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Volume Down 50%!? = The Dawn Of The Golden Age Of Currency Trading

|Includes: FXE, Invesco DB USD Bull ETF (UUP)

Markets are like ocean liners, they take a long time and a lot of room to turn around. But when they do turn, they are likely to hold the course of their new direction.

The current long-term bottom the U.S. Dollar has sewn in over the last several years, Figure 1, reminds me of the last currency market turn on such a large scale, in 2002. In 2000 every analyst on Wall Street was sure the Dollar was going to top out and the Euro, the other currencies, and gold were going to sail higher. Those markets did launch a major bull market, but it took a long time for the Greenback to top and the gold market had a lot of lurches and corrections before we saw smooth sailing on the upside.

ImageFigure 1. Monthly Dollar Index Chart

Similarly the U.S. Dollar is at the other end of the spectrum; stalled at the starting gate of a new bull market by falling volume and volatility following a 13-year bear market. The Monthly Dollar Index chart in Figure I highlights the falling volatility in the form of a falling ATR - Average True Range; while the 4-hour Euro chart in Figure 2 highlights the sharp drop in volume over the last 4 months.

ImageFigure 2. 4-hour Euro chart highlighting falling volume

The falling volume in the Euro pictured in Figure 2 is telling us that there are fewer and fewer new buyers during these rallies. With prices still rising the buying is more likely coming from short-sellers wishing to avoid losses. Falling volume in a rising market overall is considered a sign of overall technical weakness. While this is not actionable information for traders it is a part of the big picture, as is the falling volatility in the Dollar Index itself. Both technical situations point toward a long-term top for the Euro and a long-term bottom for the U.S. Dollar in the making.

Another non-actionable indication of a major shift in the wind comes from the brokers themselves. There is no doubt that the plunge in trading volume is causing a major consolidation in the number of brokers, particularly in Forex. An exec at a large futures and Forex broker told me last week that "because of the low turnout and participation, it's no longer worth it for us to try to hold live webinars". I can't think of a better harbinger than that.

We see the current environment as a precursor for a sea change move in the currencies and financial markets which will prove a bonanza for traders who made the cut following the Great Recession and who have been honing their skills since. Yes, we are entering the golden age of currency trading for experienced traders.

To see Jay Norris highlight trade set-ups and signals in live markets during the London/U.S. overlap go to: Live Market Exercise. Jay is the author of "The Secret to Trading: Risk Tolerance Threshold Theory".

Trading involves risk of loss and is not suitable for all investors.

Disclosure: I am long UUP.