EURUSD 1.2509 BREAKOUT
GBPUSD 1.8674 RANGE
USDJPY 119.13 BREAKOUT
USDCAD 1.1390 BREAKOUT
USDCHF 1.2726 BREAKOUT
AUDUSD 0.7534 RANGE
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EURUSD
Only two weeks ago, long-term implieds had finally lifted off of their all-time lows, preempting the break below 1.2635 in the underlying EURUSD pair. Now, the more distant outlook on volatility is once again cooling as less impetus is seen from scheduled news events while 1.2500-support is further entrenched as the psychological floor for further pushes lower. However, price action may not be banished to the congestion seen through much of August and September. The market is still pricing in volatility for the longer term as the indicator is still above Septembers lows; but more importantly, the implieds spread has recently spiked lower. Looking at similar setups in the past, this situation often precedes an increase in price action in the near term.
GBPUSD
British pound implieds reveal little potential for any strong, sudden moves from the underlying currency pair in the near future. Much like the euro, long-term pound implieds have begun to once again trend lower, pointing to more subdued GBPUSD fluctuations. This aligns itself to the recent action in spot trading. After breaking the 1.8600 level, GBPUSD has failed to follow through with any sort of momentum. Now, with spot returning to its prior range, the vols spread reveals little in terms of a sudden move, much less a breakout. Looking ahead, implieds are likely to stay muted until the underlying reaches 1.8500 support or 1.8775 resistance.
USDJPY
With the most recent break, USDJPY now stands at critical levels with little room to maneuver; and the market is picking up on this. Though long-term implieds stumbled slightly over the past few days, the trend since the beginning of the month has been consistently higher. Further supporting the build up in risk premium from long-term vols, the spread between short and long-term implieds continues to broaden. Extreme gaps between the two often precede a strong move in the underlying as was evident in the first and second week of September. As the USDJPY approaches 120.00 or 118.00, should the vols spread widen in anticipation, the build up in positioning could lead to a quick and momentous breakout.
USDCAD
The oft range-prone Canadian Dollar is once again butting up to sizable resistance; and implied volatilities are pressuring for a potential breakout. Unlike the other majors, long-term implieds in the USDCAD have risen rather rapidly since bottoming out in late September. So far this rebound has tracked the 300-point advance in underlying spot. Now positioned just below the round 1.1400 level, the future of the implied volatility advance rests upon whether a break out or strong retrace will occur. In just the past few days, the vols spread has fallen dipped rapidly, but it is hardly at extreme levels. On the other hand, even if there is a sound move beyond 1.1400, resistance may be seen all the way through 1.1450. However, as the underlying builds to this level, implied volatility could balloon in anticaption of a big break that could open the doors to 1.1750.
USDCHF
In line with the break above the key 1.2600 handle, implieds rose last week but have since retreated. Since moving beyond this level though, daily ranges have measured on average 80 points, and volatilities reflect the tepid price action. However, according to the implieds spread, the outlook may be a little livelier. As the gap widens in favor of the longer time frame, expectations of a move could be in the works. This may come with dollar fundamentals as the key driver for the pair. Next weeks event risks are likely to settle on the Federal Reserves interest rate decision and the potential for more extreme rhetoric from key policy members.
AUDUSD
Aside from the short term pop in price action, the implied vol measure has remained relatively stable and still cellar dwelling compared to other major currencies. Even the differential has remained relatively inactive compared to previous measures, remaining just below the zero line according to our model. As a result, indications continue to purport a range bound environment even with the surprising upside test at the 0.7550 resistance ceiling. A major level, the technical barrier will likely play a key role in the upcoming week as inflationary data is the rising event risk for the week. Both producer and consumer reports are expected to strengthen further speculation of rate hikes by the RBA, but may be cut short on dollar economic data surprises.
