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Foreign Exchange

FX: Market turns the volume up

Activity remained high into mid-December after the majors finally broke free of their narrow ranges.

Michelsen, Saxo Bank Michelsen, Saxo Bank: saw surging volumes in December

Foreign exchange is a market that has long confused players in other assets. And despite its acceptance as an asset, the way it behaves has remained an enigma to many. For much of 2006, FX has seemingly defied logic. What has been particularly striking is the fact that even though the market seemed mired in narrow ranges, with implied volatilities in the majors posting record lows on a regular basis, volumes have not only held up but even continued to grow. When the majors did finally break out of narrow ranges towards the end of November, the market reacted spectacularly. There was no huge gap in levels, which might have been mildly disappointing to those struggling to make their 2006 budgets, but there was a massive surge in volumes across the board.

Not surprisingly then, several trading venues reported record levels of activity. For EBS, November was the busiest month it has ever had, and as the company’s chief executive, Jack Jeffery, points out, what takes place on its screens is a fair reflection of what is happening in the broader market.

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