Short-term vols edged lower from the previous week, as a lack of big-name fundamental triggers and the uncertainty surrounding a mid-term election wicked expectations of big market fluctuations away from the market. For euro long-term implieds, the fledgling rise was quickly snuffed out this week, suggesting the underlying EURUSDs range will hold in the coming days.
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EURUSD
Short-term vols edged lower from the previous week, as a lack of big-name fundamental triggers and the uncertainty surrounding a mid-term election wicked expectations of big market fluctuations away from the market. For euro long-term implieds, the fledgling rise was quickly snuffed out this week, suggesting the underlying EURUSDs range will hold in the coming days. This range is now marked by a 1.2800 resistance and 1.2650 support. Another interesting development in just the past few days was the major flip in the implieds spread. There has not been a change of this magnitude in the short history we have here. Since the drop in short-term vols must have been greater than the concurrent fall in the long-term gauges, the market may see an easier path to the downside for EURUSD.
GBPUSD
Only one of two pairs to hold the distinction of a breakout potential, the GBPUSD continues to hold near precarious technical levels. From the volatility indicators, the weekly change was nearly identical to that of the euros. The decline in the long-term implieds gauge and sharp drop in the vols spread followed the recent correction in the underlying GBPUSD. This consistency across both long and short-term implieds suggests the market expects a break above 1.9150 would be harder to accomplish than an extended drop. Now with the longer outlook vols back near record lows, a break seems to be on the horizon. However, given the reaction in the underlying to the recent pound advance and the spread easing off of its spike higher, the market may already be showing its hand.
USDJPY
For the Japanese yen, the modest advance in the long-term vols in the last reading proved easy to correct. Touching off on new lows just yesterday, the longer horizon volatility read is showing the overwhelming short bias that is growing behind the USDJPY. Offering a uniquely consistent report over the past seven months, the steady fall in the Japanese yen has come with a steady decline in the volatility outlook. For comparison, the last time implieds moved considerably higher was back in April when USDJPY dropped nearly 990 points. A similar development in price could still be a ways off though as the long-term gauge continues to press to new lows and the spread is not revealing the extreme levels that usually precede a big turn. While the 119 resistance and 116.60 support levels loom large for technicians, a small break may be in order with a recent consolidation pattern coming to an apex.
USDCAD
A dramatic rise in Canadian dollar implied volatilities has reversed course as quickly as it developed. The drop is consistent with the USDCADs choppy trade over the past weeks worth of price action. Prior to this unfavorable turn in volatility, the implied spread had steadily climbed into positive territory as the long-term individual read jumped higher in as little as three sessions. Both developed around the 100-point rally on Friday, suggesting (like the euro and pound majors) market participants expect a bullish break for the USDCAD above 1.1450 would lead to a longer, more sustainable trend.
USDCHF
Swiss franc vols resembled those of the pound and euro. Retesting the record lows in the longer horizon volatility gauge, the correction the USDCHF has found little confidence in the market. One promising report however could be the spike higher, and subsequent drop, in the implieds spread. Such extremes have frequently resulted in a turn in underlying price action. As it happens, this swing higher in the read lines up with a turn over in USDCHF. In the past two days, since underlying price action has moved slightly lower, the longer-term implied indicator has begin to pick up once again. Though the volatility reads are not forecast an imminent breakout, if support just below at 1.2400 folds in any momentous move lower, the environment could change from range to breakout to trend quickly.
AUDUSD
Breaking from the mold the other majors seemed to be cast from, Aussie vols blazed their own path in the past week. Though the AUDUSD has formed a temporary range 0.7750 and 0.7675, both the long-term read and implieds spread continue to advance. This steady rise provides reasonable support behind the possibility of an approaching breakout and consequential follow through. Whether this comes at the expense of support or resistance is the more important question, and the vols reads seem to be offering their bias. During the steady 300-plus point advance in the AUDUSD through October the long-term implied gauge accelerated its own decline. However, just before the underlying found a top, the long-term implied read began its new leg higher while the spread jumped higher. Together, these indicators are generating greater levels of speculation that the path of least resistance is a longer decline in AUDUSD.
