FX Update: EURUSD volatility continues to wilt

Otmane El Rhazi : Draghi was out yesterday talking up the risks of low inflation in the Euro zone, as he saw the risks of low inflation causing consumers and businesses to delay purchases. EURUSD certainly didn’t react very much, as the marginal new lows in the wake of the EU parliamentary elections were mildly rejected and the pair drifted higher as the world’s two major trading centres (London and NYC) were on holiday. Elsewhere, the USD is a shade weaker and the action has been so range-bound that it is hardly worth discussion.

Looking ahead
It doesn’t look like this market has gathered a lot of conviction to do anything at the moment. It will most likely  lose its nerve as we have hit new record highs again in the S&P500 and the German DAX lately, and volatility may pick up. EURUSD may have a go at the all-time low in my 50-day ATR measure, well below 70 basis points in the meantime, making life tough for short term traders.
Elsewhere, the action is equally moribund, with GBPUSD caught in limbo between the 1.6900/25 resistance and the 1.6750 support. The JPY crosses avoided a meltdown last week, but have a lot of wood chop to shift the momentum back to the bullish side, and in general, their performance, given strong risk appetite, is underwhelming. USDCAD is perhaps one of the more interesting pairs as we are scratching at local lows. (more below).
USDCAD
USDCAD is pushing down on those lows of early this year below 1.0850, and could test to new levels, though it will be interesting to see if the market decides to scoop up the pair ahead of the 200-day moving average, which is closing in on the 1.0750 area. Strong crude prices are a contributing factor as we’re close to posting new highs in crude oil for the spot oil price and forward contracts are posting all time contract highs. CAD bears might want to see the crude rally easing/reversing before expressing a weak CAD view.
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