Analysts warn low volume may exaggerate market moves
By Deborah Levine and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — The dollar turned up slightly on Friday, after U.s. reports showed durable-goods orders jumped but personal spending was weak last month.
Analysts noted that moves, while muted in Asian and European trading hours, could be exaggerated as volumes were very thin due to the holidays.
The dollar index DXY +0.09% , which tracks the U.S. unit against six other currencies, traded at 79.933, from 79.855 before the data and down from 79.929 in late North American trade Thursday.
The euro EURUSD -0.08% traded at $1.3047, paring an earlier rise from $1.3053 Thursday.
Analysts cautioned against reading too much into the market reaction when trading activity is extremely thin around the end -of-year holidays.
“Not low volatility but low liquidity is characteristic for the foreign-exchange markets shortly before the end of the year and during this popular holiday period,” said currency strategists at Commerzbank.
“Low liquidity can express itself in two extreme forms of volatility: either nothing happens or events have much more pronounced effects on the exchange rates, i.e. volatility shoots up. The usual ‘stabilizers’ are missing: speculative short-term investors.”
London markets closed early, U.S. and most European stocks are open a regular day but bonds close at 2 p.m. Eastern time. Japan was closed for the Emperor’s birthday, and on Monday all U.S, U.K., and most European markets will remain closed in observance of Christmas.
The dollar turned up after the U.S. Commerce Department reported that U.S. durable-goods orders rose 3.8% in November, more than many economists expected. Personal spending rose 0.1% last month, a little less than forecast. Read about personal income data.
U.S. stock futures stayed up after the reports.
“U.S. data has been coming in on the strong side in recent months, and good readings today should help keep this modest risk rally going,” said strategists at Brown Brothers Harriman, before the data. “The euro continues to trade heavily but is still finding some modest support near 1.3050 for now.”
The European currency fell below the $1.31 level Wednesday after the European Central Bank announcement that its new, longer-term lending operation had attracted strong demand.
“The overriding sense is that the extra liquidity provided by the ECB ... has increased its balance sheet to a record level,” IG Markets analysts in Melbourne said in a note, adding that they expect the euro to remain under pressure into 2012.
They said that “forex traders remained sidelined.”
Among other major currency pairs, the dollar lost ground to the Japanese yen USDJPY -0.10% , easing to ¥78.09 from ¥78.19 late Thursday.
The British pound GBPUSD -0.15% slipped to $1.5669 from $1.5682.
The Australian dollar AUDUSD +0.11% rose to $1.0155, up from Thursday’s $1.0131.
