Continuing to drop to historically record levels, euro implieds remain suggestive of a range bound scenario. However, given the fact that components are at such extreme levels, our model continues to suggest a breakout in the near term as volatility in the market is likely to erupt. <For Full Story Look Below>
EURUSD
GBPUSD
Pound sterling volatilities moved in the same fashion as the overall market, with both implied components falling to lower levels. Breaking the 6.5% figure, implieds on the longer term have declined to levels not seen since right before the summer months. A time when trading hums along, the summer decline is additionally suggestive of a breakout scenario with the implied differential seemingly supported for the week. Subsequently, this has left barriers at the 1.9100 and 1.9500 figures, keeping the price action to a minimum. Looking ahead to the end of the week, an implied tick higher can be expected as key reports are estimated to be released higher, likely to give the price action a small boost. Included are the consumer confidence and housing price reports. With dollar weakness expected to continue, UK positive data may provide another test of the upside barrier.
USDJPY
In similar fashion to the rest of the market, Japanese yen price action has been overly rangebound as implied volatilities move lower to test the 7.0% figure. Although not at record levels, the last time the underlying currency was privy to such lackluster activity, the currency declined through key support on a sharp rebound in implied measures back in 2003. The same scenario looks to unwind here as similar facts surface in favor of the yen, namely dollar weakness. Until then, 118 continues to provide enough upside resistance with 116 likely to protect the lower boundary.
USDCAD
Amazingly, Canadian implied volatilities havent declined as much as the majors. However, the measure continues to remain underwater, with the differential remaining below the zero line as short term components have taken a back seat. Even the longer term implied measure remains downtrodden, dipping to make a test of the even 7.0% figure. The fact that the longer term measure has not shared the same sharp decline as the others leaves one to surmise a continuation of the recent channel that has prevented the underlying currency from establishing a definitive direction. However, with the differential thinly set below the zero figure, any fundamental catalyst at this point may assist in developing that bias. Nonetheless, for now, it remains buried between the 1.09-1.1250 barriers.
USDCHF
Implied measures reacted in similar fashion, as always, to euro implieds measures, dipping to record levels and keeping the underlying currency in a deadened environment. As a result, similar to the aforementioned majors, a breakout scenario is likely to accompany the current condition. However, technical barriers at the 1.2600 and 1.2300 figures are likely to keep fluctuations minimized while traders and the market await a fundamental catalyst to spark the flame under the shorter term implied volatilities.
AUDUSD
With the price action contained in a tight range, implied volatilities remain indicative of the current environment. Testing below the 8.0% figure, implieds on the longer term have declined in comparison to what seems to be a more supported differential, siding with the shorter term measure. However, noticing the slight tick higher in the longer term measure, the underlying currency may very well be suited for a breakout in the near term as the overall market seems extremely bored, usually a time when volatility is subsequently about to pick up. Should the scenario play out the current barriers at the 0.7450-0.7550 figures are likely to be exploited.
