The movements in foreign exchange markets have become slow, very slow. There is a dearth of volatility that is becoming worse. Surprisingly enough, volatility was somewhat higher in August than in September and October. And the month of November is one of the worst, despite top tier events.
Some currency pairs are better than others. Yet EUR/USD, the world’s most popular currency pair, is one of the worst. The week is nearing its end and the total weekly range of the pair currently stands at around 100 pips, from a low of 1.1555 to a high of 1.1655. The previous week was even worse, just around 90 pips. Sure, the one before that saw the ECB meeting and a range of 262 pips, but that was the exception, not the norm.
USD/JPY had a range of around 163 pips this week but 146 before that and 120 previously. Is this a trend? It takes a lot of wishful thinking to believe that.
GBP/USD is know as a more volatile pair and the excitement around the BOE and Brexit should have triggered even greater movements, right? Well, this week sees a range of 120 pips, the BOE week had 280 pips in the bag and the previous one 210. So even a more nervous pair in its most exciting week saw only 280 pips.
Are commodity currencies better? USD/CAD had weekly ranges of 250, 220, and 300 pips, so it’s a bit more consistent. AUD/USD saw 73, 67 and 210 pips in an extraordinary week beforehand, but this was the exception, not the norm. NZD/USD had an exciting fall 3 weeks ago but then fell asleep once again.
These not-really-impressive weekly movements do not mask intraday action. Some days see a range of a few dozens of pips, without any drama.
Less drama, fewer opportunities
Many forex traders are on the lookout for a breakout: buy high and sell higher. Or conversely, sell low and buy even lower. Breakouts are far and few between. And even if you prefer the range, there is precious little price action within these ranges.
And on a more personal note, the lack of action makes writing about forex much more frustrating. Using words such as listless, comatose, in range, calm, wait and see, etc. is certainly, well, too calm.
Why is volatility so low?
There are many reasons, ranging from huge liquidity supplied by central banks, low interest rates, and a lack of dramatic crisis to name a few. The huge political dramas of 2016, Brexit and Trump, have caused big spikes around the events. However, while those same political stories continue playing out and remain fascinating, markets are not moving too much.
To be fair, the absence of volatility is not unique to forex but is also evident in stock and bond markets.
Will volatility jump again?
In theory, long periods of volatility serve as the “calm before the storm”. Markets were quiet before the great financial crisis of 2008. The carry trade worked perfectly well until it didn’t. EUR/CHF was very stable on top of the SNB peg until they removed it and all hell broke loose.
Yet it is hard to see a breaking point for volatility. The world is a messy place, but as aforementioned, the political drama does not translate into market turmoil.
So, the question at the top remains open: will forex volatility ever return?
What do you think?
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