There has been a lot of excitement recently about increased Forex trading volume in 2013. All of the main spot currency trading platforms, networks and market makers reported solid jump in activity in January. Compared to the past year, when low volatility kept many players away, the volume rose on average 25-30%, although some operators reported as much as 50%+ increase. Analysts point out to large speculators and institutions stepping up size of their trades, trying to take advantage of strong moves in several currencies. All the Yen pairs experienced good trends, as did the Euro. In addition, the British Pound is falling sharply, too, attracting even more attention.
It remains to be seen if this pattern continues throughout 2013, but we should not get too excited just yet. After all, the volume always picks up in January in relation to previous months, but is not necessarily indicative of yearlong activity. In addition, if currencies settle into consolidation, many traders will lose interest and go somewhere else in search of opportunities. The biggest players, like the hedge funds and other currency programs, rely on trends and are less active in trading markets. Also, commercial/speculative interests in other financial markets might slow down, creating lower demand for currency exchange. It is unlikely these volume levels will last. That said, let us enjoy it for now, as increased money flows leads to larger price swings, making it easier to for everybody to profit.
In the last post, I covered a simple straddle trade in the NZD-USD on the 1H chart. The move came quickly, still in the early trading hour, pushing the price to the 100 SMA. Unfortunately, that proved to be a strong resistance and the NZD-USD started to pull back. I decided to get out right there and then with 27 pips in profit.
Much earlier in the week, the CAD-JPY was featured on these pages. I was looking for a bearish move, using the support on the 4H chart as the entry point. It is a relatively high magnitude time frame, so by default this trade was expected to take some time to develop. Much to my surprise, this position was 100 pips in the black quickly and underwent a normal corrective bounce. However, on Friday, another push down proved to be short lived. While the CAD-JPY made a new low for the move at 90.85, it failed to stay the course and started to rally. I panicked a little and decided to cash in the profits at 90.08. Looking back, that was probably a premature exit, but there will be more opportunities for shorting the JPY pairs next week. All of them. Have a great weekend!
Mike K.