FX Liquidity Shifting Away from Rush Hours in Corona-Like Times

Mosaic report draws on the CLS’ turnover data, which saw its monthly volume jumping to over $1.81 trillion in March.

Financial markets analytics firm Mosaic Smart Data has released a study that examines FX market liquidity based on data recently provided by foreign exchange settlement provider CLS Group.

The report draws on the CLS’ turnover data, which saw its monthly volume jumping to over $1.81 trillion in March, to assess the liquidity profile and broad trends for major FX pairs. The study also compares liquidity conditions during several episodes of market stress, also highlighting the magnitude and duration of changes in liquidity following the recent corona-led volatility.

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From these metrics, there are some indications that global FX market liquidity may have shifted in recent years away from traditional rush hours.

Using a multi-factor model, Mosaic’s study covers two distinct time periods: normal (Jan 2018 – pre-27 Feb 2020); and one of stress under COVID-19 (27 February to 26 March 2020).

Taking into account hourly FX volume, the report shows that during this particularly volatile period for currency markets, investors were less reliant on the London fixing hour with liquidity evenly spread across UK hours for major currency pairs. The same pattern was noted during the New York forex session, which is traditionally known as one of the most liquid forex trading sessions.

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For instance, EUR/USD and GBP/USD saw their liquidity drop off sharply before and around the New York market close (from 18:00 to 20:00 GMT) compared to normal market conditions. And while EUR/USD’s liquidity curve was flattening at 16:00 GMT during the stressed period, implying a decreased emphasis on the London fixing hour, GBP/USD saw better liquidity during Tokyo trading hours alongside a sharp spike at around Sydney close.

Liquidity in the USD/JPY pair was also more equally distributed during London trading hours with less reliance on the fixing interval.

FX and other derivatives saw record trading at major institutional trading venues last month as concerns over the economic impact from the coronavirus outbreak sent investors hunting for instruments that limited risk exposure.

Mosaic Smart Data, which is backed by major institutions such as JP Morgan and Commerzbank, is one of several firms attempting to make sense, and profit, out of the masses of pricing and transaction data now available to financial institutions. Founded in 2014 by ex-Deutsche Bank and Citigroup trader Matthew Hodgson, the company offers banks prediction analysis and AI technology for large volumes of data within sales, trading, and compliance teams.

The company’s FX reports describe liquidity conditions and recent trends based on information provided by a diverse set of market participants and also discusses the factors that appear to be influencing the structure of the FX market, with a focus on major pairings.

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