Currency Spot Barometer
EURUSD 1.3216 RANGE
GBPUSD 1.9666 RANGE
USDJPY 117.32 RANGE
USDCAD 1.1542 TREND
USDCHF 1.2062 BREAKOUT
AUDUSD 0.7866 BREAKOUT
EURUSD
Short-term vols backed off across the board for the dollar-denominated majors last week as the FOMC failed to keep the fundamental momentum going. Long-term vols have started to test the waters for a retracement, though they are still 1.5 points above the historical lows reported in October and November. Expectations for a near-term jump in the underlying EURUSD pair have similarly trailed off indicated by the implieds spread returning to par. Interestingly, hiccups in the long-term implied read shows a strong correlation to both sharp moves in the underlying to the upside and downside, suggesting market participants are evenly split on which course the next big trend in the pair takes. Before a direction is chosen however, either 1.3125 support or 1.3375 resistance will have to make way for momentum. Such a move could be in store as many big traders have closed the books for the year raising volatility conditions.
GBPUSD
The comparatively modest retracement in the GDPUSDs sizable run through the end of November has failed to lift both short and long-term implied vol, signaling traders are wary of a more momentous downtrend forming. In fact, following the pounds 260 point advance in the past few active session, the spread has quickly reverted to an even status as range-bound conditions solidify for the pair. In the past two weeks worth of price action, the GBPUSD has put in levels of both support and resistance at 1.9465 and 1.9850 respectively. As spot approaches either figure, short-terms should pick up with the increased risk of a break; but until either temporary figure gives away to market forces, long-term implieds will stay to the side until a new leg is decided.
USDJPY
Unlike its euro and pound equivalents, long-term vols have lost substantial ground in the past weeks time. This exaggerated change has noticeably formed at the same time underlying USDJPY has made a sharp move higher. This may imply that market participants are more heavily weighting their positions for a continuation lower. At the same time however, short-term implieds remain elevated in comparison to their long-term cousins. This could suggest that traders are preparing for big range days (like the 160 point rally on December 8th) that could quickly bring USDJPY back to 118.50 resistance or otherwise put the pair back on a broader downtrend.
USDCAD
The USDCAD pair has cleared yet another big, round figure in the move through 1.15; but the implied volatility derived from spot shows little momentum is behind the move. Though the long-term implied gauge is still nearly 1 percentage point above its relative low set three weeks ago, the levels are starting to sag. Furthermore, the spread between short-term and long-term implied volatility is hovering close to its turnover, indicating there are few amongst the masses positioning for a sudden rally or drop in underlying spot to dramatically shift the pair off its steady course. If spot continues to move towards 1.16 at a sluggish pace, long-term vols may continue to contract. On the other hand, if a downturn to the well-formed rising trendline at 1.13 rouses the more distant gauge, it could help to confirm that the market is favoring a return to the range that held the pair for nearly six months.
USDCHF
With the bottoming out in USDCHF, long-term implieds have seemingly rounded out their advance in response. Consistent with both the euro and pound, the longer-dated volatility read for the Swiss pair has started to slowly retrace its initial run, but with reserved steps. However, unlike the other majors, the reversion is not so clearly aligned with a single direction. This frees up the pair on directionality in terms of which way the next big trend will form. Whichever route spot eventually takes, the levels of both resistance and support seem to be clearly defined. A modest level of 1.21 comes up as a ceiling, but the big double bottom at 1.19 marks a more prominent floor.
AUDUSD
Aussie dollar vols have started to fall in line with those of their more liquid brethren. The relatively modest push in long-term implieds has once again started to form an initially convincing top. However, this scenario seems to exactly mimic the relationship between price action and implied volatility seen through October when a nearly 1.0 percent point drop in the long-term gauge had led to a comparatively modest 140 point retracement in spot. As is obvious from this chart, the pair went on to, not two weeks later, rally over three hundred points. Nonetheless, whether price and volatility are lining up for a repeat of history or a new downtrend is in the works, the consistently high level of the vols spread suggests a decision could be made soon.
