saturday April 11, 2015 - 11:08:40 GMT
Share This Story
Global-View - www.global-view.com
Forex Liquidity Drying Up?
by John M. Bland
Trade in the past week or so has seen extreme volatility. It has been so extreme that it appears many players have been forced to scale back their trading. Over the years we have noticed that market participation frequently thins in the week before and the week after the Easter break. This could be contributing to what appears to be a growing lack of liquidity. The Federal Reserve also has been a source of instability because its signals to the markets have been all over the map since its March 18 meeting. At one point it looked as though U.S. interest rates could be hiked as early as July, then a weak March employment report apparently pushed out the likely policy tightening to September. Then Fed policy minutes for the March meeting released on Wednesday sent a new signal with a hawkish bias. Traders have been whipsawed so badly over the past several weeks that many are pulling back. This has reduced dealer participation has seen price volatility on the rise.
Bank regulations on trading from the U.S. financial crisis appear to be having unintended consequences for major markets. By limiting the risk that the major financial institutions can take, governments have reduced market-maker participation. So when a large transaction hits market there is no longer someone willing or able to step forward as a buyer or seller to facilitate the trade. Now, instead of a smooth flow of prices market-makers risk a gap in prices when they have a large transaction to do. Illiquidity begets illiquidity when participants fear getting caught in a trade they cannot turn. The bottom line is that leveraged traders need to mind their risk.
The upcoming week will be very active on the data front. Key U.K. data include CPI data on Tuesday and March jobs data on Thursday. Jobs data are also due from Australia on that date. The week also features central bank meetings for the ECB and Bank of Canada. Canadian and U.S. Retail Sales and CPI data are due as well. Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."