Read time: 8 min

Euro Leaps in Thin Markets

Dealers are scratching their heads over a sharp move higher
in EUR/USD in early Asian trading after the pair moved 130 points in one
minute, before reversing.

Dealers say the move occurred just before 8.40 Tokyo time
and saw the pair rise from 1.0520 to 1.0651 in a fraction over a minute, before
reversing to 1.0575 over the next two minutes. There are reports of the pair
trading at 1.0695, however traders spoken to professed no knowledge of the

This reportedly created nervous conditions as liquidity
thinned out further, which saw the pair jump back to 1.0620 a short time later
before reversing again to 1.0560. “Liquidity was already thin but this has made
it worse,” says an Asian-based trader. “Top of book is still OK – in very small
amounts – but spreads are generally even wider than they were to start the day
off and below top of book there’s next to nothing.”

There was no apparent news to trigger the spike in the euro,
although one dealer suggests an algo may have been responsible. “This didn’t
feel like someone going for a level,” the trader explains. “The dollar started
retreating generally which suggests to us an algo was executing a reasonable
amount and using all the liquidity available. Quite why someone wanted to execute
anything at this time is a strange one but it is month end.”

The move has not only highlighted the illiquid conditions in
the market but also raised concerns about the 4pm Fix in London later today.
This Fix is month, quarter and for many year end, which typically means larger
amounts than usual. “We could be helped by investment managers having smaller
positions over the holiday season, but I’d still be concerned,” the trader
suggests however. “Our models suggest small scale dollar selling, so this move
could be a manager wanted to jump the gun – it’s hard to tell.”

EUR/USD was trading at 1.0550 at time of publishing.

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

Share This

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on reddit

Related Posts in