Reasons for Slow Summertime Forex Market
The nature of the forex market is to remain relatively flat in the summer time. The reason why the forex market is slow at this time of the year is often attributable to low liquidity, sparse economic data releases and vacationing traders. This, they say, usually causes the market to trend and consolidate and in general remain reluctant to make major moves.
The lack of impetus usually causes the market to languish while it waits for a reason to get a move on. There is good evidence to suggest that the primary reason for the summer time slowdown is as a result of lots of people taking their vacation during July and August. It is not only the number of persons on vacation that causes the slowdown, but who those persons are.
Because large institutions create a large percentage of the trading volume that moves the market, the absence of employees causes a drop in liquidity and therefore trading activity. However, institutions will not leave their trading desks un-staffed; even though the individuals who are left on call usually don’t have the authority, clout or resources to enter large market moving trades.
For years the summer doldrums were observed in the months of July and August, but in more recent times it has been confined to August. The effect on the market is demonstrated in many different ways. For example, trends tend to be shorter and less explosive, and trade signals, such as chart patterns, will give a higher percentage of false signals.