Next week's liquidity turning point: the year-end holiday season ends, and global markets are about to recover.

The “calm” in the year-end market is about to end. Danske Bank foreign exchange and interest rate strategist Jens Naervig Pedersen pointed out in a recent report that global market liquidity is expected to improve significantly next week. What does this mean for traders? Trading costs may decrease, market volatility could increase, and both opportunities and risks are brewing.

Why is liquidity so thin this week

There are two main reasons for the low market liquidity during the year-end period. First, many market participants are on holiday or have closed positions and exited the market. Second, during the New Year transition, institutional investors generally adopt a wait-and-see attitude. This leads to reduced trading volume, wider bid-ask spreads, and sluggish market reactions.

This is especially true for the crypto market. Year-end is usually a period of financial consolidation, but it is also a time for crypto market participants to adjust their annual positions. Low liquidity means larger slippage for large trades and relatively increased market influence for small funds.

Why liquidity will rebound next week

According to the report, the core driver of liquidity improvement next week is the dense release of economic data. Specifically:

The release of these data will activate market participants’ trading willingness. Institutional investors will reassess their positions, traders will adjust strategies based on the data, and market liquidity will naturally rebound.

What this means for traders

Liquidity improvement is a double-edged sword. On the positive side, higher liquidity means lower trading costs, easier execution of large trades, and more efficient market pricing. For traders looking to adjust positions or establish new ones, next week is a better opportunity.

On the other hand, liquidity rebound usually accompanies increased volatility. The release of economic data may trigger rapid market adjustments, especially if the data exceeds or falls short of expectations. The crypto market’s sensitivity to macroeconomic data is rising, and reports like Non-Farm Payrolls often provoke significant market reactions.

What to watch for next

The key next week is to observe the specific content of the economic data. Non-Farm Payrolls and ISM data will directly influence market expectations for the Federal Reserve’s future policies. If the data shows the economy is more resilient than expected, it could push up interest rate expectations; if the data is weak, it may trigger risk-off sentiment.

Changes in these expectations will gradually transmit to the crypto market through liquidity improvement. Therefore, next week is not only an opportunity window for liquidity rebound but also a critical period to closely monitor macroeconomic data.

Summary

From the subdued liquidity at year-end to the expected improvement next week, this transition reflects the natural shift of the market from a consolidation phase to an active phase. For traders, next week is both a better time to execute trades and a period to beware of increased volatility. The key is to closely follow important data such as the January 9 Non-Farm Payrolls report, as these will directly determine the market’s next direction.