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Contributors The Euro Falls on Thin Liquidity.

For those of you who have followed me through the years, I’ve said many times that I tend to not trade during the last couple of weeks of the year because (for the most part) the institutions don’t trade either.

They’re too busy trying to square away their books for the year and they too know that the markets have gone from an ocean…down to a lake or pond at best during these last two weeks of the year.

This happens every year. So then who is generally left trading in the markets? Pretty much, only the retail speculator…or what Wall Street calls the “dumb money”.

So that means that the markets can make erratic moves due to the lack of institutional liquidity in the markets and it means that those moves don’t hold as much weight to them since the large institutions are generally not behind such moves.

So here the euro sits in the 1.29′s to the dollar. Wow! Check it out below on the hourly chart of EUR/USD. Click on the chart to enlarge it.

Above, you can see the lack of liquidity during these last two weeks and how the EUR/USD pair just traded in a tighter and tighter range…but even that can’t last forever.

I’d imagine some huge stops were hit that triggered the massive sell-off as the green support line was taken out to the downside. Down EUR/USD went….down over 100 pips within no time!

The best thing for the retail trader to do is to sit on their hands (even as much as they hate to) and await the turning of the calendar from 2011 to 2012.

The large institutions will inch back into the market with things back in full swing by the 2nd to 3rd week of January 2012. Until then, avoid all of the crazy illiquid moves and start fresh in 2012.

Sean Hyman
My E-Book
info@worldcurrencywatch.com
Editor, Currency Cross Trader

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