Central Bank Speeches & Low Liquidity Pop EUR/USD Stops.

The EUR/USD runs stops above 1.1850.

The EUR/USD runs stops above 1.1850.

Janet Yellen and Mario Draghi both gave speeches on Friday in Jackson Hole. Neither said much about monetary policy, the strength of the Euro or Dollar, and future outlooks. Looking the action on Friday you’d have thought otherwise.

If you were watching the action on Friday, you’d have seen that the EUR/USD and gold were trading like there was something significant happening, some new news hitting the market or some important data. In one word, it was volatile. Spreads were wide, and price whipsawed all over the place. It looked a little like NFP day.

Perfect Storm: Central Bank Speeches and Low Liquidity.

As I mentioned last week, summer trading can mean some interesting price action. Friday’s action was a perfect example of what happens when you pair a potentially market moving event and low volume. To put it in context, Friday in late August are one of the lowest volume times of the year. Traders just aren’t trading. When you take something as important as a central bankers speech and mix it that liquidity environment, it’s no surprise that the action was as wild as it was.

Whether this was new money entering the market or stops being run is the question. If you look at the daily chart of the EUR/USD, you’ll see that the 1.1830-50 level is a logical place for shorts to cover. When price moved through those level, stops were triggered, and in the light liquidity environment the price ran up over 1.19. It would surprise me if the EURUSD doesn’t hit 1.20 this week on the back of some heavy economic data, including NFP.

This will be an interesting week with a ton of news due. Although it is the last week of summer for many people, I wouldn’t be surprised to see volumes start to return to normal levels. There will definitely be some volatility and opportunity.