Euro implieds recovered higher after last week?s slight dip lower to 5.35 percent. Currently, longer term implieds are trading significantly higher at 5.87 percent, helping the short-long differential to trade above the zero line at 75 basis points wide. Key failures at the 1.3800 figure helped to boost volatility over the course of the week, in addition to so called carry trade liquidation that loomed heavy over FX markets.
Click Here For PDF Including Charts
Euro implieds recovered higher after last week?s slight dip lower to 5.35 percent. Currently, longer term implieds are trading significantly higher at 5.87 percent, helping the short-long differential to trade above the zero line at 75 basis points wide. Key failures at the 1.3800 figure helped to boost volatility over the course of the week, in addition to so called carry trade liquidation that loomed heavy over FX markets. With upcoming event risk in the form of the European Central Bank decision, implieds may receive a boost. As a result, our model continues to purport a trend continuation result, with plenty of action awaiting the Euro enthusiast.
Sterling volatilities had a pretty impressive week as market volatility helped to boost the continuation of the rising trend in the underlying pound sterling. Now trading at 6.20 percent, longer term implieds, much like Euro implieds, marched higher during the week on liquidation of riskier assets. Market liquidation called for selling pressure in pound crosses, notably GBPJPY, which helped the sterling major to fall through significant support and increase implied activity. Notably, the short-long differential has pared back a bit as the short term condition is being suppressed ahead of the Bank of England release later this week. Although the market is pricing in a no decision, participants will be watching for both the decision and US employment reports which will keep the trend continuing. Key levels reside at the 2.0300 support figure.
Volatility in the Japanese yen was supported yet again on the week, as predicted by our model. The decline further helped to support implieds on the longer term to valuations of 9.75 percent compared to last week?s 7.87 percent mark. Short-long spreads have widened, inching closer to a record at 1.45 basis points wide compared to last week?s 1.03 basis points. Although there may be some room left for the currency to move, suggestions are now turning to potential consolidation as readings are approaching extremes. As a result, key levels that the market will be watching are the 118 and 118.50 figures. A break lower would completely eradicate any notions of consolidation, pushing the model?s reading to a record above 10.5 percent.
Following last week?s leveling off, the USDCAD boost over the week has supported higher valuations in the longer term implied picture. Now trading higher at 8.30 percent, longer term volatility is significantly higher against he 7.50 percent in the previous week?s report. Nonetheless, the currency pair remains in a longer term range bound scenario, as measured by the assessment. Incidentally, the short term pop in the currency has helped to boost the short long differential to trade 70 basis points wide compared to last week?s 13 basis points under the zero line figure. With the US employment report expected this week, the 1.0700 resistance figure will prove to be pivotal in helping to either break or contain the directional bias.
Implied volatilities skyrocketed over the course of the week, rising to 10.30 percent compared to last week?s more timid 8.45 percent and within the parameters of our model. Now nearing a record, longer term implieds were boosted by the massive slide in the AUDUSD as a result of the carry trade liquidation over the course of the week with resistance sitting pretty just below the 0.8800 figure. Subsequently, the increase in activity helped to bolster short term implieds, raising the spread to trade 1.20 basis points wide compared to the -0.05 basis point trade last week. With event risk likely building to the Reserve Bank of Australia decision, the momentum may wane a bit, helping the currency into consolidation for the moment.