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Beware Liquidity, Key Events and Risk Trends Through Year’s End

Beware Liquidity, Key Events and Risk Trends Through Year’s End

John Kicklighter,

Talking Points:

• Seasonal trends are dulling traders' senses with anticipated 'Santa Claus' conditions

• A strong move for capital markets this past week is mixing with a structural complacency built over years

• Liquidity will thin; but risks like the Fed, China and Emerging Markets make that a danger rather than tonic

What are the Traits of Successful Traders? See what our studies have found to be the most common pitfalls of retail FX traders.

We are heading into the final 6 weeks of the year and global equities have just closed out a strong week. Complacency, in other words, is in full force. The historically quiet period is reinforcing a long-standing false sense of security fostered by supportive monetary policy and moderate growth. Yet, this is exactly the time when we should be most vigilant. The drain on liquidity is likely to follow historical trends. However, the typical quiet in the financial markets is less certain. With high profile concerns plaguing investors' expectations (China, Emerging Market flows, growth) and the Fed scheduled to make a crucial policy decision on December 16, there are serious sparks moving forward. And fear seep through the cracks, structural dependency and the seasonal liquidity drain can amplify volatility to dangerous levels. That doesn't mean we scramble for shelter, but we should account for the risk and invest properly. We take the market's temperature into the final weeks of the year in this weekend Strategy Video.

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