Forex Volatility Shot To Pieces, CAD Outperforms

With volatility shot to pieces, the consolation we have as Forex traders is that it's only going to get better this Tuesday, following the snooze fest in currencies as the US markets went for a long weekend in commemoration of Martin Luther King Day. Even if volatility is non-existent, have you analyzed what pairs show the clearest trend in the bigger timeframes? If not, today's report will dissect this information for you. Let's find out...

Quick Take

If it wasn’t enough with volatility shot to pieces in recent times, Forex traders had to navigate even calmer waters though Monday as the US markets (cash equities and bonds) were closed in commemoration of Martin Luther King Day. The Canadian Dollar attracted the most buy-side interest, followed by the US Dollar, in line with the slow money directional bias through this month of January. The Pound gave us some brief spell of volatility through the European morning hours, but the momentum never picked up further steam and the market ended rotating back up recouping all the losses. The Euro, the Yen or the Swissy were a snooze fest, with no action of note ahead of today’s BoJ policy meeting and Thursday’s ECB. Meanwhile, the Oceanic complex (AUD, NZD) moved in lockstep towards the downside, ending as the worst performing currencies.

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Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

Forex trading quiet as US markets on holidays: The currency market behaved very quietly in line with the depressed vol levels, even if this time, it got even worse as the US markets were closed on Monday for Martin Luther King day. Anyway you slice it, the Forex market is going through the most suppressed levels of vol since the early 1970s as the race to the bottom in interest rates by Central Banks continues.

The BoJ is scheduled for today, no changes eyed: The BOJ policy statement is due this Tuesday. As it’s been the case for some time, the expectations for any change in policy are very low, with a snooze fest eyed. At this point, the BoJ may still want to sit out this one to assess the impact of the extra fiscal stimulus by the Japanese government in order to offset sales tax hike from October last year. The BOJ statement is released between 02:30 and 03:30GMT, with Kuroda's press conference due at 06:30GMT.

BoC, ECB are next in line: The Bank of Canada will follow with its announcement on policy on Wednesday, while the European Central Bank will be the last to release its decision on Thursday. The number one thematic these Central Bank are likely to emphasize is the tentative evidence of a more stable global environment, with the US-China trade deal likely to anchor these views. Even the ECB, in its last minutes last week, mentioned that there are early signs of a slight pick up in inflation and growth potentially bottoming out in countries like Germany.

IMF more optimistic on manufacturing and global trade: In its annual world economic outlook report, the IMF trimmed 2020 global growth forecast to 3.3% from 3.4% previously due to a slight downward revision to a sharper-than-expected slowdown in India. However, what really matters, in line with the above thematic Central Banks are likely to focus on, the IMF notes that it sees tentative signs that manufacturing and global trade are bottoming out partially due to the US-China trade deal. The IMF sees risks less tilted to the downside than in October, even if it warns that the US-Iran tensions, social unrest and a flare-up in trade tensions are key concerns. The China 2020 growth forecast was upgraded by 0.2 bp, now seen at 6.0% (5.8% previously) while the Euro area 2020 growth forecast is seen at 1.3% (1.4% previously). The UK 2020 growth forecast is seen at 1.4% (unchanged).

Economic impact of the Australian bushfires uncertain: According to the Australian Treasurer Frydenberg, the full economic impact of the bushfires remains uncertain. In the short-term in may take its toll on businesses confidence and consumption, which may keep the RBA on guard. However, as a caveat, with housing and construction activity set to increase and a pick up in inflation nt to be ruled out, alongside more employment available during the recovery period, the RBA will have to manage these opposing forces. The focus by the market is whether or not the RBA ends up lowering the rates to 0.25% this year (currently at 0.75%), at which point, the talk of QE will intensify.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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