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EUR/USD
Short term volatility rose in the week and
currently hovers directly below the more stagnant longer term component. As a
result, the implied vol spread has narrowed once again following the temporary
spike above our topside band. Suggestive of further ranging conditions in the
underlying spot, the spread looks to be dipping back into neutral territory,
leaving plenty of room before any breakout considerations can muster. As a
result, although further downside may exist for the underlying spot, conditions
will remain relatively contained.
GBP/USD
Both long and short term volatilities rose on the
week. However, notably, short term volatilities rose almost 4 times long term
implieds resulting in an almost zero point spread. Reflective of this is the
visual plateauing currently forming in our indicator above. Additionally, the
change in the spread was the most of all the majors and reflective of the deep
slide witnessed in the underlying spot. Now with the differential dipping into
neutral territory, similar to the euro implieds, the currency pair looks to
establish a range bound trading environment. However, with pound sterling
approaching support at 1.7500, near term spikes in volatility should not be
completely ruled out.
USD/JPY
Long term implieds now hover below short term
vols after a noticeable shift in the underlying. With short term vols rising the
second most against the other majors, coupled with stagnant longer term implieds,
the spread has turned incrementally higher. As a result, conditions look to
remain chock full after the breakout scenario created the week before. However,
notably visual, the spread differential is approaching the upside resistance
band, suggestive of a shift in conditions, as the bands narrow slightly. One
could infer a near term spike possibility before spot settles. Currently the
currency pair resides at a pivotal point after breaking through resistance at
113.00.
USD/CHF
In similar fashion, Swiss short term volatilities
rose on the week to pull within striking distance of the longer term
counterpart. Long term implieds remained relatively unchanged while short terms
soared. As a result, the current differential nears a zero spread and is and
visually plateauing after testing our topside ceiling. Sporting the biggest
spread change of all the majors, our indicator looks to be creeping into neutral
territory. As a result, range bound conditions look to persist even as the
currency moves higher. Notably, the underlying looks to test resistance at
SFr1.3000. A break above would surely see near term vols spike and a retest of
our upper band.
USD/CAD
Canadian dollar volatilities remained relatively
unchanged for the week. Short term implieds rose incrementally and are now even
with longer term vols offering a complete zero point spread as the differential
flatlines in neutral territory. With the underlying currently hovering
formidable support above 1.1700, the market may be set to witness another move
as both our bands narrow, closing in on the implied differential. With that
said, a break below the current floor could push short terms higher and test our
upper band.
AUD/USD
Bucking the overall trend, Australian dollar long
term vols actually dipped in the week as short terms moved higher up.
Subsequently, this created the narrower spread this week compared to last week’s
snapshot as our differential continues in neutral territory. The bands have
additionally narrowed, suggestive of a near term spike in short term vols.
Currently, with the spot hovering the 0.7550 support, penetration below the
floor would contribute significantly to the aforementioned notion.
Richard Lee
Richard Lee is a Currency Analyst at Forex
Capital Markets. Employing both fundamental models and technical analysis
applications, Richard contributes regularly to DailyFX, Yahoo Finance and Comtex.
Prior to joining the research team, Richard was one of the senior instructors
for the FX Power Course, teaching thousands of traders the basics of currency
trading, technical analysis and how to implement trading strategies. He has
extensive experience in trading the spot currency markets, options and futures.
Richard previously traded FX, equity and equity derivatives for four years as
well as work for a private equity consortium before joining FXCM.