On weeks like this, where FX markets have been uninspiring, I can understand why traders attention will lie elsewhere, for example, on the recent volatility seen in cannabis stocks or cryptocurrencies. A chart I shared earlier this week, helps emphasise just how quiet FX markets have been, as option implied volatility hovers around recent lows. In turn, this has seen key crosses such as EUR/GBP trade within its tightest weekly range since June 2007.
A large factor at play for the subdued trading conditions in FX has been the holiday-thinned trade stemming from Asia, while a lack of data releases and also the sense that markets are somewhat frothy at current levels has played its part in the sideways price action. Thankfully, next week will see a step up in economic data releases, most notably the February global flash PMIs with ECB and FOMC minutes also scheduled. Find out more in the global risk event monthly calendar.
Subdued Currency Volatility Prompts Sideways Trading
Looking at the table below, FX implied volatility does remain relatively subdued, albeit there has been a slight pick up in GBP vols. Alongside this, risk reversals on the 1-week tenor are also slightly skewed in favour of calls, given the recent break above key topside levels in GBP/USD. Although, while the pair has eased a touch from the mid-1.38s, dips are likely to be bought with support situated 1.3750-60 and the 20DMA at 1.3708.
Elsewhere, the Australian Dollar will be in focus with the latest jobs report scheduled, a key factor for the outlook of the RBA’s monetary policy and thus prompting a pick up in vols. AUD/USD 1-week ATM break-even straddles imply a move of 76pips(meaning that option traders need to see a move of at least 76pips in either direction in order to realise gains).
CURRENCY VOLATILITY TABLE
Source: Refinitiv, DailyFX