Forex news

We talk a lot about how volatility creates opportunities for traders. But what happens when there’s only a little market movement to take advantage of? Find out what to trade when there’s low volatility and what the best low volatility trading strategies are.

The US dollar handed back its post-FOMC gains despite surging bond yields, which saw USD/JPY form a 2-bar reversal day after a false break of 148. And this leaves the potential for a deeper pullback towards its 20-day EMA before its trend resumes (keep in mind Japan's CPI report and BOJ interest rate decision is in focus today).

Markets are always on the move, but the speed and size of price changes is what creates excitement (and risk) for traders. So, let’s take a look at how to trade volatility, and which markets experience the highest levels of volatility.

If we see a daily close below 1.0635 support, it would open the door for another leg lower in EUR/USD...

Earlier, the Bank of England announced interest rates would be kept unchanged in a surprise move (not to us) and the pound took another plunge, dropping below 1.2250 in initial reaction. The BoE’s policy statement was somewhat hawkish and the MPC split. This means that the next few policy decisions could be close calls, especially if inflation doesn’t come down fast enough.

At the most basic level the Fed delivered what was expected; another policy pause with the potential for further hikes. The opening paragraph tipped noted an economy which is “expanding at a solid pace” with a slower but “strong” job growth and elevated inflation. There’s nothing remotely dovish there. And then we look at the numbers…

The EUR/USD and other dollar pairs will be in sharp focus for FX traders as the attention turns to the upcoming Fed decision in a few hours’ time. No rate hike is expected, but the market is pricing in about even odds of another rate increase before the year is out.

The USD is on the cusp of flipping to net-long exposure among G10 currencies according to data compiled by IMM (International Monetary Market). And despite the resurgence of US dollar strength, oil continues to perform well and market positioning is looking increasingly bullish for the weeks or even months ahead.

Gold prices enjoyed their best day in 13 on Friday and rallied from the 200-day EMA, after finding support above 1900 on Thursday. Yet key resistance levels loom overhead meaning we'd prefer to see a pullback before reconsidering longs ahead of key events this week including the FOMC meeting.

Welcome to another edition of Forex Friday, a weekly report in which we highlight selected currency themes. In this week’s report, we will focus the US dollar, EUR/USD and GBP/USD ahead of next week’s key events: FOMC and BoE rate decisions.

The ECB delivered a relatively dovish hike whilst US data once again outperformed. And that was the perfect catalyst to send EUR/USD to a 4-low (and speculative positioning suggests there may be further downside to come). WTI crude oil rose above $90, and it appears to have more fuel in the tank to perhaps head for the October high.

Prior to today’s ECB meeting, there was a bit of uncertainty whether the ECB would hike or not, with markets pricing in a 65% implied probability of a 25-bps hike. In the end, it went ahead with the rate hike, lifting the main refinancing rate to 4.50% from 4.25% previously. But the euro nonetheless fell sharply. This is because the ECB strongly indicated that we have reached a terminal interest rate...

With an ECB interest rate decision and three US data points sandwiched in between, we could be in for an interest hour's trade on EUR/USD. And that likely explains why the 1-day implied volatility band is more than twice its 20-day average.

US CPI was higher than expected, although bond yields pulled back in what could be a sign that investors are more concerned over a recession compare with a 'soft landing' for the US. But if yields continue to pull back it might take some steam out of the dollar rally. And that could help AUD/USD, which has remained reliant to breaks below 64c.

Today’s latest data once again highlighted the growing threat of stagflation in Europe, with UK economic output and eurozone industrial production both falling more than expected. High levels of inflation and low growth, combined with downbeat business and consumer sentiment, and not to mention rising borrowing costs, all make for a tough economic climate for investors to navigate through.

USD/JPY was rising on the back of USD strength earlier in the Asian session, with USD/JPY seemingly trying to close its large weekend opening gap ahead of US CPI data. GBP/AUD has also caught our eye as its 3-wave retracement is trying to form a base around a support cluster.