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Euro Surges, Driving EUR/USD 150 Pips Higher In Extreme Illiquidity

Euro Surges, Driving EUR/USD 150 Pips Higher In Extreme Illiquidity

Daniel Dubrovsky, Senior Strategist

Talking Points:

  • A EUR/USD surge in the ‘after hours’ Thursday night rippled through the FX market
  • Periods around market holidays are known for illiquid trading conditions
  • There were no obvious headlines promoting the dramatic move

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A seemingly quiet transition into Friday’s trading session was shaken by a surge in activity for the Forex market’s most stalwart corners. EUR/USD, the FX market’s most liquid cross, surged between the US close and Tokyo open for the final trading day of the 2016. The exchange rate surged as much as 132 pips - or 1.2 percent – in the span of two minutes starting at 23:39 GMT. All Euro crosses responded with the scale of the move spilling over to most Dollar and Pound crosses.

There was a notable absence of newswire fodder to source the dramatic move. However, these large moves do not come as much of a surprise given the conditions usually experienced at this time of the year. As Currency Strategist Ilya Spivak noted, sudden drops (or gains) seem to be a textbook case study in the amplifying effects of illiquid market conditions. Looking at Euro futures, the active contract turned over more than 20,000 contracts during the hour it fell under. That was the heaviest volume since December 22nd and the heaviest ‘after hours’ since November 8th – US elections night.

Further leveraging the impact through shallow market depth, these moves occurred during the early hours of Friday’s Asia session. Compared to the time of day when the London and New York market overlap, this period is generally considered the most illiquid period of the 24 hour cycle.

Chart compiled in tradingview

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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