The Western world grinds to a halt before Christmas and re-awakens after New Year’s Eve and trading volume is very thin. This is well known and many people are on vacation anyway. Yet volume begins to drop well beforehand. The US holiday of Thanksgiving marks the beginning of the shopping season in the US and also sees the beginning of the decline of market activity.
Some currency pairs trade in narrower ranges due to the lack of activity, while others can experience volatile moves. Let’s see what we should be aware of.
Sleepers and Shaker
Currency pairs with higher volume on regular days tend to trade in smaller and narrower ranges. This includes EUR/USD, GBP/USD, USD/JPY and USD/CHF to some extent.
Less players mean less significant moves, but there are still enough players to keep the pairs moving in ranges. These ranges can provide opportunities for day traders, but they can be also be very frustrating and boring.
On the other hand, USD/CAD AUD/USD and NZD/USD have sufficient liquidity in normal days, but when the holidays approach, things can significantly change.
The volumes in these “commodity currencies” can become so low, that every small order can rock the price. For example, AUD/USD reached its year-to-date high of 2010 very close to the end of the year.
Technical barriers can be broken big time just to be followed by a retreat shortly afterwards. The moves can be very misleading. False breaks can become too common as soon as the beginning of December.
So, if you’re not on vacation and want to trade, it’s important to be very cautious. Traders can adapt to the markets by lowering trading volumes, thus limiting their risk.
And if this is too much for you, you can always take break, whether you are on vacation or not. A few days after New Year’s Eve, everybody returns to the markets, and behavior becomes much more “normal”.
Further reading: 5 Most Predictable Currency Pairs – Q4 2011Get the 5 most predictable currency pairs