Currency Markets and Changing Volumes


A few short years ago, it wasn’t unusual for most widely traded EUR/USD to experience 500,000 futures contracts change hands on any given day. On significant price breaks or central bank meet days, EUR/USD traded as high as 750,000 contracts. Much has changed in FX markets as today’s 200,000 contract volume days trade at alarmingly and multi years lows.
A EUR/USD 260,000 contract volume day such as was seen last Thursday is considered not only an enormous trading day but 260,000 is 58,000 contracts above May 8 to 12 weekly high at 202,000 and far above the 52 week ago period at 107,000. EUR/USD at 260,000 is highest among all G10 traded pairs and light years above all cross pairs.
EUR/JPY for example as most widely traded cross pair every year since Triennial Surveys in 2001 barely experiences a 6,000 volume contract day followed by GBP/JPY at 200 contract days and 120 contract days for EUR/AUD. A 6,000 contract volume day for EUR/GBP is an enormous trading day.
Why 100,000 contract Volume days in AUD/USD is because NYMEX sets the daily standard for FE Iron Ore prices. China is the only other source to set Iron Ore prices outside Australia. Why 15,000 to 30,000 contract Volume days for NZD/USD is because of New Zealand’s Milk Futures, connection to the US by imports and most importantly, NZD money markets were established exactly as the United States methodology. Both AUD and NZD contract volumes are steady and explains why prices in both are stable.
USD/CAD’s 60,000 to 90,000 contract volumes far surpasses USD/CHF’s 30,000 to 45,000. Much explains CAD dominance. Most importantly is trade, economic releases same time as the US, relationship to banks and CAD’s built in daily volatility which far surpasses USD/CHF movements. CAD’s daily volatility even surpasses USD/JPY yet USD/JPY’s 150,000 to 250,000 contract Volume days easily defeats USD/CAD.
GBP/USD is an outlier and extraordinarily strange currency pair in construction and design for its movements but the 150,000 contract Volume days was the result of recent and significant price breaks otherwise GBP would resort to its standard at about 100,000 to 120,000 contract days. GBP/USD 1 year ago traded 87,000 contract Volumes.
The big 3 in volumes in order are EUR/USD, USD/JPY and GBP/USD although USD/JPY in certain weeks and days clearly beats EUR/USD. The EUR/USD and USD/JPY contention is what allows EUR/JPY to trade 6,000 contract volume days.
As the oldest and first ever indicator introduced to organized markets in the 1920’s, Volume in liquidity terms disappeared and this means implementation of tactical changes to trades based on and due to volume because FX markets changed and the alteration severely affects the price.
The overall purpose for Volume is to recognize price bottoms and tops. Best trades are taken when Volume hits extremes but no longer does volumes hit those limits. Volume is now a rangebound indicator and trades inside small channels which means prices lack the same speed to reach destinations as before when Volume was much higher.
A big 4 trading bank once released weekly volume reports and those reports identified currency pair extreme Volumes based on a + 1 and minus 1 calculation. No longer does the bank release those reports because its impossible at today’s low Volumes to reach scaled extremes.
As I calculated many currency pairs under the banks formulas only to find the impossibility to reach limits, the result is new methods to factor Volumes and extremes is required. A vast majority of currency pair Volume sits mid range which means Volume can trade a bit higher only to become overbought and track slightly lower only to become oversold. This leaves the currency price mid range in search of a break point and assist from Volume to take the price to its next destination.
Ironically, Voluime severely lacks variation which means the Volume Signal is astronomically to high at current contract Volumes. Volumes should and must decrease for EUR/USD, USD/JPY and GBP/USD while AUD/USD, NZD/USD and USD/CAD sit in comfortable positions. EUR/JPY Volume is far to high and despite currently low contract Volumes.
Lower contract Volumes means not only a slower price but more rangebound conditions. A currency price not only won’t find its break point but rangebound or lower Volume will ensure break points won’t be seen.
EUR/USD rose from 1.0400 lows in January to current 1.1200’s but at 200 pips per month factors to a trend at 10 pips per day based on 20 trading days per month. Roughly 200,000 contracts per day did this to EUR/USD otherwise as in days of old, an 800 pip move would’ve completed in 1 to 2 months instead of 4 months.
Markets in the US are clearly held and function by Eurodollar contract Volumes. Eurodollars was and always will be the highest Volume traded contract on the planet. Next in line are the 10 and 2 year yields, 5 year Note and 1 million contract Volumes per day in 30 day Fed Funds. Fed Funds at 1 million is severely low in relation to its 5 million contract Volume peak a few short years ago. Gold and WTI Crude are clearly well functioning markets and offers terrific opportunities. Gold for example offers contract Volume ranges from 150,000 to 300,000.
Roughly 300,000 EUR/USD contract Volumes per day left the market and no sign of a return. The assumption is 300,000 were speculators and found possibly opportunities in other markets. A further hypothesis is pure professionals exist in currency markets and they not only know the markets well but they know the exact break points.
GBP/USD traded 167,000 contracts Thursday as a result of the 1.2991 break and GBP skyrocketed 100 pips to 1.3049. Without the break, 100,000 contract Volumes would ‘ve traded. GBP Friday broke its significant 1.2995 against 96,312 contracts and climbed 44 pips. If currency markets truly professionalized then traders must adjust skills to this current class of traders.
EUR/USD Friday traded 201,000 contracts and the points to break above this week are 215,295 and 232,950. GBP/USD traded 96,312 contracts Friday and the points to break above are 113,129 and 113,969.
AUD/USD traded 77,642 contracts Friday and the points to break above are 83,006 and 96,058. USD/JPY traded 163,235 contracts Friday and the points to break above are 163,235 and 202,872. USD/JPY traded exactly at its contract break point at 163,235. EUR/JPY traded 2,391 contracts Friday and must break 3,311.


Brian Twomey



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