EURUSD RANGE
GBPUSD BREAKOUT
USDJPY RANGE
USDCAD RANGE
USDCHF BREAKOUT
AUDUSD RANGE
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EURUSD
Long-term implieds finally corrected higher last week, while the vols spread moved into positive territory for the first time in nearly a month. This sudden rebound in volatility comes on the back of the steady dollar sell off that has recently brought the EURUSD through solid resistance that was held at 1.2700. Now that the pair has cleared both the 1.2650 and 1.2700 figures, there are few major levels to set up another breakout until the ground to 1.2900 or 1.2500 is covered. This leaves the benchmark pair in a state of range trading, which is confirmed by our implieds indicators. With long-term implieds rising, expectations that a trend will form are growing. However, the spike in the rate differential has in recent history come hand in hand with a turn in spot, so the trend may not be here yet.
GBPUSD
British pound implieds, like the euros, have also turned with some positive momentum. The long-term indicator has picked itself off of recent record lows, but the rebound is still young yet. This confidence in a longer-developing move has come from an over 500-point advance in the GBPUSD that has brought the pair to test the one-and-a-half year high around 1.9145. Given this heavy level of resistance, a breakout scenario is forming; but it may not necessarily be cluing in a move higher. The steady rise in the vols spread is still relatively low, but spot is under pressure. This could mean a sharp retracement is in order, but with the spread and long-term implieds moving higher, markets are pricing in the probability of a sizable move in the coming days.
USDJPY
Though the Japanese yen was making headway of its own, the implied volatility underlying the pair was not indicating the same outlook for volatility as the pound and euro. In fact, the biggest move in the recent leg down coincided with a fresh low in the long-term implieds indicator. This most likely suggests that the market is not confident that the recent 235-point drop in the USDJPY is not the beginning of a longer trend down. However, as the implied spread moves higher into positive territory, a premium is being placed on the potential for further near-term moves. Volatility will be monitored around 116 support and immediate resistance around 118. On the other hand, if a momentous break below 116 can be achieved, expect the market to show more faith in a USDJPY turn lower and the long-term implied indicator to turn higher.
USDCAD
Canadian dollar volatility has picked up off its own recent record lows over the past few days, though confidence behind the development is shaky at best. Since the swing high around 1.1400, and subsequent retracement, long-term vols have plunged. This suggests that the market believes the next extended leg will likely be found on the upside. Taking this longer-term bias into account, the more distant outlook for implieds will likely continue its trend lower unless significant progress can be made around 1.14 resistance level. With the steadily rising implieds spread however, its seems market participants are favoring short-term moves rather than longer, drawn-out trends; suggesting the 1.14 level could be difficult to surpass.
USDCHF
Similar to its American and British brethren, Swiss franc vols suggest a bigger move could be in the works. In the past week, the franc has fallen over 250 points against its US counterpart encouraging traders to accept the possibility that the move could be extended further. However, like most of the other majors, the support for such a development is still in its fledgling stage. Now, with 1.24 support coming under pressure, the validity of a further move lower is coming under strain. In the last four sessions, the momentum behind the descent has fizzled. If 1.24 is broken, an extension to 1.22 would likely bring long-term vols much higher. No matter which way spot moves though, the steady increase in the vols spread suggests action will pick up in the coming days.
AUDUSD
An impressive rally has done little for Australian dollar implied volatilities. In the past three weeks, the AUDUSD has rallied nearly 350 points, the biggest consistent move since May. Despite this though, long-term vols continued to march to new record lows. It wasnt until Tuesdays break of 0.77 that the market began to believe that the run could be the real deal. The next hurdle for spot and implieds in the days ahead is the 0.78 swing high set back in early May. Representing resistance going back to June of 2005, this level will need to be taken out for market participants to consider a solid trend is underway. Even the vols spread is offering little forecasting ability. Though short-term implieds continue to outpace longer-termed ones, it is generally a one-sided effect of the distant vols steady drop.
