Don’t confuse liquidity gaps with level of turnover. We have had a few days last week where hourly turnover in the EUR was at record levels and these levels are only going to increase. When conditions are fine, massive turnover will continue.
What’s of more interest to me is what happens when conditions aren’t fine. When the market is caught heavily on one side of a trade and receives a sudden shock (like the SNB). Bank dealing and prop desks aren’t there any more in any sort of numbers to pump liquidity in when the proverbial hits the fan. A big level will break, or big news will emerge, and we will see markets gap 5 times more than we’ve been used to. Where in the past bargain hunters would have entered a market 80 pips after a small black swan event, now they will wait for 400 pips, and where the market used to move 300 pips on a massive shock, now we can expect 10/15 big figure gaps!
The real danger trades for mine at the moment in the FX market are USD/JPY and AUD/USD which both could retrace extremely sharply at any time. Of course. as always, getting the timing right is the only thing that matters.