Forex Industry Off to a Slow Start in This Year?

Looks like the summer doldrums are setting in early this year! Volatility and trading volumes have been ticking lower in the past few weeks, as Wall Street hotshots are probably starting to head to their beach houses and spend their recent winnings on a grand vacation. Heck, Big Pippin already has a big party in the Hamptons that he’s planning… to crash!

If you’ve been trading for quite some time already, I’m sure you’ve noticed that the forex market tends to shift to ranging conditions sometime during the second quarter of the year. However, a Forex Magnates report revealed that the number of active traders has already started declining as early as the first quarter of 2014.

The CME (Chicago Mercantile Exchange) Group announced that average daily forex trading volumes for April slipped by 34% to 68 billion USD from March’s 104 billion USD figure. The ICE (Intercontinental Exchange), another futures exchange, reported an even larger 45% slide in average daily FX volumes. Meanwhile, over in Asia, the Tokyo Financial Exchange noted that April daily forex trading volumes are down 14.6% from the previous month.

Industry experts have remarked that we are seeing multi-year lows when it comes to forex market volatility, which explains why trading volumes are sinking. After all, hardly anyone’s in the mood to trade when markets are barely moving. Compared to the same period in the previous year when we saw a few key monetary policy changes such as the BOJ’s decision to expand their QE program, major central banks (with the exception of the RBNZ) have been sitting on their hands for the most part so far this year.

With the “Sell in May and Go Away” phenomenon also likely to take its toll on financial market activity, the odds are that we’ll see less volatile moves in the coming months. Add to that the fact that central banks are still in a wait-and-see mode for the foreseeable future and we’ve got a recipe for ranging market behavior. Geopolitical tension, stemming from the conflict in Russia and Ukraine, also adds a dash of uncertainty to the mix.

Of course, as the FX-men always say, nothing is set in stone in the forex market. While it’s unlikely that we’ll see large trends develop for the rest of this quarter, there’s still that small probability that we could see some surprises here and there.

For one, there’s talk of further easing from the ECB as the euro zone attempts to dodge a deflationary bullet, which means that any action from Draghi and his men could actually push euro pairs in a clearer direction. Another round of QE from the BOJ, while remote, is also a possibility if the recently implemented sales tax hike winds up drastically hurting growth.

With these in mind, it might be best to brace yourselves for ranging market conditions and adjust trading strategies accordingly. At the same time, be prepared for any market shockers that could be your opportunity to bag plenty of pips!