Currency Spot Price Barometer Reading
EURUSD 1.2824 RANGE
GBPUSD 1.8889 TREND
USDJPY 118.02 RANGE
USDCAD 1.1382 BREAKOUT
USDCHF 1.2457 TREND
AUDUSD 0.7651 RANGE
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EURUSD
The change in short-term implieds was mixed across the majors through the past week, but the euro saw a notable rise in tune with the sizable rebound in the long-term vols gauge. The action in the underlying EURUSD has led to some interesting changes in the volatility reads, but a breakout scenario has yet to be confirmed. Recently, a number of key economic indicators and the proximity of major levels of support and resistance have boosted expectations that the pair is nearing a decision on a larger move. From the technical side, a falling trendline from June 5th's high has headed off a steep upward trend channel around 1.2900. Though the channel gave a little today, the spread had not responded with a positive move, suggesting predictions of a 1.2900 or 1.2700 breach are questionable.
GBPUSD
As was predicted last week, the implied pressure underlying the British pound led to a break lower in the GBPUSD. After marking a fresh one-and-a-half year high, the pair preceded to plunge 300 points in three days while taking out 1.8950 support in the process. However, as is interpreted in the implieds spread, the strength of this new trend is questionable. Though the long-term volatility indicator has turned higher, it has produced fake outs before - most recently in the final week of October. To confirm building momentum in a leg lower, spot would need to move through 1.8850 which has set up as temporary support. If the break is realized, a true trend would come with a steadily rising implieds spread.
USDJPY
Though the volatility environment was changing quickly in other currencies, the implied sentiment underlying the Japanese yen has gone no where fast. Like a few of its contemporaries, the yens long-term implied indicator has moved higher over the past week, but the extent of that move has been severely depressed. This tepid state in market forecasts has developed as underlying spot has bounced around in a range marked by 118.50 and 117.25 ends. Usually a relatively tight spread like this would evoke a potential break out read from the implied numbers, but this is currently not the case. Taking out immediate resistance would leave the 120 level as a formidable back up, while erasing 117.25 support leaves a rising trendline and moving average as reinforcement.
USDCAD
Unlike the euro and British pound, implieds derived from the Canadian dollar remain tepid. Looking at the historical relationship between the USDCAD and its implied vols over the past six months, the market expects the next big trend in spot to be higher. This was clearly displayed on November 1st when the USDCAD surged 110 points higher to take out its previous range. Given this suggested bias in the FX market, it was odd that the most recent rally to 1.1400 hasnt come along with a bigger move in long-term implieds. This implies that the technical double touch in spot, and 1.1460 high in July were expected to head off bullish intentions. On the other hand, a consistently rising spread over the past week may clue in a possible, albeit dubious, break.
USDCHF
Similar to the expectations motivating the British pound reads, the more distant volatility indicator for the Swiss franc has been swept higher this past week. Despite this rise in the higher time-frame read though, a substantial move has not developed over the past week. If fact, since peaking in mid-May, the steady descent in the indicator has developed along side the choppy advance in USDCHF. Instead, with the steady downtrend began in October maturing, there seems to be more trader confidence that a continuation lower is under way. This sentiment was further massaged with the failure to break the channel with todays spike higher. One caveat to the move however, is the erratic spread which would gradually rise if price action were to continue unfettered.
AUDUSD
Volatility indicators proved a reliable set of forecasting tools for the Australian dollar last week. With a breakout scenario on tap for the AUDUSD, the pair finally dismantled its 80-point range when it moved through 0.7680 and broke a reliable trend-channel in the process. Now feeding into a fledgling down-leg, long-term implieds are responding with a steady rise of their own. Taken in isolation, the change in spot price action and long-term vols would suggest that a full-blown trend is underway. However, these two necessary components are joined by the implied spread, which has not confirmed a confident change in market sentiment. As short-term implieds fail to keep up with their long-term counterpart, previous support levels like that at 0.7575 threaten to thwart uninterrupted bears.
