The Euro quickly dropped in value today during the US Forex trading session,exacerbated by low trading volume.
We warned against this during our last blog post, Forex Market Slow After Christmas.
The US stock market followed the Euro's footsteps to the downside, after the European Central Bank (ECB) released more data on its lending operations.
When liquidity or trading volume in the Forex market is thin, news and economic releases can amplify the market's reaction to them. This was the obvious case today, as currency prices spiked across the board on low liquidity, making the US Dollar (USD) stronger against most other currencies.
Notice the hourly EUR-USD chart below taken from our MT4 trading platform (sign up for an MT4 Forex Demo for 60-days using the short form above).
Starting at around 9:00 AM New York time, the Euro started its quick descent of over 150 pips or about 1.2%, breaking the short term daily low of 1.2945 created on December 14th. Prior to that, EURUSD was on an almost linear consolidation (sideways) period for about a week with progressively decreasing volatility. A narrowing price range with low trading volume is an ideal trading environment for a price explosion (thus, the reason for the spike and drop in value today).
We continue to recommend Forex scalpers and other active day traders to proceed with caution until after New Year's.
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