Seasonal factors usually dampen trading activity as traders take a break during the Christmas and New Year holidays, and December 2016 was no exception. After a solid record-breaking rebound in November, forex trading volumes retreated last month on lower liquidity in the last couple of weeks of the year.
Data from international derivatives marketplace CME Group indicated that foreign exchange volume averaged 892,000 contracts per day in December, down from the 987,000 contracts per day in the previous month. Still, this marked a 1% gain from the same month in 2015 and was enough to chalk up a 13% increase on a quarterly basis.
Institutional trading platform FXSpotStream, which provides services for the likes of Goldman Sachs, Morgan Stanley, Standard Chartered, UBS, Citi, and HSBC, reported a 21% month-over-month decline in average daily volume to $17.6 billion in December. Then again, this outpaced December 2015’s volumes by an impressive 33.5%.
This is in line with data from other ECNs such as Hotspot FX, which saw a 20% monthly decline in ADV, and FastMatch, which reported a 19% dip in December ADV to $13.8 billion. GTX, the institutional arm of Gain Capital Holdings, saw a decline from its November ADV of $10.34 billion to $9.18 billion last month. Meanwhile, forex broker Exness printed a tiny 5% downtick in December trading activity while still keeping volumes above the $200 billion mark for the fourth month in a row.
Lastly, the Tokyo Financial Exchange posted a 29.6% decline in FX market turnover, based on contracts on its Click 365 platform. This translates to a 6% year-over-year drop in trading volumes. As you can see from the table above, the monthly reduction was most evident in AUD/JPY, GBP/USD, NZD/JPY, and GBP/JPY.
On the other hand, EUR/JPY managed to see a pickup in trading volume before 2016 came to a close. Year-over-year, USD/JPY posted a whopping 60.8% increase in volumes while GBP/USD was in close second with a 58.9% gain. Investor interest in these pairs were sustained for the most part of the year, mostly due to the U.S. elections, expectations for a December FOMC rate hike, and the Brexit hoopla.
Moving forward, these market themes could continue to influence forex price action and volumes for the next twelve months, along with other new catalysts along the way. Don’t forget to check out our Quick and Wacky Predictions for 2017 so y’all could prep for what’s in store!
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