As we head into the New Year, we take a look at the longer term volatility picture of the major currencies, starting with the Euro/US Dollar pair. Although given the short term fluster at the end of the year, markets are seemingly still in range bound mode with consolidation in the near term for the underlying price action....<full story below>
EURUSD
As we head into the New Year, we take a look at the longer term volatility picture of the major currencies, starting with the Euro/US Dollar pair. Although given the short term fluster at the end of the year, markets are seemingly still in range bound mode with consolidation in the near term for the underlying price action. Longer term implieds are reflective of this notion as the measure looks to have temporarily peaked, leaving some downside risk to fall below the 7% mark. Short term implieds have also come back, measuring back to a bid of 6.85%, lending to a narrowing of the spread differential. Still suggestive of a tepid market environment, ultimately, traders can expect a rather dull opening to 2007, set aside an unscheduled external event.
GBPUSD
The British pound volatility environment rings similar to the Euro counterpart, as the price action looks ready for a bout of consolidation heading into the yearend. Confirming the notion is a dip in the longer term implied measure as the differential pulls back on similar undertones. As a result, following the Thanksgiving frenzy, and largely dependant on the next Bank of England decision, the major currency pair looks to be consolidating between 9800 and 9500 handles in the short term. The notion is also likely to keep the longer term picture tepid till a breakout of the resistance at 1.9800 raising the differential to above the 0.50 point barrier.
USDJPY
Still remaining low, implieds on the Japanese yen side of things are likely to keep the underlying currency action restrained in the near term. Longer term visualization is additionally confirming as the longer term volatility measure has breached the 7% support to the downside. Subsequently, the short term implied pull back has contributed to a narrowed spread and will likely keep the underlying currency in consolidation between the longer term 120 and 115 trendlines. However, should a fundamental catalyst emerge through the likely Bank of Japan decision, sentiment is likely to shift adding support for the short term implied.
USDCAD
Reaching back to historic lows, the USDCAD currency pair volatility outlook remains tepid as the currencys price action remains trapped between 1.1700 and 1.1000. The longer term measure continues to fluctuate at a sub 7% figure as the spread differential has pulled back and remained lower below the 0.50 point figure. Both are confirming the notion of longer term consolidation in the near term with the pair slowly climbing to the top of the aforementioned range. Should a fundamental catalyst arise, a spike in activity maybe just what the doctor ordered. However, until that time, with the differential still lurking below the 0.50 point figure, the price action will remain incremental and lackluster.
USDCHF
Set aside from the near term spike in both longer and short term measures, Swissie implieds have declined over recent days, leaving the underlying spot rate in limbo. A common theme among the major currencies, the sentiment is purporting a range bound scenario for the Swiss franc as well, keeping the underlying in a longer term restriction between 1.2300 and 1.2000 in the near term. Short term implieds have limited the fluctuations, as the spread dipped from the recent spike high of 1.60 points as the longer term has declined through the 9% figure. Ultimately, range bound scenario looks imminent until a catalyst provides the impetus to break through near term trendlines, or in any case a move in the Euro spurs correlative movements.
AUDUSD
Australian longer term volatility pictures look grim with the longer term measure dropping to well below the 8% level. However, in contrast, the short term volatility measure has steadily risen, purporting a likely build into next year. However, at this point, a catalyst needs to be provided before any real confirmation can be ascertained. Coming back from the spike to 1.50 points, the differential looks to be building into the 1 level, rising above the 0.50 point figure on the implied spread. Notably, the build up coincides with a similar incident in 2004. At that time, the tick higher in implieds continued the previous directional bias at the time.
