Is it really still $5 Trillion a Day?

As I watch the Forex markets each and every day and contemplate the generally pedestrian

nature of the price action over the past year, I am continuously questioning whether the

turnover these days is really as much as so many of the pundits would still have us believe.

I do this because so many of the people that I speak to are doing the same, as from their

perspective they have witnessed a marked drop off in activity and action. Granted the

market still has its days, but generally speaking the average daily range in the majors has

continued to contract for several months now. At the same time this would surely indicate

a significant drop in volume.

Just imagine how that might have been made even worse were it not for the volatility seen

the GBPUSD over the past couple of years, which has not just kept all the GBP cross pairings

moving too, but the whole majors’ market as well. Naturally, the almost 100% electronic

pricing of nearly all the G10 pairings these days has had an impact in this regard too. It has

made pricing much more efficient and certainly also helped to reduce volatility as a result of

ever more sophisticated ‘price discovery.’

At the same time the shift in price dynamics has surely played into the hands of the ‘price

makers’, very much to the chagrin of all those speculative ‘price takers’ whose main reason

for entering the market in the first place is on the assumption that they will gain by seeing

the price move in their favour. Generally speaking, the more the prices move around, the

more active those speculative players will be and the less chance there is for the ‘price

makers’ to profit from such provision.

Consequently, when volatility drops to extremely low levels, as we have right now then a lot

of those speculative players will reduce the size and frequency of their activity. However,

the impact on the wholesale options market is somewhat different, where lower volatility

conversely makes the cost of entry much cheaper.

However, the conflict there between ‘price maker’ and ‘price taker’ remains largely the

same, but the dynamics are often much more complex and not simply as one dimensional as

they are with straight vanilla spot trades. In rough terms though, and disregarding DNT and

volatility trades, it's still the same battle between the two opposing sides.

To sum this up as succinctly as possible: its more often than not in the price makers’ interest

to see prices remain as stable as possible whilst they shop around for ways to exit or hedge,

at least some of their risk, and then warehouse the rest of it. Certainly in a tight range, low

volatility climate that residue can wait perhaps until the other side subsequently folds?

Naturally, just as with a casino for example; the bigger the warehouse, the greater the

chances of success!

More on this theme another time perhaps. Meanwhile back to the immediate markets. The

US Q1 GDP print was way better on Friday at +3.2% and the initial market reaction saw the

dollar post a fresh 52week high versus the EUR at 1.1112. However, and almost instantly the

fact that there was no inflation in that report, sent the dollar immediately lower again.

Consequently, the close for the USD on Friday was mildly negative. I say ‘Mildly’ because it

wasn’t technically a negative ‘outside’ day reversal, but close to it all the same.

Where the impact of that US GDP data was perhaps more pertinent was in the equity space

which certainly latched onto the low inflation numbers. The S+P 500 traded to as high as

2939.83, where it actually closed for the week too. Hence, within a whisker of its 2940.90 all

time high.

Following a positive Asian session today (without Japan of course) the futures are this

morning pricing in a move (as at 7am) above 2941 now, so it will be more than interesting to

see where and how that opens up later on. Certainly, the potential is there for a gap open

higher on this one which I am sure, if seen will insight some fresh, reluctant buyers into the


It’s certainly a busy week ahead on the economic release front with the FOMC and BOE

policy decisions topping the agenda. No changes are expected from either central bank this

time around, so as usual the markets will be on the look out for any clues regarding future

policy action, especially from the other side of the pond. The other eagerly awaited release

this week will be the latest US jobs report which is due out on Friday.

Like everyone else out there at the moment, I am just wondering how long this US growth

and jobs rebound will continue without any upward price pressure? Looking back, I can all

too easily remember a couple of decades ago, when this was just the scenario all the central

bankers actually wanted as they strove to beat off the spectre of inflation. Whilst that

appears to be well and truly licked now, rather perversely it seems, some want a dose of it

back again. Perhaps a case of; a little of what you don’t like being better than none at all!

Important Economic Releases Due This Week

29/04- 1.30pm US March Personal Income and Spending

30/04- 10.00am Eurozone March Unemployment Report

30/04-10.00am Eurozone Q1 GDP Revision Estimate

30/04- 1.30pm Canadian February GDP Estimate

30/04- 11.45pm New Zealand Q1 GDP Estimate

01/05- 1.15pm April ADP Employment Report

01/05- 3.00pm US April ISM Manufacturing Index

01/05- 7.00pm US- FOMC Policy Decision

(No Changes Expected)

02/05- 12.00pm UK- Bank of England Policy Decision

(No changes expected)

03/05- 9.30am UK April Services PMI index

03/05- 10.00am Eurozone April CPI Inflation report

03/05- 1.30pm US April Unemployment Report