Currency Spot Price Barometer Reading
EURUSD 1.2933 RANGE
GBPUSD 1.9690 RANGE
USDJPY 120.63 RANGE
USDCAD 1.1730 BREAKOUT
USDCHF 1.2475 RANGE
AUDUSD 0.7865 RANGE
EURUSD
Short-term implied volatility has picked up across the board for the majors, even though the vols gauges are offering a murky outlook for activity in the days ahead. For the euro, the gauge of implied volatility continues to move lower in tandem with the slide in spot action. However, since EURUSD bounced off of the 1.29 level, the expectations of a move over the longer-term have also risen. This may suggest the solid support seen around the even level in underlying spot, will act as a spring board as event risk from fundamental releases encourage breaks in either direction. On the other hand, the contracting spread denotes a different feeling. As the spread between long and short-term vols stabilize, the premium for a breakout looks rather sparse.
GBPUSD
Like the euro, the outlook for volatility in the British pound has settled over the past few weeks. Since marking its high in cycle high in early December, long-term implieds have progressed lower. In the past week though, the same gauge has risen nearly 0.5 percentage points. This rebound in forecasted price momentum has followed a 400-point rally in GBPUSD. Conspicuously, this is the same set up seen two weeks ago when the drop from 1.9750 encouraged the long-term gauge to round higher. Whether or not this recent pick up follows the same pattern or not will likely depend upon price action around 1.9750 resistance. A break above leaves few technical nets and premium for price protection would likely jump. Alternatively, the spread offers only a modest hint of a possible break.
USDJPY
Technicals proved a better breakout gauge for the Japanese yen last week, as a build up in bidding pressure under USDJPY spot led to a break of major resistance seen at 120. However, despite the convincing move, long-term implieds have not jumped in head first. Since bottoming out near 5 percent in the second half of December, the indicator has not even picked up a full percentage point. Whats more, even as USDJPY spot moved through the 120 level, longer-term vols barely budged. This trepidation suggests a continuation higher could be hard fought. On the other hand, the implieds spread has supplied relatively accurate signals for short-term breakouts recently. With a questionable BoJ rate hike on deck, the most recent positive spread could foreshadow yet another near break.
USDCAD
After being locked in a steady trend for over five months, USDCAD seems to have finally found a convincing ceiling. Yielding to the psychological 1.18 level, spot has spent nearly two weeks testing the waters. The pause has taken its toll on long-term implieds as the gauge slipped more than 0.75 percentage points. The more important take away from the volatility reads, however, is the growing spread. From a negative 0.6 percentage spread, the differential has climbed to a positive 0.4 percentage point spread, suggesting market participants are positioning for a potential breakout. Should the ultimate move be through 1.18, the steady rise in the long-term gauge will likely pick up where it left off, while a turn lower will conversely leads to another steady decline in predictive volatility.
USDCHF
Though USDCHF has taken out round number after round number, long-term implied volatility refuses to surrender to the possibility that this six-week long move will evolve into a broader trend. Since rallying on the collapse in underlying spot price back in the final weeks of November, the longer-termed implied volatility read has cooled significantly. Now at 7 percent, the gauge seems to have found a bottom as spot finally finds resistance. USDCHF has recently entered congestive range trading below 1.25. This range has produced a week of the smallest daily ranges seen in months. At the same time, the flat implied spread gives little indication that speculation of a sharp move in the coming days is not finding much traction.
AUDUSD
Implied volatility derived from the Australian dollar-based major is giving little indication of either a looming breakout or the beginnings of a new trend. The differential between short and long-term implied volatility has fallen to a 0.4 percentage point deficit as AUDUSD sees few reliable levels of support or resistance. Long-term implieds have similarly floundered as recent price action has curtailed the possibility of a new downtrend forming after the sharp, 200-point drop in the opening week of the year. Both levels of implied volatility will likely stagnate until spot approaches 0.7775 for a possible breakdown or a new leg in the fledgling uptrend calls out momentum.
