Figures released today by Greenwich Associates, an institutional finance and research company, indicate that global currency volume dropped last year, after setting all time records during preceding two years. Decline was about 6% from 2008 and is connected to less activity by hedge funds. Survey of about 1500 fund managers indicates that trading by this group of market participants fell 23 %. Corporations, market segment which has been growing for years, increased their participation by about 10%, while retail market grew by estimated 16%. The decline is blamed on decrease in volatility, which fell from extremely high levels of 2008. Also, let’s not forget that there are far fewer hedge funds around now, fact which was not pointed out in the report.

Lower volatility or not, currencies still can have pretty good daily moves. Just like the Euro experienced on Monday. In spite of the Greece bailout agreement, EUR fell as soon as market opened after the weekend. Drop was rather steep, about 200 pips in relation to USD, for the day, with most of the damage done early on. Quite a reversal from later part of last week. Other European currencies also took a hit, mostly against AUD, CAD, NZD and USD – the dollars.

Strong closing trends from Friday did not continue into new week. Also, no sizeable gaps formed and the ones that did were filled almost immediately. In this environment my opening strategies couldn’t be used and I had to wait for new price build up, before trading decisions were made. Last post discussed CAD-JPY as a candidate for a reversal trade, but the set up didn’t materialize. Price initially spiked down, as expected, but not far or long enough to simply go long.

By the time of European opening, trading range formed and I decided to try simple breakout. Either way – straddle was placed. Market moved up and buy was initiated. I settled for 54 pips, not quite the daily move, but good chunk of it. Similar trades were placed in other Yen pairs and they all turned out positive. Good day, even if not exactly as planned.

Sell off in Euro might be overdone, for now at least. This chart of EUR-CAD indicates possible wide congestion zone forming. If it’s true, price is currently in lower part of this band. With this in mind buy might not be a bad idea here. Formation of bullish reversal pattern should be a sign to go long. Risks are fairly small, and objective can be 150-200 pips, depending on the exact entry point. While on the subject, other crosses of commodity currencies, especially against European counterparts look similar. But there I’d use hourly charts, with smaller targets , in the range of 60-90 pips. I’m leaving Yen pairs alone for now.

Mike K.