The implied picture improved on the week, with the short-long differential moving higher to trade just 5 basis points wide compared to last week?s 15 basis point dip below the zero line. The move seems to have been purported by the decline below the 1.3800 figure in the Euro towards the end of the week as short term volatility jumped from the summer doldrums.
Click here for pdf including charts
[B][U]EURUSD[/U][/B]
The implied picture improved on the week, with the short-long differential moving higher to trade just 5 basis points wide compared to last week?s 15 basis point dip below the zero line. The move seems to have been purported by the decline below the 1.3800 figure in the Euro towards the end of the week as short term volatility jumped from the summer doldrums. Nonetheless, with the longer term component remains trading slightly higher than last week?s 5.30%, with trend continuation remaining the underlying theme. As a result, key technical levels at 1.3700 and 1.3675 will prove to be formidable support, with a break lower sparking activity in the underlying. Upcoming event risk lies in the IFO survey this week.
[B]
[U]GBPUSD[/U][/B]
Sterling implieds pulled back in the long term component compared to Euro counterparts, as the short-long differential improved for the week. With the longer term measure now trading 150 basis points lower on the week, the spread improved on the near term end, rising to trade just 5 basis points below the zero line, compared to the 38 basis point drop in the previous week?s spread. As a result, the volatility model remains suggestive of a continuation on the underlying sterling heading into next week?s rather major event risk. Scheduled for later in the week, the Bank of England decision will surely set the tone for the currency in the intermediate term, helping to inject further activity in the currency and its corresponding crosses.
[B]
[U]USDJPY[/U][/B]
Implied volatilities have jumped this past week for the Japanese yen as the pair broke through key support, and out of longer term consolidation. Taking on the 122.00 and 121.00 trendline support levels, the USDJPY major has dropped on what seems to be some liquidation of the “carry trade” notion. As a result, longer term implieds jumped a whopping 675 basis points, taking the short-long differential higher to trade a full percentage point above the zero line. With the upcoming event risk being consumer prices, implieds (and subsequent price action) may have a ways to go and continue the recent spate of higher activity.
[B]
[U]USDCAD[/U][/B]
Although some activity in the Canadian dollar boosted implieds on the week, the overall picture remains a ranging one for the commodity dollar bloc member. The short-long ratio has declined on the week, dipping to trade 13 basis points below the zero line compared to last week?s 20 above. The longer term measure has also come back a bit, falling to trade at 7.5 percent compared to 7.7 percent in the previous week. Subsequently, relative calm should be in the picture for the USDCAD currency pair till the release of the economy?s GDP report early next week with traders continually eyeing the 104.00 support trendline.
[B]
[U]AUDUSD[/U][/B]
Implieds have remained relatively positive for the Australian dollar as the longer term implied picture has vaulted higher by 38 basis points to trade at 8.45 percent compared to last week?s 8.075 percent. Subsequently, weighed by declining short term volatility, the short long differential has pulled back some, now trading 5 basis points below the zero line. Ultimately, the model remains suggestive of further upside in underlying activity, which isn?t a surprise given the record levels of the currency over the past week. Consolidation here would likely support a temporary shift into a range bound scenario. However, gauges are set for further activity once short term barriers are broken.
